HOW TO AVOID 10% DEPOSITS WITH CALIFORNIA PROBATE REAL ESTATE

By
Real Estate Agent with ReMax Accord

I have been receiving messages from agents and investors in regard to the 10% deposit required when you make an offer on a probate property.   I have covered this a few times in the past but it's a good topic and really worth taking the time to understand.  This will help you do more deals and not tie up money with large deposits so check it out.

In California, the old probate law requires a buyer to place a 10% (of offer price) deposit up when they submit their offer.   So if we are making a $250K offer on a probate property along with our offer, and pre-approval bank letter if financed, you will need a check for $25K (10% of offer) before your offer will be looked at.   Well not a big deal right since you are offering "All Cash" and have the money.  But what about the non investor who wants to buy the home to move into or an RE Agent representing a FHA or VA or low down Conventional move in buyer?  What do these buyers do who are buying the home with low down payment programs and asking for closing costs.  What happens to these buyers is they PASS ON the probate home.  No biggee you say?  Will what just happened is 70% of the buyer market just passed on your family home or listing.  This usually works out to an investor offer only and a wholesale deal.  Not so good for the estate or the FHA/VA buyer or the agent representing these types of buyers.   Also, for you investors with the cash HOW many of these homes can you make offers on at $25K per deposit?

What most don't understand is the deposit will sit anywhere from 6 weeks (if your lucky) to 8 to 12 weeks while the probate case and offer is petition to the court for a confirmation hearing.  Many times the sale is held up because of an heir who doesn't like the price or court paperwork which wasn't correct.  Delay after delay in some situations.  Also, you offer could be outbid in court and all this time was wasted.  If you as an investor finds another, better probate which also requires a 10% deposit (same price) and you want to make an offer then you have to place another $25K in deposit.  This isn't the best situation and another reason why most investors have passed on Probate Real Estate.   Also, just losing the FHA/VA/CONV low down buyers usually throws the good retail sale out the window.

The good news in California is the Independent Administration of Estate Act which now gives the Estate an option to sell outside of the court confirmation process and bypass the 10% deposit rule and many others.  This Act was established in 1987 but didn't become popular until around 2000.   I on the other hand have made thousands using the Act from day one.   This Act allows us to place any deposit we want on a probate home which means we can make multiple offers with just a limited amount of money.  This also means the estate can receive retail offers from FHA/VA and low down Conventional buyers which will result in more net proceeds to the estate.  As an agent I hunt for these low down buyers as most agents don't want to deal with this type of buyers (who needs closing costs also).  Remember, these deals rarely make it to the MLS so we are working on homes most don't know about.

My probate system uses the I.A.E.A in 95% of the probate homes we go after either as a wholesale investor offer or from a end user, move in buyer client (FHA/VA) who can pay retail.    Understanding the entire old probate system and the new system can be very lucrative for you investor and agents who will take the time to learn something new.   This I.A.E.A has kept me earning Six Figures even during this crazy market.   Check more on my probate system and what I have been doing for over 20 years with Probate at my website: www.probate-realestate.com

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Topic:
ActiveRain Community
Location:
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Tags:
probate property
probate home
probate
probate real estate
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Rainmaker
304,245
Inna Ivchenko
Los Angeles / Valley Homes
Mannis Real Estate Group

Very good point, I could not understand how would someone agree to keep 10% for weeks and often for months sitting frozen. If you are able to go around it, I'm sure you have a lot of clients these days.

Thanks for the information!

February 19, 2013 02:05 AM
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Rainmaker
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Gary DiGrazia, Sr.

Probate Real Estate Expert Training
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