Buying probate sale properties is a great way to find eager sellers with properties in good locations. As with any type of real estate investing, setting the right expectations helps set the tone for success. Here are five pitfalls to avoid when starting out in probate investing in Indiana, Arkansas, California.
Expecting a Fast Process
The probate process itself is bogged down with attorneys, executors, and courts. It isn’t a fast process. For anything to be accomplished and completed, the courts must approve it, including the sale of any real estate. Not only will the executor need to present the offer to the courts for approval, they must wait for court dates to open. The courts will review the offer, making sure it meets the cash requirement needs of the entire estate.
What that means for you is sitting and waiting. The courts might need to confirm all taxes, final expenses and other debts are calculated. It will want to see that the estate has enough cash proceeds to meet those needs. It can take months, sometimes more than a year for the probate process to finalize. Factor this into the offer and potential swings in the market.
Thinking Every Property is a Bargain
Once upon a time, investors heard “probate sale” and assumed that they could get a below market price deal for the property. When estate tax laws had low threshold limits, executors and beneficiaries often found themselves needing to liquidate quickly to meet the tax liabilities in a timely fashion or face fines and penalties.
This isn’t the case in most probate sales today. The estate tax threshold is in the millions and most probate property sales don’t need to worry about a quick sale to pay estate taxes. What this means for you as the investor is that you should expect to pay a retail price, or at least something close to it. In fact, know that many executors won’t consider offers without first listing the property for public sale. Multiple offer situations mean executors have done their job to see what the market will yield for the property, meeting their fiduciary responsibilities.
Read on to discover more pitfalls to avoid when starting out in probate investing in [maret_city].
Demanding Repairs or Credits
Executors are not homeowners. Beneficiaries are working quickly to sort through the items within the property. They then need to either hold an estate sale, donate, or dispose of these items. They are not in the business of fixing a home up for sale. Don’t expect them to.
When making an offer on a probate property, be sure to list “as is” as part of the terms and conditions. This makes the escrow process easier for executors who no longer need to worry about any requests for repairs or monetary credits in the process.
When making an “as is” offer, make sure you have done extensive due diligence prior to making the offer since your only options are to withdraw or keep an offer you weren’t comfortable with.
Failing to Understand the Probate Process
The probate process is very specific. Executors must follow the court rules and regulations. Failure to do so can result in personal liability. Understand that beneficiaries are not always the probate estate executor; they do not make the final decisions on these things. In fact, the executor might make decisions but these decisions need to be approved by the probate court.
It may take time for the courts to review and approve the purchase offer because the courts must look at the entire estate financial picture. All debts and bills need to be taken care of, as well as probate court costs. Learn the probate court system in so you don’t frustrate executors.
Not Going Back to Previous Property Offers
Keep good records of when you make offers and what the circumstances are around the offer and why it might be rejected. Because the probate process takes so long, many investors make the mistake of removing themselves from the opportunity and moving on to the next quick investment.
Consider that the executor may have had deals get declined from the court or buyers back out upon inspections or appraisals. If you have good notes and remain professional, you can go back to the executor and renegotiate the deal. You might find them to be more receptive to your offer after the property has been sitting. When all other matters in probate are completed, the executor might be more willing to quickly liquidate the property and work with you on pricing.
Becoming an expert in probate home buying will be beneficial to your real estate investment career.