How Probate Works. A Guide for Executors, Heirs, and Families.

E333 Seller Credit When Selling Probate Real Estate

E333 Seller Credit When Selling Probate Real Estate


This happens when the buyer agrees to a higher contract price, but the seller also agrees to credit back a set amount to the buyer, so the net purchase price is lower.

For example, if the buyer wants the house for $250,000, they would set the contract price at $300,000 with a side agreement that the seller would credit $50,000 on the closing statement, effectively making the price $250,000.

Why not just a price reduction?

Why not just a price reduction?

Co-ops (and sometimes condos and homeowners’ associations) want the closing price to be (artificially) higher to maintain their average price per square foot. They don’t want records to show that a unit sold for significantly less than other units, because, in theory, it will eventually drag down the value of the building. Even though a lower price is reasonable for a probate property that needs major renovations, it doesn’t benefit the co-op.

Sometimes cash buyers and investors want the recorded price to be higher, so they can show flip buyers a slimmer profit margin. For example, an investor pays $250,000, hoping to flip it for $350,000. When the investor goes to sell the property, the buyer can check the public records to see what the investor paid. It will show that the investor is trying to make a $100,000 gain. If the records show that the investor paid closer to $350,000, it won’t look like he’s making a large profit.

What can a seller credit be used for?

What can a seller credit be used for?

Non-professional executors and heirs are sometimes worried that the situation seems sketchy. They wonder if they are really allowed to give a seller’s credit. No worries; it is legitimate and fairly common.

In non-probate situations, it is most often used as an incentive to the buyer to cover some repairs or pay for closing costs. Sometimes repairs need to be done for the property to be sellable. It’s a way of putting the repairs on the buyer instead, when the estate is cash-poor or the executor just doesn’t have time.

Usually cash buyers only

Usually cash buyers only

A seller’s credit is mostly used for cash buyers for a few reasons.

There are often small credits for something like a broken stove. But sometimes there are legal issues with the property or major renovations are needed. If the credit is a large amount, greater than 10% of sale price, it makes the closing figures look non-traditional. Banks don’t handle that situation well, so a seller’s credit is usually not a good option for a buyer who needs to take out a loan.

Selling a probate property has many nuances; it’s not the same as a regular house sale. You may have sold your home once or twice and figure that selling probate real estate is easy. The reality is that probate real estate can be very different.

To learn more about what to expect during probate, check out my book, “How Probate Works, “ available on Amazon.

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E328 Hire Lawyer or Broker First When Selling a Probate Property

E328 Hire Lawyer or Broker First When Selling a Probate Property?


Should you look for a broker or lawyer first when selling a probate property? With non-probate home sales, brokers are the first to list, set an open house, and find a great buyer. Lawyers only get involved once a buyer is in place and a deal is struck. The lawyer then drafts the contract and conducts the closing.

But with probate, talking to a lawyer first makes more sense. Here’s why:

Talk to a probate lawyer first when selling a home

Talk to a probate lawyer first when selling a home

It’s important to talk with a probate lawyer, because you need to know who has the authority to sell the home. The lawyer can also tell you whether the estate needs to be probated. Not every estate needs probate: maybe the house is titled a certain way or it is held in a trust. Or, maybe you live in an area where the title company accepts “heirs at law” affidavits. These situations are best analyzed by a probate attorney.

How long will it take to get started? How much will it cost? The answers to these questions will determine what type of broker you will work with.

A probate attorney will walk you through the estate debts, taxes, etc. You may not want to go through the hassle of selling the probate property if there is only a small fraction of the estate left over after debts and taxes.

There are some pre-steps that a probate lawyer (or a good broker) can help with:

  1. Hiring a title company to confirm who owns the property and check for major judgements or liens.
  2. Talking to co-op management and HOAs to see if there are any red flags.

When to speak with a broker first to sell probate property

When to speak with a broker first to sell probate property

Brokers are good at figuring out how much you can reasonably expect to sell the house for. Is there enough value to deal with the mess?

