The following briefly describes the process involved in real property sales that are subject to the California Probate Code.
Estate administration is designed to provide for the orderly distribution of property, both real and personal, owned by the decedent. “Probate” is the process to administer an estate. The process is supervised by the probate court. The Personal Representative is the person responsible to administer the estate. The Personal Representative may be:
- The person named in the Will, the Executor or Executrix
- The person appointed by the court, the Administrator, when there is no Will, if the Will does not name an executor, or if the named executor is unwilling or unable to serve.
The Personal Representative has a fiduciary duty and responsibility to gather the assets and pay the debts of the decedent and ensure the heirs and beneficiaries receive the maximum inheritance. Most of the time the personal representative will hire a probate attorney to manage the legal aspects of the probate.
When Can Real Property Be Sold?
If there is a Will it may dictate that real property be sold. A personal representative must comply with the decedent’s instructions in the Will. Otherwise a court order may be required if acting otherwise will serve the best interest of the parties. If the Will happens to make no mention of the disposition of real property, or if there isn’t a Will, the Personal Representative may make the decision to sell real property. In many cases real property must be sold in order to pay debts, taxes, and expenses to administer the estate.
The Personal Representative must have the authority to act. This authority is granted by the Court when Letters Testamentary or Letters of Administration are issued. Letters specify the name of the Personal Representative and if full authority or limited authority is granted under the Independent Administration of Estates Act.
How may probate properties be sold?
The five most traditional ways probate properties are bought and sold are:
- Real Estate Agent: The most common way probate properties are sold is through a real estate agent. The personal representative most typically chooses the probate broker or real estate agent. A probate attorney may recommend a real estate agent to the personal representative, however, they are not required or obligated to hire the agent the attorney recommends.
- Private Sale: Private sales are noticed in legal newspapers and are handled by attorneys. Sealed bids are opened by the attorney at a designated date and time. The highest bidder wins.
- Public Auction: Public auctions are noticed in legal newspapers. They are held at a pre-determined date and time. Bids are oral rather than written and sealed. The highest bidder wins.
- Private Auction: Private auctions are handled by auction companies. The auction company notifies what properties are coming up for auction. Bids are oral. The highest bidder wins.
- Trust Department: The trust department may act as the personal representative and sell the probate real estate.
Listing Real Property for Sale with a Probate Broker
Is a personal representative required to list real property with a real estate broker?
- The short answer is, No. There is no requirement for a personal representative to sell real property with the use of a real estate broker. The personal representative is the “seller” in a probate real estate transaction. The process to list, market and sell probate real estate is similar in many ways to a non-probate real estate transaction, with some exceptions discussed below.
- A probate sale of real property is subject to court confirmation unless the personal representative has full authority to act under the Independent Administration of Estates Act (“IAEA”).
- The most common way personal representatives sell real property is by hiring a probate real estate broker to list the property for sale.
Can probate real estate be sold at any price?
- The short answer is, No. With the sale of real property that is subject to court confirmation, the sales price must be at least 90 percent of the appraised value set within one year of the sale. The terms of the sale are generally subject to approval of the court and local rules of court which vary from county to county.
- Probate real estate sales by personal representatives with full authority under the IAEA do not have the same restrictions.
- Sales with full authority under the IAEA may have the same contingencies as non-probate sales.
Do prospective buyers need to submit a deposit of 10% of the purchase price when submitting an offer?
- Personal representatives may require a 10% deposit however California law does not require a deposit on probate real estate to be 10% of the purchase price. The deposit requested on probate real estate is up to the personal representative. A Certified Probate Real Estate Specialist will discuss the pros and cons of requesting a lower deposit with the personal representative. A lower deposit may result in more offers at higher offer prices.
Is a Notice of Sale required before selling probate real estate?
A Notice of Sale must be published prior to the sale of real property unless:
- The Will of the decedent directs the real property to be sold
- The Will gives authority for the personal representative to sell the real property
- The Personal Representative has full authority under the IAEA
If there isn’t a Will and the Personal Representative does not have full authority to act under the IAEA, then a Notice of Sale must be published prior to the sale of real property.
The Notice of Sale provides information regarding the sale to the public. The notice must be published in a newspaper in the county in which all or some of the property is situated. Notices are generally published in legal newspapers. The newspaper must publish at least weekly, at least three times over a period of no less than 10 days before the sale. The third publication must be at least five days after the first publication.
