Real Estate Sale Process
The process of selling real estate (real property) through probate or trust is a series of court-regulated steps that must be carefully monitored and managed. Deadlines are unforgiving, documentation is specialized and the court’s oversight must be honored throughout the marketing, offers, negotiations and sale of the property.
In addition to the personnel of the court, the sale generally involves the Executor or Administrator of the estate, the attorney representing the estate, a real estate agent representing the seller (the estate), one or more buyers who place bids with the court and the buyers’ real estate agents. Each of these individuals must follow the guidelines and deadlines of the court.
Steps involved in a typical transaction:
Appointment of the Administrator or Executor of the estate is done by the courts typically at the hearing for the Petition for Probate. In most cases, the decedents will name an Executor who is designated to handle the distribution of assets, including real property. If no Executor is named, if the named Executor is unwilling to serve or if there is no will, the court appoints an Administrator to carry out these duties. The Executor or Administrator is also known as the Personal Representative (PR). The PR is the person who has the authority to list and sell the property; the sale cannot proceed until that person has been authorized by the court. The Executor or Administrator has two options concerning the sale of the assets in a probate proceeding. The increasingly popular path is under the Independent Administration of Estates Act (IAES) by which no court confirmation is required to sell the property. This is referred to as “Full Authority”. If the Executor/Administrator is not granted “Full Authority”, they are left with “Limited Authority”. This option comes with certain requirements including court confirmation hearing to approve the proposed purchase of the property.
As provided in the Independent Administration of Estates Act (IAEA), the Executor establishes a list price for the real property. The price takes into account the appraisal by the Probate Referee and is usually determined with the assistance of a real estate agent experienced in probate and trust sales. The property is then listed for sale through that agent/broker.
The real estate agent markets the real property to the public as aggressively as possible to attract the highest offer. This generally involves a number of approaches, including signage, newspaper advertising, listing on one or more real estate websites and hosting open houses for other real estate agents and potential homebuyers. The real estate agent will also schedule appointments to show the property to interested parties who inquire directly.
While buyers of probate and trust real estate may be looking for a bargain, their range of offers are limited by the court. An accepted offer must be 90% or more of the Probate Referee’s appraised value. Once a buyer is found, the real estate agent assists the seller in negotiating terms that are satisfactory to both parties.
When the property has an accepted offer, a Notice of Proposed Action is mailed to all heirs, simply stating the terms of the proposed sale. The heirs have 15 days to review the notice and pose any objections. If there are no objections, the sale may proceed without a court hearing.
If the Executor/Administrator does not have full independent powers under IAEA, or if one of the heirs poses an objection to the Notice of Proposed Action, notice of the sale must be published in a generally distributed local newspaper (unless the will does not mandate such action).
The attorney for the estate then applies for a court date (the “confirmation hearing”) when the sale will be executed. The court date is usually within 30 to 45 days of the date the application is filed. A copy of the application and details concerning the sale are mailed to all interested parties.
Even after the court date has been set, the real estate broker should continue to show the property in the hope of securing an “over-bidder” and thereby raising the sale price.
During the court confirmation hearing, the previously accepted bid may be overbid by another interested party. In such a case, the overbidding party must appear at the hearing with a cashier’s check (no personal checks accepted) in an amount totaling at least 10% of the minimum overbid price in order to successfully overbid. The minimum overbid is determined by the following formula: 10% of the first $10,000 plus 5% of the balance of the accepted offer.
EXAMPLE: A property is listed at $200,000. The accepted offer is $175,000.
The minimum overbid is calculated as follows:
Accepted offer = $175,000
+.10 x $10,000 = $1,000
?+ .05 x $165,000 = $8,250
Minimum overbid = $184,250
x .10 = $18,425 amount of cashier’s check
If there is more than one over bidder, the highest bid ‘wins.’ The winning bidder gives a cashier’s check to the Executor/Administrator and escrow is opened. Escrow will close approximately 30 to 45 days from the court hearing.
Once the events listed on the “Probate Time Line” have been completed, a hearing is set for “Petition for final Distribution and Accounting.” When approved by the court there will be a distribution to the heirs and other parties.