A downside of talking to a broker first is that too often, they are eager to get a new deal but they don’t understand the estate situation. The broker may not realize that the person they are speaking with does not have the legal authority to hire them. At that point, you’ve wasted your time and the broker’s time if you do not have the legal authority to sign a listing agreement, etc.

Sometimes selling probate property does not require a broker. You can avoid the broker’s commission if you sell the home to an heir, a neighbor, or a cash investor. A probate lawyer can advise on this, so it will probably save money to meet with a lawyer first.

We see this happen a lot, so we want to share our tips with anyone who is looking to sell probate property. Meet with a probate lawyer first so that you can get proper guidance. To learn more about probate, check out my book, “How Probate Works,” available on Amazon.

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E324 Top 5 Reasons Heirs Suddenly Need to Sell Probate Real Estate

E324 Top 5 Reasons Heirs Suddenly Need to Sell Probate Real Estate

Why do heirs suddenly need to sell probate real estate? We see cases where years, even generations, have elapsed since the real estate owner has died, and nothing has been done. So why, all of a sudden, do the heirs seek a lawyer or professional executor? Here are the top 5 reasons we’ve seen.

1. Bad economies mean heirs need money

Bad economies mean heirs need money

When there’s a recession, our office gets busier. It seems that when times are tough, people want large, lump sums of cash (rather than a theoretical portion of an estate).

It’s a bit counter-intuitive, since real estate prices are often down at these times and heirs would have to sell low. The heirs figure that even though the sale price is lower than in a strong economy, at least they’ll get some cash.

2. More deaths means more complications

More deaths, getting complicated

As more and more family members pass, heirs see how increasingly complicated probate will be.

For example, mom died and left the house and 4 kids who all get along. The 4 kids don’t probate, but agree amongst themselves who will perform upkeep, who will collect rent, and how the rent will be divided. But then the kid in charge of upkeep dies and now no one is officially in charge of upkeep. Then the one in charge of making sure there is a tenant also dies, so his kids move in. Now there is tension among the family members who don’t all agree with the arrangement. You may not think your family will have these problems, but when money is involved, it can get messy.

Once the original heirs start passing and those who were not part of the initial arrangement get involved, problems can snowball quickly. At this point, it is just easier to sell the real estate before it gets more complicated.

3. Tenant problems

Tenant problems

For example, grandma owned a rental property and for years after grandma’s death, tenants paid like clockwork. But for whatever reason the tenants stop paying. It happens all the time. It’s easy to stop paying rent and stay in the house when no one is enforcing payments. The heirs will find that they can’t take legal action until they start probate and get a court-appointed executor.

Sometimes the tenants learn that no one is legally in charge yet, and that’s why they stop paying. It could be at least a year before an executor is appointed by the court. So, there’s at least a year rent-free. As a side note, often these non-paying tenants are also heirs. Oh, the humanity!

4. Creditor, co-op demands, no longer self-sustaining

Creditor, co-op demands, no longer self-sustaining

Sometimes heirs miss or ignore bills, then the creditors eventually get active. Just imagine an heir being diligent about paying all of the bills, but totally forgot about the water bill. Rather than the company shutting off the water, there is a giant outstanding bill after a decade. Sometimes an estate debt is so large that there is no choice but to sell the real estate.

Or sometimes a co-op board looks the other way for a while, but now wants things done correctly and the estate needs to be probated.

Maybe the rent used to be enough to cover all bills, but as time elapsed it’s not quite enough anymore. Maybe you didn’t raise the rent enough, or inflation caused your expenses to skyrocket. Now you have real estate that is generating a loss.

5. Property damage or disrepair

Property damage or disrepair

A major storm may cause costly damage. Other problems that tend to emerge when the property is not owner-occupied could be mold, old/leaky roof, or floor/foundation problems.

Maybe none of the heirs have the funds to fix these major problems to bring the home up to rentable status. If there are no other funds and the heirs don’t want to deal with it, then maybe it’s time to sell.

Probate Book

These are the most common reasons we’ve seen for heirs to sell real estate quickly. Two good books on the subject are, “How Probate Works” and “How to Hire an Executor,” both available on Amazon.

