PROBATE SALES

This Article is designed to be of general interest. The specific techniques and information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal legal adviser.

Probate Sales can be done two ways: the easy way is pursuant to the Independent Administration of Estates Act (IAEA). Court confirmation is not needed. This is a much better system, and works well for the sale of residential property, if all of the heirs are cooperative. [For information on this topic, see our Brochure entitled, "Probate the Easy Way - IAEA."]

The more complicated method is through the Probate Court confirmation process. The rules below do NOT apply under IAEA.

All offers MUST be at least 90% of the Probate Referee's Inventory valuation. The Referee's Inventory valuation appraisal must not be more than one year old. (If the Referee's appraisal is too high or too old, it may be updated or corrected and refiled.)

When an offer is accepted (subject to Court approval) by the Executor, a Court Hearing is scheduled by the lawyer for the Executor. The lawyer arranges for Notice of the Hearing to be published (at least 3 times over a minimum period of 8 days, starting at least 10 days before the sale).

A public Hearing is held in Court at which bids are requested. The minimum opening bid is 5% + $500 more than the original contract. [If the contract is for $100,000, the first bid allowed will be $105,500.] Typically, a 10% cashier's check is required in Court as a deposit.

In addition, each local Court has its own rules which must be followed.

Commissions are subject to Court approval. Generally, Courts will approve more than 5% only with good cause.

Commission splits are very complex. The following situations illustrate some of the unpleasant surprises a real estate agent may face in a Court confirmation Hearing. [Assume that the listing agent has an exclusive listing.]

One agent situations:

#2) The original buyer has no agent, the original buyer successfully overbids: full commission is paid on the new price to the original listing agent.

#3) An overbidder without a broker is the high bidder: full commission on the original price to the listing agent.

Two agent situations:

#5) The buyer has an agent; in Court, original buyer is high overbidder. Commission on the final price, split between the agents as they agree. If no agreement between the agents, half of the commission on the original price to the listing agent, the buyer's agent gets half of the commission on the original price, and all of the commission on the increase.

#6) The buyer has an agent; in Court, new high bidder is not represented by agent. Commission on the original price, split between the original agents as they agree. If no agreement between the agents, equal split of commission.

Three agent situation:

#7) New high bidder with agent:

• New buyer's agent gets half of the commission on the original price and all of the commission on the increase;

• Balance (i.e. half of the commission on the original price) split between the original agents as they agree; if no agreement, equally.

No listing broker:

#8) Broker represents new high bidder: Full commission on final price (but not more than 50% of increase in price) to the new buyer's agent.

There are many more rules covering other very rare situations.

Example 7 is the most common situation, so some numbers are useful to illustrate the problem.

If the original offer was $200,000, and there had been no overbid, the listing and selling agents would split a 5% commission, $5,000 apiece.

If there is an overbid by a buyer with a new agent who bids $250,000, the total commission is $12,500. Who gets what?

The new agent: $7,500 (i.e. half of the original $10,000 commission, and all of the increase);

The listing agent: $2,500;

The outbid original selling agent: $2,500.

Written Agreement:

For example, they may agree that the selling agent gets a commission only if his buyer is confirmed at the sale (either the original offer is confirmed, or his buyer makes a successful overbid).

This can be a separate side agreement between the brokers. The following language suffices:

("Listing Broker") and ("Original Buyer's Broker") hereby agree that in the event that there is a new buyer represented by a real estate broker who is the successful high bidder at the Probate Court confirmation sale for the property located at , the entire commission allocable to the Listing Broker and Original Buyer's Broker shall be paid ____% to the Listing Broker and ____% to the Original Buyer's Broker.

This Agreement is pursuant to Probate Code §10165(c)(4).

A BETTER SOLUTION FOR ALL PARTIES

Why would any agent want to risk his fee and make life harder using this method when it could have been avoided? Especially when the sale is much more complicated when Court approval is needed. It is silly.

THESE RULES CAN BE AVOIDED EASILY BY THE INDEPENDENT ADMINISTRATION OF ESTATES ACT (IAEA). See our Brochure on the IAEA, titled Probate Made Easy.

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