Sale of real property sold under IAEA may be sold with or without notice.
Is court confirmation required to sell probate real estate?
- All probate real estate sales must be confirmed by the court unless the personal representative has full authority under the IAEA.
- If the personal representative does not have full authority then they are required to Petition the Probate Court to confirm the sale within 30 days of accepting an offer to purchase.
- The original sale may be subject to overbidding by another prospective purchaser at the court confirmation hearing. At the court confirmation hearing the court will confirm the sale on the original offer or to an over-bidder. Title passes to the buyer after all terms of the sale are met, the court has confirmed the sale, and the personal representative executes conveyance to the buyer.
- For more information on over-bidding refer to submitting offers.
Listing Probate Homes for Sale
- A personal representative may hire a probate broker and enter into an exclusive right to sell agreement for an original period of not more than 90 days.
- One or more 90 day extensions may be executed between the listing broker and personal representative. Unless the personal representative is acting with full authority under IAEA, prior court approval must be obtained for each extension.
- Under IAEA, once 270 days are exceeded, the personal representative must give a Notice of Proposed Action of further extensions.
- If the personal representative is acting with limited authority then court supervision is required and court approval for the extension must be granted.
For real property sales under IAEA any California Association of Realtors® standard form listing contract may be used. Best practice is for a listing agent to use the probate listing addendum and advisory form as an attachment to the residential listing contract. The 90 day listing period rule applies to all probate listing agreements including when the Personal Representative has full authority under IAEA.
To ensure that the signature is set up correctly, best practice is for the probate broker listing the property to also use the Representative Capacity Signature Addendum. This allows the personal representative, the seller, to simply sign their name. By virtue of this form, whenever the personal representative signs or initials their name it is deemed to be in their representative capacity for the estate.
Probate Sale Disclosure Laws
- All one to four residential units, including mobile homes, must comply with agency disclosure laws if the real property is the subject of a sale, exchange, land contract, or lease which exceeds one year.
- A Transfer Disclosure Statement (“TDS”) is normally among the many seller statutory disclosures which sellers are required to complete and provide to prospective buyers. Sellers of probate real estate are exempt from the requirement to provide buyers with a completed TDS.
- The exemption does not relieve the seller (personal representative) from disclosing all known material facts regarding the desirability and value of the property. Just as with sellers of non-probate sales, personal representatives are required to disclose what they know about the property. This is typically done on an Exempt Seller Disclosure form.
- Probate seller exemptions are one of the most misunderstood facts about the TDS in probate real estate sales. Exemption only applies if there is no actual knowledge about the real property sold in a probate sale.
- Excluding applicable exemptions, probate sales must comply with other disclosure laws.
Probate Listing Agent Disclosure Duties
Probate agents who list residential one-to-four units, including mobile homes, for sale in a probate real estate transaction, are required to conduct a competent and diligent visual inspection of the property. As with non-probate sales, the visual inspection is to include all accessible areas to the property. Listing agents are required to disclose all known facts, which their inspection reveals, that may impact the value and desirability of the property. The listing agent’s disclosure shall include facts known about the property that may have been acquired from the personal representative and/or the decedent, prior to death.
Best real estate practice dictates that the findings of the visual inspection are in writing, signed and dated by the listing probate agent. As is the case with a non-probate sale, the buyer’s agent is also required to perform a visual inspection on the probate property.
Personal Representative Duties
Personal Representatives appointed to manage estate assets become an officer of the court. That appointment comes with many duties and obligations. The assets must be managed with prudent care. Prudent is defined as: Careful or wise in handling practical matters; exercising good judgment or common sense.
Hiring an experienced probate broker to list real property owned by the estate is prudent. The brokers experience and knowledge ensures the sale of property is managed in accordance with the probate code and local rules of court.
The team of professionals is also experienced in probate and trust sales. Title and escrow is a big piece of transacting a real property sale. It is essential that the agent and the title and escrow officer are experienced in probate sales. It ensures a smooth transaction with a timely close of escrow.
For more information on how to best navigate uncharted probate waters you may request a copy of 10 Tips to Avoid Probate Headaches here. If you have additional questions and need to speak with a probate professional simply contact me for a consultation.