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E320 How to Get Updated Letters Testamentary

E320 How to Get Updated Letters Testamentary

Let’s discuss how, why, and how long it takes to get “fresh” Letters Testamentary in New York. Fresh letters simply means that they are newly dated. Most of the time, probate takes months or even years, and during that time, you may need to get fresh copies of the letters to use.

Do letters of testamentary expire?

Do letters of testamentary expire?

One question we get is “do the letters of testamentary expire?” Technically, no, they don’t expire. It’s not as if your executorship has ended and you need to renew it. Rather, letters are a certificate proving you are still the executor. For example, if you walk into a bank with your letters that are over a year old and you want to close the account, the bank will very likely accept them. In the last year a lot could have happened – the court could have removed you as the executor, the letters could have been suspended, or there could have been other issues. They want letters that have been issued within the past 30 days (or in some cases 60 days) to prove that yes, you are still the executor, and all is good.

How to renew letters testamentary

How to renew letters testamentary

In the past, getting newly updated letters was relatively easy. You could walk into the court with $6 and they would simply print the letters and you would walk out with them. You could even mail in a request and get them back within a reasonable timeframe. The exception would be if the court is missing items in the probate file, such as affidavits, inventories, etc. It is the court’s leverage to make you fix any issues before they give you fresh letters. This doesn’t mean the letters have been revoked; it’s just the court’s opportunity to get something they need in return for something you need.

Fresh letters delays in New York in 2023

Fresh letters delays in New York in 2023

Now, getting quick letters are not happening. The court no longer allows you to visit the counter or walk in with your money and request. You have to upload a request for fresh letters online. Sounds easy, right? Here’s the issue – the courts are at least three months behind processing online filings. So, for example, requests uploaded in December are finally being processed in March. This doesn’t account for anything you may need to fix, which will add even more back and forth time.

 

If you have something important you need letters for (a real estate closing, for example), then you will need to plan well in advance for this. One option is to order letters right as the property is listed, possibly even before. You do run the risk of actually getting the letters quickly and them being outdated before the closing. In which case, you would need to order them again. You could get around this by ordering them every month or every other month until the closing to be sure that you have them. It may seem wasteful, but unfortunately, not having the letters could delay the closing (which is much more expensive than a few extra copies of letters).

Probate isn’t a quick process as it is, which is why it’s best to set expectations early in the process. Check out my book, “How Probate Works,” and when you get to the chapter on delays, just add on more time. Unfortunately, that’s the way things are right now.

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E317 Can You Sell Your Inherited Property

E317 Can You Sell Your Inherited Property?

We get this question quite often – can you sell your inherited property? The answer to this depends on many factors. First, you need to figure out if you can sell an inherited property. Here are a few steps for you to take to answer this, before you can decide if you need a probate lawyer or professional executor.

Check the deed to confirm you inherit

Check the deed to confirm you inherit

First, check the deed to see if the decedent actually owned the property. Some people stay in a home long after another relative has passed or they are long-term renters. It’s actually easy these days to get a copy of deed online. One example is ACRIS here in New York. Most other states and counties are similar.

One note – it is a bit harder to obtain documents for co-ops (co-ops always worse during the probate process). You would need to call the management company for the information, which is sometimes like pulling teeth. They will need to check their internal records for the owner, and they may not provide you with the information.

Once you have the deed, you want to clarify the owner. Is it the decedent? Was it in a trust? Is it in some other relative’s name? Let’s say it’s your uncle who passed, but he actually moved into the house after your grandfather passed years before. It could likely still be in your grandfather’s name. That would add a few layers of complexity to ownership. Deeds can also have joint owners, and co-ops can have beneficiaries. If there is a joint owner or beneficiary, and it’s not you, then you don’t own it.

What happens to a mortgage when house is inherited?

What happens to a mortgage when house is inherited?

The next step is to see if there is a mortgage. When someone passes, the mortgage has to be paid off. So, it’s important to find out if there is a mortgage and how much it is. It doesn’t mean the heir is immediately on the hook for the mortgage payments, but it does need to be settled before the house is sold. If the mortgage amount balance is really large or underwater, it will definitely affect how you approach the estate. If the estate is close to or completely insolvent it makes the estate very cash poor, which changes how the estate is administered.

