I attended my first probate sale last week. I was representing the buyer in the purchase of an estate sale being administered by Washoe County. The process, though fairly straightforward, was interesting.
My buyer and I found the property listed on the MLS. It was a distressed property in Sparks, described as an “estate sale – subject to court approval and the court bidding system.” For my client, who was looking for a project to rehab, this property fit the bill nicely. We examined the property, performed our due diligence, and ultimately made a rather low offer. However, the Washoe County Administrator, who was representing the estate, promptly rejected our offer. Undaunted, my buyer presented a new, higher offer one week later. Again, the offer was promptly rejected. No counter. No explanation.
At this point I made a call to the listing agent to obtain some feedback. I was told that when a property winds up in probate, it is the County Administrator’s duty to maximize the proceeds to the estate. The first step performed by the Administrator is to get the property appraised. That appraised value becomes the amount for which the property is listed on the MLS. There are probably many factors that go into the Administrator’s decision whether to accept or reject an offer. Not the least of which is the number of days the property has been listed. We were told that because this was a newly listed property, the Administrator was probably going to stick very close to the appraised value.
Although my client was eager to pick up this property, I convinced him it would behoove him to wait a month or so before we made another offer. A couple weeks later we were at it again. This time around we, at least, received a counter offer from the Administrator. After carefully considering the counter offer my client accepted.
With the vast majority of residential real estate transactions, upon acceptance of an offer: the property is taken off the market; escrow is opened; and the transaction proceeds through the terms of the contract and to the closing date and at the sales price specified in the offer.
Probate sales, however, do not follow this path. Upon acceptance of an offer, a court date is set in order to publicly announce the sale of the estate and to allow for any other interested parties to bid on it. This of course meant that my client, the buyer, might not be the buyer after all. He, in effect, had simply set the starting bid.
The court date can be as quickly as two weeks after acceptance, or, as was the case with our transaction, six weeks from acceptance. In Washoe County sales of probate properties are held every Thursday morning precisely at 8:30 AM. The properties to be settled on that date are announced individually, briefly described, and then opened for public bidding by the Probate Judge.
The way the bidding process works is that the first bid, known as the “upset bid”, is set at $5,000, or 5%, above the current accepted offer price, whichever is less. After the upset bid, subsequent bids occur in $1,000 increments.
The entire process happens very quickly. And all sales are final. Therefore interested parties are advised to have conducted their due diligence and viewings of the property prior to its court date. [Btw, all documents (appraisal, preliminary title report, etc.) relating to a particular property are a matter of public record and are freely accessible well in advance of the date of the probate sale.]
At the close of the bidding the high bidder has 14 days to close on the sale of the property. The buyer may finance his purchase, pay cash, or whatever. He simply must close within 14 days. If the buyer fails to close within the allotted time or cancels escrow, he forfeits his earnest money deposit and additionally is responsible for court costs and possible damages.
For our day in court my buyer and I had discussed a bidding strategy as well as his upper limit. We arrived to a crowded court room and hoped for no other interested parties in attendance. As we sat waiting for our property to be called, my client grew increasingly anxious. We occupied ourselves by pointing out various people and speculating on whether they might be interested parties or not.
Finally, our property was announced. The Probate Judge read the case number, gave a brief description of the property, stated the current offer price, and then stated the amount of the upset bid. The Judge then deferred to the County Administrator to give a more detailed account of the property and its condition. After that, the Probate Judge asked if anyone in the court was interested in placing a bid on the property.
The next few seconds were excruciatingly long. After of few moments of complete silence in the courtroom the Probate Judge announced the sale of the property to my client. Needless to say he was very relieved to not to have had to bid up the price of the property. We exited the courtroom feeling as though we had won some great contest.
As I said above I found this probate property listed on the MLS. This was one of several properties that the listing broker, Estate Realty, currently has listed. Our friends at Estate Realty provided the list below and have allowed me to post it here. Give me a call if you’re interested in learning more about any of these properties.
smarten
Thanks for the tutorial Guy. However if you think about it, the process you describe is very similar to how REOs have traditionally been resold. Consequently my recommendation would be that you demonstrate restraint. Wait for an offer to actually be accepted; a court date to be noticed; and only then make plans to pursue the property.
It is the REO Department’s duty to maximize the proceeds to its principal [let’s call it the bank {or more accurately, probably its investor (see below)}]. The first step performed by the REO Department is to get the property appraised. That appraised value becomes the amount for which the property is listed on the MLS. There are probably many factors that go into the REO Department’s decision whether to accept or reject an offer not the least of which is the number of days the property has been listed for sale, and the amount formerly owed by the trustor[s] – although maybe not the latter because these days, the bank doesn’t really own the property; it acts as nothing more than a servicing agent.
Really, both processes end up with a sale at RETAIL. And believe it or not, that’s what I think your client paid. IMO [especially inasmuch as your client was willing to pay 5% plus $1K more than his accepted offer], your client would have been better off submitting no offer whatsoever. Let someone else submit an offer and if acceptable, your client shows up unannounced in court ready to bid. Who knows, the upset bid may actually turn out to be lower than your client’s offer that was ultimately accepted? If higher, your client doesn’t have to chase the property. It’s really the same “snipe” procedure I think should be employed when it comes to bidding on eBay.
If no one else submits a bid, low bid the hell out of the listing price – the Administrator or as here the bank will eventually figure it out. If it doesn’t, find something else to go after!
Guy Johnson
smarten,
Your comments are right on the money. As we were leaving the courthouse we remarked to one another how much simpler the process would have been for the person who simply might have showed up at court for the sale that day. We agreed that for the next property of interest my client and I would do just that. It would save us both a lot of time. The only tricky part might be learning of the date of sale and current offer price in time to perform one’s due diligence, inspections, property viewings, etc.
smarten
Guy –
Doesn’t the listing agent have to report his/her listing “under contract” to the MLS when it’s under contract? If so, you know.
If the sale must be approved by the court and it’s the listing agent’s fiduciary responsibility to secure the best offer for his/her seller, doesn’t the agent have the duty to advise all potential upset bidders of the court date and the necessary upset bid? If so, send the agent a writing asking you be informed of the court date at the earliest instance. If he/she drags his/her feet, you have grounds to ask the court to continue the hearing to confirm a sale.
So you see, these aren’t the most challenging aspects of playing posom. To me it’s qualifying for and actually closing on a loan in only 14 days. But if push comes to shove, I think you can secure more time to close without adverse consequence as long as you actually close within a reasonable period of time.
smarten
BTW Guy, quite a year!
Your first short sale and your first probate sale.
All you need is your first trustee’s sale and you’ve bagged your first hat trick.
Congratulations!
Guy Johnson
smarten,
Again good points. I like the idea of notifying the listing agent in writing to so as to be notified of the court date and upset bid. Yes, it seems to me that the agent would have a fiduciary duty to provide that information.
And yes it has been quite a year. Thank you for keeping track.
stjoe56
But if push comes to shove, I think you can secure more time to close without adverse consequence as long as you actually close within a reasonable period of time.
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I don’t know about Nevada. I am not licensed here. But in two of the states were I am licensed, the deadline is the deadline. Miss it and you run a very good risk of losing your deposit. It all depends on the judge.
SJ
Nancy
Guy
Thanks for the information; I found it to be very inspiring. I am a new realtor and is very interested in becoming a probate agent. I would kindly like to ask for your assistance in leading me to the right direction. How can I get started, where should I go for training and coaching? Can you recommend some books, website or trainer for resources?. Your assistance is highly appreciated.
Thanks
Nancy