The probate auction can be a great way to get a good deal on your home purchase. But buying a home at auction has significant risks.
When a homeowner dies, and their home is not held within a trust, the property will go through probate, which is the legal settling of a deceased person’s estate.
My clients had their eye on a home that was scheduled for probate auction in Alhambra. It is walking distance to their parent’s home, making it convenient and ideal.
The home, while in a nice location, has a lot of deferred maintenance and structural issues. The bathrooms, kitchen, and windows are all original from the 60s. The blood red carpet is worn-through and stained. The telltale signs of foundation problems and/or soil movement are clear from the horizontal and vertical cracks along the walls and ceiling, and the uneven floors.
Despite the property’s poor condition, over 60 hopeful homeowners crowded into the front yard on this Saturday morning for the opportunity to purchase this home. Part of the draw was the low listing price. The 4-bedroom, 3-bathroom property was being advertised for sale at $419,000. Nearby homes were selling anywhere from $600,000-$750,000. But this is a probate sale; the terms are completely different.
First of all, there is no inspection period. The buyer must agree to purchase the property “as-is, where-is,” and must waive the inspection contingency. This is a significant risk, especially for a property like this one that has clear signs of structural issues. It is important to understand what repairs are needed and have an estimate of costs to know how much more money you may have to put into the property to fix it up.
The second major risk is that the buyer must also waive the loan contingency. While the buyer is still allowed to secure a mortgage loan for the purchase, the buyer will loose their earnest money deposit in the event that they cannot purchase the property because they cannot secure financing.
Another thing to consider is that escrow is just 45 days, which can be a difficult deadline to meet when you are not prepared with your mortgage documents. In this instance, the buyer will be charged $200 per day if escrow surpasses 45 days.
Finally, the sale will still need court confirmation. This means that once there is an accepted offer on the property, that buyer will still need to appear in court to confirm the sale. At that time, anyone else can also appear in court and over-bid on the property. Ultimately, the highest bidder at the court will win the purchase of the home.
The home auction today went quickly. People were allowed to meander around the house and yard for about an hour before the auction began. When the time came, the auctioneer stood on the front steps of the home and announced the beginning of the auction along with the terms of the sale.
The bidding began at $250,000, and quickly escalated to $500,000. With at least $100,000 in needed repairs, I estimated the sale price to be in the low- to mid- $600,000s.
Little by little the bidding price rose and rose. It slowed somewhat as the price climbed above $600,000. Then, it went back and forth a few times… going once… going twice…. SOLD! For $660,000!
Unfortunately, this was out of my buyer’s price range, so they did not win the house today. But who knows, there’s always the court confirmation…