How To & Education | Commercial Real Estate
Probate - it's the legal process of wrapping up someone's life after they're gone, and it can be a complex and confusing ordeal. However, understanding what probate in real estate is can help you find fantastic investment opportunities generating significant returns.
In this blog, we’ll explore the seven things you need to know about probate in real estate - what it is, how it works, and how you can invest in probate properties.
Let’s dive in.
#1: What is Probate in Real Estate?
#2: Identifying Probate Properties
#3: Working with Probate Attorneys
#4: Assessing Property Value in Probate Sales
#5: Navigating Title Issues in Probate Properties
#6: Making an Offer on a Probate Property
#7: Closing the Deal on a Probate Property
#1: What is Probate in Real Estate?
Probate is the legal process by which a person's assets are distributed after death. It involves several different stages and can be a complex and time-consuming process. For real estate investors and agents, understanding the probate process is crucial as it can impact the buying and selling of properties.
According to a report by the American Bar Association, over 55% of Americans don't have a will or other estate planning documents, meaning millions of estates will likely go through the probate process, and real estate will be involved in many of these cases.
The probate process typically involves several stages, including:
Filing a petition with the probate court- the first step in the probate process, where a petition is filed with the probate court to initiate the probate proceedings.
Identifying and valuing the deceased person's assets: Once the probate process starts, the deceased person's assets are identified and valued. Assets often include real estate, bank accounts, investments, and personal property.
Paying off any debts and taxes owed by the estate: Before any assets can be distributed to the beneficiaries, the estate’s debts and taxes must be paid off. Examples of different types of debt are mortgage payments, outstanding credit card debt, and income and estate taxes.
Distributing the remaining assets to the beneficiaries: Once all debts and taxes have been paid, the remaining assets are distributed to the beneficiaries according to the terms of the will or, if there is no will, according to state law.
The probate court system has jurisdiction over probate matters, which means that the probate court will handle any legal disputes related to the distribution of an estate's assets. Their jurisdiction ranges from disputes over real estate ownership, title issues, and other matters related to the sale or transfer of real estate.
In some cases, the probate process can be avoided if the deceased person has a living trust or other estate planning documents in place. However, even in these cases, real estate may still need to be transferred or sold as part of the estate distribution process.
#2: Identifying Probate Properties
Identifying probate properties can be lucrative for real estate investors and agents. These properties are often sold below market value, making them an attractive investment for those looking to maximize their returns. Here are some tips for how to buy real estate in probabte:
Look for public notices
When a property goes through the probate process, a public notice is usually published in a local newspaper. These notices will provide information about the deceased person's estate and the status of any probate proceedings. By monitoring these notices, you can identify properties going through the probate process.
Check online probate databases
Many states have online databases that provide information about probate cases and estate filings. These databases can be a valuable resource for identifying probate properties in your area.
Find and build relationships with estate attorneys
Estate attorneys are often involved in the probate process and can be a valuable source of information about probate properties. Building relationships with estate attorneys in your area lets you learn about potential probate properties before they hit the market.
Conduct due diligence
Once you have identified a probate property, it's important to do your due diligence before making an offer.
Complete a property inspection
Completing a property inspection will help you identify any repairs or maintenance issues that must be addressed before the property can be sold or rented. An inspection can also provide valuable insights into the property's overall condition, which can help you determine whether it's worth investing in.
Research the property's title history
Knowing the chain of title will help you identify any liens, encumbrances, or other legal issues that may impact the property's value or ability to be sold. Obtaining title insurance is also a good idea, which can protect you against any unforeseen title issues.
#3: Working with Probate Attorneys
When dealing with probate properties, we recommend working with a probate attorney with experience handling estate matters. A probate attorney can provide valuable guidance and assistance throughout the probate process, including selling or transferring real estate.
One of the primary benefits of working with a probate attorney is that they can help ensure the probate process is handled correctly and efficiently. They can help you navigate the legal complexities of the probate process, including filing necessary documents and meeting deadlines.
Ask for referrals from other real estate professionals or local bar associations to find a probate attorney. You can also search for probate attorneys online and review their credentials and experience once you have identified potential candidates, schedule consultations to discuss your specific needs, and determine whether the attorney fits your transaction well.
When interviewing a probate attorney, here are some common questions to ask:
- What experience do you have in handling probate matters?
- What is your approach to working with real estate investors and agents?
- What fees do you charge for your services?
- How long do you anticipate the probate process will take?
- What challenges or issues do you foresee with this particular probate property?
Finding a reputable attorney with experience in probate matters and asking the right questions can set you up for success and minimize potential legal issues or complications.
