If you’re in the business of rehabbing homes and selling them at a profit or retaining them as rental properties, you want access to as many purchase opportunities as possible. Estate sales are one avenue for real estate investors to explore because they often allow investors to purchase properties that need cosmetic improvements but not major structural work.
Estate sales will also likely be on the rise in the coming years due to our aging population. The three most common reasons for estate sales—debt, divorce, and death—all are unfortunate but constant especially in the years following COVID-19.
For some, an estate sale house is the ideal fix-and-flip property. Depending on the situation, you might also get a good deal for a long-term investment property.
Why Estate Sales Can Be a Good Deal for Real Estate Investors
Many properties sold through estate sales are priced below market value, often because the beneficiaries are motivated to sell the property quickly and have little emotional attachment to it. Beneficiaries or owners must also continue to pay the expenses to maintain the property (e.g., taxes, utilities, insurance), providing additional motivation to sell fast.
As we continue to regain our footing from the impacts of the pandemic, sellers are eager to put their financial problems behind them. If forced to hold an estate sale to settle debts, the more quickly the deal closes, the sooner the seller can move on. For real estate investors, this can be exactly the type of seller motivation that leads to profitable deals.
Risks of Estate Sales for Real Estate Investors
Deals for probate sales might be attractive, but they don’t come without risk. The sales process takes a long time, often lasting for months, and the closing date can shift. Multiple beneficiaries may also need to agree on the sale price, sometimes lengthening the process.
The required 10 percent deposit for a probate sale may not be refundable, which is a gamble that not all investors are willing to make. Additionally, unlike a typical home sale that allows the purchase to be contingent on the results of an inspection, the only reasons you can get your deposit back when buying an estate sale house are if you are overbid at auction or if the court rejects the offer.
3 Tips for Buying a House Through an Estate Sale
A tight housing market has also made it more difficult for investors to find suitable properties. Widening the net to include estate sales could result in a profitable deal on a property that you won’t find in traditional real estate listings. If you’re considering buying a fix-and-flip property through an estate sale, read these tips before you dive in.
1. Find viable properties.
Build a good relationship with a local real estate agent who specializes in probate listings. They often look just like other listings, so you might not be able to tell from your typical search methods which homes are in probate. If you are looking in specific areas, contact the local probate court to get information about the most recent cases. You can find open estates to determine whether they include property. If you see properties of interest, contact the executor or the seller to ask who the listing agent is. You can also ask if a listing price has been determined or to be notified when it is.
2. Inspect any properties you are considering.
Be mindful that lower pricing could reflect underlying issues, so it is important to do a thorough inspection (including code compliance) to determine what needs to be fixed or upgraded before you buy. This could include major improvements. There might also be unknown issues because the one person aware of them can no longer disclose them. When possible, work with a knowledgeable contractor to get an understanding of what work will be required and the associated costs before you make an offer.
3. Understand the probate sale requirements.
After you make an offer, the process is the same as any other house sale—the seller can accept or counter your offer. However, the court must approve the sale and set a sale date. When making a purchase offer on a property sold through probate court, you must make a 10 percent deposit. This might limit the number of offers you can make, so prioritize the best properties.
After setting the sale date, the property must be publicly advertised for 30 days at the offer price. After this waiting period, the buyer must go to a court hearing to prove that they have secured appropriate financing and close the sale, but there is no guarantee that the deal will close.
The next step at the court hearing is an auction in which the opening bid is set above the offer price, usually at a specified rate depending on the state or region. If other parties place bids, the successful bidder must immediately provide a 10 percent deposit to confirm the sale. In the absence of competing bids, the sale will typically be confirmed at the offer price.
Secure Your Loan Through Socotra Capital
Socotra Capital is a direct private lender experienced in navigating estate sale home purchases. Our loans close quickly (ask us about our Turbo Close program) and focus on equity, not the condition of the real estate. If you’re interested in capitalizing on the post-pandemic surge of estate sale homes, you need access to fast funding. Other real estate investors are aware of this market trend, and the buyers who can close quickly will have an edge.
We also provide rehab funds for fix-and-flip probate properties. Reach out to us about your probate scenario, and we will provide prequalification letters to assist in getting them into a contract.
To learn more about fix and flip loans and how they work, read The Borrower's Guide: Fix-and-Flip Hard Money Loans.