E291 What is a Strong Offer on Probate Real Estate?
Is the highest offer the strongest offer? Not necessarily, especially in probate. Sometimes an heir or a co-executor believes they can get a higher offer. Then, all things being equal, we should take that offer. However, it’s unusual that two offers are identical. There are other factors to take into account besides the price.
3 Fs of probate homebuyers
We use the 3 Fs to make sure the buyer is a good fit for a probate real estate sale.
An all-cash offer is the best offer. There is always the risk of a mortgage getting denied. However, some probate properties are well-suited for a traditional mortgage situation.
We also want to see a good, healthy down payment, as well as substantial post-closing funds. In other words, the buyer should have uber financial strength.
We need to sell fast in probate, but we won’t acquiesce to a bad offer just for speed.
A normal seller who doesn’t like a deal can reject an offer and continue to live in the home. But for an estate, the property is vacant. So, the estate is bleeding cash every month to pay maintenance, utilities, and existing mortgage.
Also, any vacant property will fall into greater disrepair, especially over the winter. One bad winter can lead to much wear and tear. If the owner is alive and living in the home, they would know about a problem and take care of it. Whereas, in a probate property, the executor will have to keep checking in and find time to deal with issues that arise. Long-sitting vacant properties will have less value due to less upkeep.
An executor cannot afford the time to handhold a first-time home buyer. The buyer needs to know what they are doing throughout the process. We’re busy working on the estate side of things. For example, we need to get additional court orders if the executor is bonded. We have to get special approval to sell the property, get tax waivers, get approval from the IRS to close the sale, and all sorts of other issues.
Now that the buyer has met the 3 Fs, in what circumstance might we accept the lower offer?
Is this probate homebuyer credible?
We often get investors as buyers for probate properties. Usually, it’s too much of a mess for first time home buyers or first-time renovators. We want to weed out those buyers who just watched a YouTube video on how to flip a house and are looking for a probate steal.
But on the flipside, experienced investors can be a little sneaky trying to get the best deal. There are savvy investors who come in at a pretty aggressive/high offer with the goal of clearing out all the other offers. Then the savvy investor becomes the focus of the negotiation. Once they are the only ones left at the table, they start nickel and diming you down to the price of the next best offer.
Will the probate home sale actually close?
Even if the buyer comes in 15% higher than the next best offer, will their mortgage actually get approved at that amount? Will the co-op or HOA approve the buyer? If we are selling an artist’s loft in Soho, and the buyer is completely unrelated to the fit and culture, they could get rejected. In New York, you can be rejected from buying a co-op for almost any reason except being a protected class under anti-discrimination laws.
Again, savvy investors may make the highest offer, but when they can’t get it negotiated down to their liking, they will bail. This does not mean that you will get to keep their down payment; they will just litigate. It’s not like a traditional buyer whose eggs are all in that basket. These investors have money to let things sit for a few months while they sue you. We avoid those buyers like the plague, because we do not need probate held up and the property still sitting vacant.
Sometimes, an offer is too good to be true. We know enough to see the red flags. Naturally, clients want to know why we may not accept the highest offer. We have to explain carefully to our clients that these types of deals will not close at that offer number.
If you want to learn more about how probate works in general, check out my book, “How Probate Works,” available on Amazon.
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