Disclaimer: I am not an attorney and this article is not intended as a substitute for advice from the appropriate legal, zoning, financial, construction and/or tax professionals. This information is provided for educational purposes only and is made without warranties or representations

There are a lot of different ways that properties hit the market. Sales by owners, sales by brokers, and sales by banks from foreclosures; they can all present opportunities to purchase properties at just the right moment, for just the right price, if you keep a lookout.

One possible avenue for purchasing a property, especially if you know what you want, have funds on hand, and don’t mind slightly off-the-beaten-path means of shopping for listings, is probate sales. What are they, and how do they work in San Diego? More, are they worth pursuing as either a buyer or a seller, and what is the context they occupy?

Read on to learn more.

What Are Probate Real Estate Sales?

Probate courts are specialized courts that handle a lot of types of court-related oversight. Most of the time, this involves the execution of wills, the management of conservatorships, and other kinds of management of individuals or their estates.

When an individual dies and they own property – not just real estate, but any property – that property needs to go somewhere. If the individual had a will, the terms of the will are handled by an executor, who could be a prearranged lawyer or could be someone appointed by the probate court.

In cases where the deceased individual has outstanding debts, their creditors will generally be paid out of the estate. Those creditors don’t want to handle taking and selling property, though, so the probate court will generally mandate the sale of the property to then pay the debts.

In the case of a house (or any other real estate) of a person who dies without a will, the probate court will attempt to sell the property, to then use the money to pay creditors and disburse amongst next of kin as relevant to the specific situation.

Often, in cases where no will exists, some inheritors can be unreliable in their fairness, which is why a probate court oversees the sale of major assets like a piece of real estate. This way, a defined and objective process can be followed, and any disputes must be taken up with the court rather than between inheritors and/or creditors.

To put all of this in simpler terms:

When someone dies without a will, their real estate must be handled by a probate court, which will sell it through a probate sale and use the funds appropriately.

The probate sale has to follow a specific process, with a lot of oversight from the court, to ensure that it is handled smoothly and fairly.

A probate sale for real estate involves listing the property in much the same way as any other property listing. And, like a foreclosure, the goal is a swift sale, not necessarily a sale for maximum profit. The potential sale prices are assigned a floor, though, so unlike many foreclosures and other sales, you’re not going to find a bargain-basement price. 

All of this means probate sales can potentially be opportunities for those willing to invest and willing to handle any work that needs to be done to bring the property up to working condition for rental, sale, or use.

How Does the Probate Sale Process Work?

First, let’s talk about how the probate sale process works in general. Then, we’ll talk about how it works specifically in San Diego.

The first step is appointing an administrator to handle the sale process. This person is responsible for following all of the rules, filing all of the paperwork, and handling the sale appropriately. The administrator must have the legal ability to sell the property; if no will exists to name an executor, the courts may solicit volunteers from among the family or from public agents when no family is available.

At this point, the property must be appraised to determine the fair market value. This is a key target; generally, a probate court has a minimum floor that the property must be sold for, which is often 90% of the fair market value. This helps prevent underhanded back-room deals and sales off the public market for much lower than reasonable.

The property is then generally listed on all of the normal real estate sites via MLS. The MLS listing will be handled as normal, but the buyer will be required to put at least 10% of the sale price as a deposit. The seller can accept or reject the final offer, though there may be restrictions and a deadline to sell the property.

Once the administrator accepts an offer, that offer is put before the probate court, which will evaluate it. If the court rejects it, the deal is off; the buyer can’t pursue a breach of contract because the contract isn’t initiated until the court approves it. If the court approves it, they will set a date for the sale.

Once the offer is accepted, one more process is initiated. This process is open to anyone in the courtroom at the time of the deal being accepted and allows anyone present to out-bid the current offer. Like an auction, individuals can bid against one another, though each bid must be a minimum of 5% greater than the previous bid to be valid. Once a final bid is reached, the sale contract is created as a proposal. If the original buyer is out-bid, they get their deposit back.

Finally, before the sale is actually processed, a legal document known as a Notice of Proposed Action will be filled out and sent to any heirs, inheritors, and others with a legal right to object to the sale. Another 15 days are allowed for the heirs to file an objection to the sale, whereupon the court will review the situation. If no objections are filed, the sale processes.

Specifics on the San Diego Probate Sale Process

What do San Diego residents need to know about the probate real estate sale process for the city, county, and state?