Checking for a mortgage is similar to checking for a deed. Except for co-ops, mortgage information may be found online, on the statements that come in the mail, tax assessment offices, or on tax returns.

In addition to searching for mortgages, you also want to look for potential larger debts. If there are tax debts, public assistance or Medicaid debts, second mortgages, etc., these debts must be paid first before anyone can get paid out from the proceeds from the real estate sale.

Did you inherit tenants, too?

Did you inherit tenants, too?

Lastly, to determine if you can or want to sell the property, you need to figure out if the property is occupied. Did you inherit tenants? Is it vacent? If it’s occupied, it will affect how you approach the estate. For example, if there is another heir living there and won’t leave, that is a whole set of additional problems. If it’s an actual tenant, it’s not as clear cut as one would expect either. More often than not, tenants after the owner pass create problems and lose their moral compass. Evicting or removing tenants is usually a nightmare. It may change your approach to selling the property.

Check out Anthony’s book, “How Probate Works,” which will break down what is involved with administering a decedent’s estate with property.

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E315 How to Probate a Hoarder Estate

E315 How to Probate a Hoarder Estate

As you can imagine, probating a hoarder’s estate adds a few more complications. In this episode, we will talk about how to deal with some of the main challenges.

A hoarder can be defined as someone that likes to keep a lot of things; those that hold on to items with little value. As an executor, we define it as a situation where it’s abnormally difficult to navigate the living quarters. For example, a hallway that isn’t a hallway. Or trouble opening a door, because there are items blocking it.

How much does it cost to clean a hoarder’s estate?

How much does it cost to clean a hoarder’s estate?

On average, to clean out a hoarder’s house, it will cost about two to three times as much as it would cost to clean out a similar living space of the same size. We’ve chatted about the costs for cleaning a “normal” home, which can add up in a typical situation. For example, if you’re cleaning out a hoarder’s one-bedroom apartment, the cost will be the equivalent of a two-to-three-bedroom home. The reality is that you will need more movers, trucks, and dumpsters.

Another level of additional cost is dependent upon the cleanliness, which you may not know until the stuff is removed. You may be facing possible additional safety/hazmat costs, depending on the severity.

How to find important items in a hoarder probate

How to find important items in a hoarder probate

Another twist when you are dealing with a hording situation in probate, is how to find important items in the home. Even in normal (or conventional, typical) estates, it can be hard to track down important items. For example, executors need to look and find estate planning documents, tax returns, or tangible gifts such as art, jewelry, collectibles. There’s a much higher risk of not finding these items when the home is in this condition.

In addition, it makes the cleanout process much slower. Typically, we can find the items before it’s cleaned out. But, in a hoarding situation, we have to wait for the movers to clean out walkways to access areas to search. They are helping us gain more elbow room and to be able to navigate the living area. It’s a move items, search for items, move more items, search for more items game. You have to search as they are cleaning, which prolongs the process and adds time and money.

How to protect a hoarder’s reputation during probate

How to protect a hoarder’s reputation during probate

Another layer is how to protect the reputation of a hoarder during probate. Most hoarders aren’t proud of their situation, how much stuff they had, how they lived, etc. In this case, more than a few hoarders have explicitly asked us (as their professional executor) to hide the situation from family, friends, and neighbors. We’ve talked previously on how to handle privacy for our clients. We are happy to do this for them.

We will select our cleanout crew carefully, making sure they have a high level of professionalism and discretion. We’ve seen crews that have someone at the door nudging along nosey neighbors and some that even set up barriers to block the view in the home. In a building setting, even requesting the assistance of the building managers is important, as they are the first line of gossip defense.

If you want to find out what is required of an executor, I suggest reading my book, “How to Hire an Executor.” A non-professional executor may get overwhelmed by this particular situation. In addition, hiring a professional who will adhere to your request for reputation protection in a hording situation is important.