#4: Assessing Property Value in Probate Sales
Assessing property value in probate sales can differ from assessing property value in regular sales. In probate sales, the property is often sold "as-is," and unique factors may impact its value. Here are some things to consider when assessing property value in probate sales:
Differences in assessing property value - In probate sales, the property's value is typically determined by a court-appointed appraiser, who will assess the property's fair market value based on its condition and location. However, this appraisal may not reflect the property's true value, as it may not consider necessary repairs or updates.
Common issues to look out for - Probate properties may have unique problems impacting their value, such as needing repairs or updates, potential liens, or encumbrances.
Using the probate court system to obtain information - The probate court system can provide valuable information about a property's value and condition. You can obtain copies of the court-appointed appraiser's report and any other documents related to the property's value, such as repair estimates or inspection reports.
In addition to these considerations, working with a real estate agent or appraiser with experience with probate sales is highly recommended. They can provide valuable insights and guidance when assessing a property's value and help you make informed investment decisions.
#5: Navigating Title Issues in Probate Properties
Navigating title issues can be a complex and important aspect of investing in probate properties. As a real estate investor or agent, it's crucial to understand the common title issues that can arise with probate properties and to know how to resolve them. Here are some strategies for navigating title issues in probate properties:
Common title issues - Common title issues with probate properties include errors in public records, outstanding liens or mortgages, boundary disputes, and missing heirs or beneficiaries. These issues can be time-consuming and costly to resolve, but addressing them before closing on a property is important to avoid potential legal issues.
Strategies for resolving title issues - Strategies for resolving title issues can vary depending on the subject. For example, errors in public records can be corrected through a quiet title action, while outstanding liens or mortgages can be paid off or negotiated with the lender. In boundary disputes or missing heirs or beneficiaries, obtaining legal advice or hiring a title company to resolve the issue may be necessary.
Conducting a title search and obtaining title insurance - Before closing on a probate property, it's important to conduct a thorough title search to identify any potential title issues. You can do this through a title company or a real estate attorney. In addition to conducting a title search, obtaining title insurance is also a good idea, which can protect you against any unforeseen title issues.
According to a report by the National Association of Realtors, title issues are one of the most common problems that arise during real estate transactions, with 11% of transactions experiencing a delay due to title issues. As a result, it's crucial to conduct a thorough title search and address any title issues before closing on a probate property.
#6: Making an Offer on a Probate Property
If you're looking to acquire a probate property, it's essential to have a solid understanding of how to make an offer and the factors to consider. Negotiating effectively with estate representatives or probate courts can help you navigate the complex process and achieve your investment goals.
Making an offer - to make an offer on a probate property, you typically need to submit a written offer to the estate representative or the probate court. The offer should include the purchase price, any contingencies, and the proposed closing date.
What to consider in your offer - consider factors such as the property's condition, necessary repairs or updates, and potential title issues or liens. It's also important to factor in any fees or costs associated with the probate process, such as court fees or executor fees.
Tips for negotiating - When negotiating with estate representatives or probate courts, remain respectful and professional. Try to understand the estate's priorities and concerns, and be prepared to make compromises if necessary. It's also a good idea to work with a real estate agent or attorney with experience with probate properties who can help you negotiate.
#7: Closing the Deal on a Probate Property
Closing the deal on a probate property is a crucial final step in the process of acquiring real estate through probate. This multi-step process involves transferring ownership from the estate to the buyer, with oversight from the estate representative or probate court.
However, the process can be complex and challenging, with potential delays and obstacles that must be addressed:
Closing process - The closing process for probate properties typically involves the transfer of ownership from the estate to the buyer, with the estate representative or probate court overseeing the process. The buyer will typically need to provide proof of financing and sign a purchase agreement, and the estate representative or probate court will need to approve the sale before closing.
Common challenges - Common challenges that may arise during the closing process include delays in obtaining necessary court approvals, title issues, and disagreements between the estate representative and beneficiaries. To address these issues, seek and work with experienced professionals who can help you navigate the process.
Obtaining possession and dealing with remaining issues - After closing, the buyer will need to obtain possession of the property, which may involve evicting any remaining occupants or tenants. Make sure to address any remaining issues, such as repairs, outstanding taxes, or liens, as soon as possible to avoid legal problems.
Conclusion
Investing in probate properties can be a unique and profitable opportunity for real estate investors and agents. However, it's important to understand the nuances of the probate process and the specific considerations involved in investing in probate properties.
In this blog, we've covered the key aspects of investing in probate properties, including understanding the probate process, identifying probate properties, working with probate attorneys, assessing property value, navigating title issues, making an offer, and closing the deal. Each of these aspects is critical to successfully investing in probate properties and avoiding potential pitfalls.
According to a report by ATTOM Data Solutions, investing in probate properties can yield returns of up to 40% or more returns - talk about a good return on investment! But as we've discussed in this blog, the process can be complex and challenging, requiring careful planning and attention to detail.