All properties sold via probate are listed under MLS once they have been approved for marketing as part of the probate process (that is, after valuation, removal of personal effects, and so on.) The listed sale price is that 90% of the fair market value figure and is the court-set minimum acceptable offer. Any offers below that price are not entertained.

Next, the MLS listing must use a standardized Probate Purchase Agreement Contract, which must be attached to the listing. This is part of general transparency and disclosure; everyone knows the property is being sold as a probate property, which has enough additional hoops and strings attached that many typical home buyers will want to avoid them, but others familiar with the process may view them as potent opportunities.

You can see an example of such a contract here. Note that this isn’t necessarily the specific form you’d need to use; always refer to the specific Probate court for any relevant forms.

Any offers must be sent to a San Diego County real estate agent. As of this writing, that’s Noel Agarma, as seen here. Of course, if you’re reading this in the future, check to make sure who you’re supposed to send information to.

Once a proposed offer is chosen, that buyer will need to make out a cashier’s check for 10% of the sale price, made out to “Public Administrator,” as the deposit listed above. Again, this will either go towards the purchase of the property or will be returned if a subsequent offer takes precedence. However, if the buyer cannot actually support purchasing the property, that deposit is non-refundable.

As you might expect, all properties are sold as-is. That means there can be no contingencies or requirements for the sale; the court doesn’t have the time, inclination, manpower, or interest in dealing with any of that. Properties in need of significant upkeep will be priced accordingly in their valuation.

More information about the Notice of Proposed Action (which can streamline the process) or the Court Confirmation can be found here.

Anyone in San Diego interested in signing up to see newly-listed properties on the probate sales list can sign up for the San Diego mailing list here.

What Are the Pros and Cons of Probate Real Estate Sales?

If a probate sale happens more out of necessity than out of desire, what are the pros and cons for someone on either side of the equation? 

The owner of the property is, by definition, deceased. However, the inheritors of the estate – and the creditors, where relevant – have an interest in the probate sale process because that’s how they will get paid.

Since the probate process assesses the value of a property and sets a minimum possible bid, the sale price is guaranteed to be at least a certain amount, and lowballs and low bids will not be entertained. This helps ensure that the property gets at least what it’s mostly worth, and a popular property might have enough bids to further increase that value for the estate.

For buyers, the probate process has a very defined series of steps and a timeline to go through the motions, which means it’s very familiar once you get used to it. It’s complex enough that you may want to have a specialized real estate lawyer on your side, though. That said, since the initial bid for a probate-sold property is 10% under the fair market value of that property, it’s often possible to get a great deal on a piece of real estate that otherwise would be hard to come by.

Also, though the “bid war” phase of the sale process can be a wrench in the works, probate properties often have less bidding competition than open market sales simply because of the whole complex process involved. 

On the other hand, buyers don’t have the opportunity to, for example, ask the previous owner questions about the state of the home, its maintenance history, or anything else relevant to the sale. Since that owner is deceased, that information is not available. It’s also not necessarily a fast process, just a standardized process, so it could be months before the deal is finalized.

Buying probate real estate isn’t for the faint of heart, and it’s certainly not advisable for new property investors or those who aren’t adept at evaluating properties sold as-is to make sure they’re viable investments. But, for those who can pull it off, the potential upsides are tremendous.

Avoiding the Probate Process

If you own property – especially commercial real estate – and you don’t want to saddle your heirs with the mess of probate court sales and more, you have a few options.

The first option is to have a plan and write a will. The probate system only comes into play if there’s no will or if the will is somehow invalid, and it doesn’t take much to make a valid will. Of course, you have to sort out any family drama and make decisions about where and who gets what, and that can be difficult; alternatively, you pick a trusted family member to handle the process rather than the courts.

Alternatively, you can remove property from the equation by selling it now. You can arrange a private sale to a family member, of course, or you can sell it through a traditional real estate sales process and use the proceeds for other investments, living expenses, and more.

Obviously, I view this as one of the better options. When you can make decisions and control the outcome of a sale, you’re in a better position than letting the courts do it later. And as one of California’s leading commercial real estate agents, I’m uniquely positioned to help you with selling high-value commercial properties. If your goal is to get the best possible outcomes out of your investments, you’ve come to the right place.

Of course, if you’re interested in buying commercial real estate that is sold through probate, you can also talk to me. I represent buyers and sellers in equal measure, and I’m more than happy to discuss your interests and work with you. Just drop me a line.