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E311 The Latest Probate Tax Delay is 1040 Verification

E311 The Latest Probate Tax Delay is 1040 Verification


Tax clearance is taking even longer lately because of a new twist: 1040 verification. Everyone agrees it’s important to keep the tax bogeyman satisfied, but all these layers of delays are frustrating our clients and us. Below we’ll explain what’s happening here.

What is tax clearance and why does it take so long?

What is tax clearance and why does it take so long?

The executor needs to make sure that the IRS agrees no more taxes are due. This is important because the executor is personally liable for unpaid taxes. If the executor makes distributions to the heirs and the heirs sign indemnity agreements, then the heirs will be liable for taxes.

Maybe you’re thinking that your loved one’s estate was so small that there’s no estate tax. We’re not just talking about estate tax, but final 1040s, payroll, small business, retirement payouts, and just about everything else. Still don’t think it applies? You’d be surprised how complex someone’s tax situation can be. The IRS is pretty good at combing through the past six years to make sure they get everything owed to them (it’s the IRS’s last chance to be paid).

Why does it take so long, generally? As with any bureaucracy, it takes the executor a while to gather all information and past returns. (Try getting a tax transcript quickly from the IRS!). The IRS will also take their time since this is their last bite at the apple. And lately, everything related to the IRS takes way longer due to unprecedented delays and backlog. As you recall, the lock-downs were in 2020. It’s mind boggling how the IRS is so backed up three years later.

Now the IRS wants verification

Now the IRS wants verification

If the estate is owed a refund on any of its final returns, the IRS now requires identify verification of the decedent. It’s understandable that the IRS is taking these measures, since scammers posing as IRS agents have become ubiquitous. But the result is that estates are getting stuck for more weeks or months because of $10 refund.

Why does IRS verification cause longer delays?

Why does IRS verification cause longer delays?

It’s because all bureaucracies are slow, and are even slower if your situation is not on their main “script.” For example, if you go to the bank to open a personal checking account, it’s easy for the tellers who open checking accounts several times a day. But if you have a non-traditional request, such as closing a decedent’s account, the teller probably has to go ask a manager for help. When you go off-script from procedures that an employee is used to, then things can go haywire.

Whether it’s multinational banks or the largest government in the world (US), these bureaucracies struggle with edge case situations. It’s very hard to find a competent banker, branch manager, or IRS agent who understands what an executor is, let alone the correct procedure for dealing with a deceased customer or taxpayer. You’re pretty lucky if you speak to a knowledgeable agent on your first call, if you get to speak to anyone at all.

Can’t we just forego the $10 refund? Ah, nice try. The IRS will not process the return (not just the refund check) until they verify the decedent’s identity. When a return is not processed, you can’t get confirmation of the final balance and therefore the final release from liability.

For example, when you call the IRS to verify, they ask if you are the decedent. Once you tell them you are the executor, it heads downhill from there. It sounds absurd, but it happens.

The 1040 verification is a new procedure, so this is a heads up for those facing a new estate. For those who have been working on an estate for a while, this could be a reason why the estate is now dragging on. When we say that we’re waiting along with you, we mean it. It’s an uphill backwards in the snow with no shoes kind of battle.

Probate

Check out my book, “How Probate Works,” and when you get to the chapter on delays, just add on more time. Unfortunately, that’s the way things are right now.

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E305 Get Your Inheritance Faster

E305 Get Your Inheritance Faster


Heirs often want to know if there is any way to get their inheritance faster.

Probate can take a long time, for various reasons, and lately it has been taking even longer because IRS delays are making tax clearance even slower. So, here are some options for heirs in a cash crunch.

Expense reimbursements

Expense reimbursements

First, the executor can pay expense reimbursements as soon as possible. This includes reimbursing heirs who paid the funeral bill, court or lawyer fees, clean out or move out costs, co-op fees, mortgage payments, and property repairs. Heirs who fronted these funds are entitled to be reimbursed from the estate.

Of course, reimbursements are not actually your inheritance, but repayment of money owed back to you. But if you need liquidity NOW, this can usually come out of the estate quickly with minimal delays. For example, court fees are unequivocal, so those can be reimbursed immediately once the estate has funds available.

