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Probate Code §10308 provides that all sales of real property, whether by private sale or public auction, shall be with court confirmation unless the personal representative has been granted full authority under the Independent Administration of Estate Act (IAEA) as outlined in Probate Code §10500 to 10538. The most common way of selling real estate in probate cases is through real estate agents.
Probate Code §10538 allows the personal representative to execute an exclusive right to sell real estate for a period of up to 90 days and grants each extension of 90 days but not to exceed 270 days (if necessary). Most REALTORS will use their California Association of Realtors form called the "Probate Listing Agreement" (Exhibit 1) as the real estate contract for the personal representative to sign. If your client is the surviving spouse and adult children want to sell the primary residence, keep in mind the probate homestead. Probate Code §6521 could prevent the sale of the primary residence if the surviving spouse or minor children petition the court that they need the primary residence to live in. Even though the real property is being sold, it is important to remember to always have adequate insurance for the real property at all times until escrow closes and the buyers will have their own home insurance.
If the personal representative has been granted full authority under the Independent Administration of Estate Act then he or she could open escrow with the accepted offer. In accordance with Probate Code §10580, the personal representative will provide the heirs with a copy of a "Notice of Proposed Action" form DE-165 (Exhibit 2) , which declares that the personal representative intends to sell the real property and provides the terms and conditions of the proposed sale. The heirs have 15 days to object to the proposed sale and, if they do not object, the sale may proceed. The court is not involved in the sale therefore, no court confirmation is needed. If for some reason the estate wants to close escrow immediately and not have to wait for the 15 days, then a "Waiver of Notice of Proposed Action" (Exhibit 3) needs to be signed by all heirs. Because the personal representative has been granted full authority under the Independent Administration of Estate Act, he or she can sell the real property at any price and is not subjected to selling it for at least 90% of the appraisal value as outlined in Probate Code §10309(a)(3).
If the personal representative is granted only limited authority under the Independent Administration of Estate Act, then the sale procedure is significantly more complicated. The personal representative must publish a notice relating to the sale in a local newspaper of general circulation in the city where the decedent resided, then accept an offer, then file the "Report of Sale and Petition for Order Confirming Sale of Real Property (Exhibit 4) and attend the court confirmation hearing where the sale will be subject to "overbids". The overbid process is similar to an auction, where any individual may come forward and attempt to outbid the original proposed purchaser. Notice of sale must be published in the following manner: 1) at least three times over a period of no less than 10 days before the sale, the third time being at least 5 days after the first and in a newspaper published at least weekly in the county in which all or some of the land lies or, if there is no such newspaper, in the newspaper that the court or judge directs in accordance with Probate Code §10300(a). Probate Code §10311(a)(1) gives the computation on the overbidding formula, which is 10% percent of the first $10,000 and 5% of the remaining balance. For example, for a $500,000 accepted offer, the first overbidding amount would be $525,500 (10% of $10,000 + 5% of $490,000 + $500,000 = $525,500).
The appraisal of real property on the original inventory is based on its value at the date of death. If the personal representative has limited authority under the Independent Administration of Estate Act and the real property is being sold more than one year after the original appraisal date and court confirmation is needed, then the court will require a reappraisal before the court confirmation can go through. The reappraisal is necessary because of market fluctuation during the previous 12 months and the reappraised value determines the minimum acceptable price for the property because the sale price (by law) has to be at least 90% of its appraisal value.
Upon completion of the court confirmation, the court will issue an "Order Confirming Sale of Real Property" confirming the sale to the buyer making the highest offer. The personal representative will submit a certified copy of this order to the title company or escrow company so that escrow can be closed.
It is highly recommended that any and all title issues are resolved prior to the sale of any real estate in a probate. It is imperative to work with a good title company and real estate agent to resolve any preliminary title problems.
Visit Paul Horn's Probate Website for more information: https://www.learnprobate.com/probate-sales-of-real-property/