Selling Real Estate in Probate
In Parts 1 through 4 of this series, we covered generally the process and procedures that are included in filing the Petition, having a Personal Representative appointed, and taking control of the Estate assets. In this Part we discuss and review Selling Real Estate in Probate Administrations. More often than not, real estate must be sold during the Probate process and the sale proceeds divided before being distributed to heirs or beneficiaries of the Estate. What's involved? How's it done? Let's take a look...
“In Probate, you won’t survive selling a home without a lot of help from an experienced Probate attorney, in addition to a real estate agent who’s an expert in your local probate rules and procedures (yes, you need both an agent and an attorney).”¹
Full Authority vs. Limited Authority
First off— when the Personal Representative is appointed, be it either an Executor or an Administrator, the Court's order will grant the Personal Representative (1) Full Authority, or (2) Limited Authority, to administer the Estate. The primary advantage of full authority is the Personal Representative can take most actions, including Selling Real Estate, without court supervision. This is a huge benefit because it saves time and money. In my practice Full Authority is always requested. However, full authority is not always granted by California Courts. Often times there is no Will (which generally authorizes Full Authority), or Waivers of Bond cannot be received from all heirs (see Part 3 on Probate Bonds).
Private Sales vs. Public Sales
Real Estate can be sold by the Personal Representative in a Private Sale, by entering into a listing agreement as discussed below, or at Public Auction. Real Estate sold in a Private Sale requires an appraisal within one-year of the sale time, and the sale price cannot be less than 90% of that appraised value. With a Public Auction there is no restriction on having the property appraised, nor is there a restriction on the sale price. However, when sold at Public Auction the real estate still may not be sold for an amount disproportionate to its value, and must be sold within the reserve amount.
If Full Authority has been granted, the Personal Representative can freely enter into a listing agreement on behalf of the Estate. A real estate agent or broker, can then market the real estate for sale and the Personal Representative can accept the highest offer. However, if Full Authority has not been granted- the Personal Representative does not have authority to enter into a listing agreement. This means that the real estate agent or broker, will not be able to enforce the listing agreement, and that the Personal Representative may be in breach of his or her duties. A Personal Representative with Limited Authority must obtain permission before entering into an exclusive listing agreement by filing a Petition. Commissions must be approved, and it must be shown to the Court that an exclusive listing agreement is necessary and advantageous to the Estate. The remainder of this Part will discuss only Selling Real Estate with Full Authority- we'll discuss the nuances to selling with Limited Authority in a future blog.
Regardless of receiving Full Authority or Limited Authority, a Personal Representative must enter into the listing agreement in their capacity. This may be "Jane Smith, Administrator of the Estate of John Smith," or "John Smith, Jr., Executor of the Estate of John Smith." Also, Agents and Brokers should use the Probate Listing Agreement and should attach the Probate Advisory to any Purchase and Sale Agreement. Delays can occur, and it's important to insulate the Estate from Specific Performance lawsuits.
Notice of Proposed Action
If Full Authority has been granted, the Personal Representative has entered into a listing agreement, and an offer has been accepted, the Personal Representative needs only to provide Notice of Proposed Action. This Notice, will include terms of the sale, and unless an objection to the sale is made timely, the Personal Representative can transfer the property and close escrow.
Certified Letters Testamentary or Letters of Administration
Before escrow can close, the Personal Representative must obtain a certified copy of their Letters to be recorded in the County where the real estate is located. Without this authority recorded, the sale cannot be completed.
Estate Bank Account
If one has not previously been opened, before the close of escrow, the Personal Representative should generally open an Estate Bank Account into which the net sale proceeds will be wired.