Requesting a reimbursement from the estate is a quick way to get cash back into your pocket. Some heirs pull thousands of dollars from their personal bank accounts to cover the estate expenses and can’t afford to wait a year or longer to replenish their accounts.

Intermediate accounting

Intermediate accounting

Another alternative it to do an intermediate accounting. One of the main steps to close an estate is to do an accounting of the full books and ledgers of the executor’s tenure (every dollar that came in and out of the estate). The accounting is usually done at the end of the estate process because it is time-consuming and costly. It’s difficult to track down every transaction over the span of several years, even though the executor keeps track as they go along.

An intermediate accounting takes place in the middle of the probate process, so that the executor is approved to distribute a portion of the funds to the heirs. The problem with an intermediate accounting that the executor is duplicating work that they have to do all over again at the end of the estate.

An intermediate accounting doubles the cost but may be worth it if heirs need cash and the delays are really long. This may frustrate other heirs who do not see a need for an intermediate accounting, and they may demand that the duplicate costs be paid for by the heir who wants the accounting. Most people don’t like paying for something twice if they don’t have to!

Inheritance advance loan

Inheritance advance loan

There is another option, but I highly discourage it: the inheritance advance loan. It is BAD idea, because it is a loan that takes advantage of an heir’s need for money.

With an inheritance advance loan, you can pay 50-100% interest/fees! If your share of the estate will be $50,000 and you need $10,000 now, the loan company will give you $10,000 now. But, at the end of the estate, the executor will give you $30,000 because for the $10,000 that you borrowed, you owe the lending company $20,000. If for some reason your share of the estate becomes less than you thought it would be or if you need to spend more money on litigation, repayment may be a problem.

In the narrowest of circumstances, this option may be worth it. Please explore the other options of expense reimbursements and intermediate accounting first. Talk to your executor or attorney to make sure all other options are exhausted before perusing an inheritance advance loan. This option exists for worst case nuclear emergencies.

Probate

Check out by book, “How Probate Works,” so you can understand the probate process and have reasonable expectations up front about getting your money. We try to make it clear to our clients that this process could take months or even years. Some clients may decide to go to other more optimistic attorneys, but I don’t like to over-promise and under-deliver.

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E301 How the Recession Affects Probate

E301 How the Recession Affects Probate


Economic recession affects probate, just as much as wages, gas, and your grocery bill. We’ll share a few ways we’ve seen how it’s been impacting probates.

Takes longer to collect probate assets

Takes longer to collect probate assets

First, there are major delays in collecting assets. Banks, brokerages, unclaimed funds, etc. are taking way longer than usual to process claims and release funds. They are asking for more documents and are stricter in their requirements. In the past, these financial institutions let some things slide, but now they want all the T’s crossed and I’s dotted. They may just be rigorous in their requirements now. But another interpretation is that they want to keep the money in their accounts as long as possible.

This results in delays for the executor and heirs. The key takeaway is to start the process now!

Creditors will not settle

Creditors will not settle

Historically, regarding an estate debt (exs. credit card or medical bills), creditors were willing to negotiate the bill down. It used to just take a phone call to get even 50% off easily.

Now creditors want full payment. Some will even wait as long as it takes or even sue the estate. The notion of debts getting discharged or reduced isn’t happening. The takeaway: don’t count on getting the debt reduced to increase the amount the heirs will receive. Just assume that debts will be paid in full.

This seems odd, considering we’ve been through recessions before. Even then, creditors were willing to settle estate debts to guarantee cash in hand. It is unclear what makes creditors so aggressive now.

Heirs need cash

Heirs need cash

Heirs need and want their cash as soon as possible. If you’ve listened to any of our prior podcasts, you know that paying heirs quickly is unrealistic. Estates take a long time to settle, but there are some solutions to make payments to the heirs sooner rather than later.

One way is to pay reimbursements immediately. Sometimes heirs front money to pay for court filing fees, house clean-out, or the attorney’s retainer. Normally, when the matter isn’t urgent, the heirs get reimbursed at the end of the probate process. Why have multiple rounds of checks mailed out if it’s not urgent? But, if you are an heir who has fronted money, just ask the executor for it. The executor should have no problem repaying you.

We are also seeing heirs and executors making concessions during the accounting phase to get it done faster. In the past, parties might dispute how much money was spent on certain tasks (house clean-outs, for example). Now all sides just want to get the accounting done.

Another option is to prepare an intermediate accounting. Instead of waiting until the end for the full accounting to distribute the inheritance, the executor can do a partial accounting to pay out a portion of the shares to the heirs. The problem is that the same level of work is required to produce an intermediate accounting as it is for a full accounting. Basically, the heirs pay for the accounting to be done twice, whether by the executor or an accountant. We may start seeing a trend where the heirs don’t mind paying twice just so they can get some cash now.

I hesitate to even mention the last option, since it is a bad idea. Inheritance funding companies can give cash to the heirs in exchange for a legal right to their share of the estate. For example, if your inheritance share is $50,000, the inheritance funding company will give you less than $20,000 now and they’ll keep the rest when the accounting is done. These are horrible terms, so try to avoid this option!

Probate

If you want to learn more about probate, check out my book on Amazon, “How Probate Works.” If you fill out the form below, we will give you a free chapter. As always, send us comments or questions by email. We will do our best to answer them either directly or as the subject of a podcast.

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E298 Is a Cash Buyer Better for Probate Real Estate

E298 Is a Cash Buyer Better for Probate Real Estate?


Which offer for probate real estate is better: an experienced investor cash buyer, or an individual financed offer that’s supposedly $80,000 more?

In a recent case, turns out the individual offer was actually more like $30,000 (~3.5%) higher, plus tons of headaches and delays.

Nitpicked during buyer’s inspection

Nitpicked during buyer’s inspection

Individual buyers heavily nitpick during inspections. Unlike an investor, the individual buyer is the one who will live in the house. He has a vision of how everything should be for his new home.

This inspection showed some problems, some legitimate and some were very cosmetic. Note that this sale was an as-is contract. It’s an estate sale; take it or leave it!

At the end of the day, the buyer demanded about $20,000 worth of repairs and buyer credits. For some items, he wanted a credit so he could pay to fix it himself. The repairs that he demanded from us added months of delay to the process.

Months equals money out of the estate. Not to mention all the problems that can arise from leaving a home vacant for months. If the roof leaks or a pipe bursts during that time, it is still our problem since the house hasn’t officially been transferred.

Cash buyers will inherit problems

Cash buyers will inherit problems

Cash buyers only care about big problems, except ones that affect title (such as boundary line issues or environmental problems).

But cash buyers are willing to deal with cosmetic problems. Why? Because they usually tear down and rebuild, meaning they will end up fixing those problems anyway. What about large cosmetic problems? Cash buyers have experience and teams that can easily fix cosmetic items. Since they deal with this often, cash buyers are very efficient, and their repair estimates are much lower than an individual buyer who may have to negotiate with a contractor.

Cash buyers close quickly

Cash buyers close quickly

It’s a big deal how long the probate property sits. The longer it sits, the more risk the estate bears. Even if someone trips and falls on our sidewalk while we’re waiting for a buyer, that’s our problem.

In probate real estate, we don’t have weeks of open houses, marketing, etc. In fact, we may not even use a broker, which will save another 6% in broker’s commission (in this case, about $35,000!).

As discussed above, there is no negotiation for repairs with a cash buyer. Similarly, there is less likelihood that we will need to spend months making repairs. The cash buyer just wants to get the deal done, fix the real estate, flip it, and move on to their next investment.

Compare this with choosing an individual buyer. The legal bill will be higher, because you will spend months working on a deal that could have been completed in a couple of weeks with a cash buyer. Instead of spending $1,000 or $2,000 for closing, it could be $5,000 or even $7,000.

In conclusion: the cash buyer is still net less than the individual offer (in our case, about $30,000, or 3.5% of our deal). This estate had 4 heirs, so that comes to $7,500 each.

Was it worth it the months of delays and stress to all involved in the estate? Executors in these situations have to weigh the facts and decide for themselves.

Probate

Real estate can be messy. To learn more about selling probate real estate, check out my book, “How Probate Works,” available on Amazon.

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