Full Authority VS Limited Authority in Probate: What Real Estate Agents Need to Know
While the probate process may continue for months, a property can be listed and sold in as little as 3 months, including the buyer taking possession of the property and the real estate agent collecting their commissions. This is something that many real estate professionals and heirs alike don’t always know.
Ultimately, the deciding factor on how soon one can list a probate property is the authority type. Keep reading to learn everything real estate agents need to know about full authority VS limited authority in California probate.
What is Full Authority in California Probate?
Once the Order for Probate and Letters have been issued by the court, the real estate agent is able to take the probate listing and can accept an offer using a probate purchase agreement.
A personal representative with full authority is not bound to sell the house for at least 90% of its appraised market value as there is absolutely no court confirmation required. An offer can be accepted any time once the Order and the Letters are issued when the probate case is full
authority. It is not necessary to wait for the probate referee to complete the appraisal of the property, which can take up to another 60 days.
Once you confirm that your personal representative has full authority, you can inform potential buyers that no court confirmation will be required; so long as all heirs agree to the selling price. Once the personal representative and your buyer sign the probate purchase agreement, the probate attorney will be able to draft the Notice of Proposed Action (NOPA).
Keep in mind that the attorney needs a copy of the probate purchase agreement to prepare the NOPA. The NOPA contains information pertaining to the sale including the sale price, the buyer’s name, and a copy of the probate purchase agreement. The court requires the NOPA to be filed in the case and mailed to all beneficiaries. If any of the heirs wish to object to the sale price, they have 15 days to do so. If no objections are filed within 15 days as provided by the NOPA, you can proceed to close escrow. However, you cannot close escrow until the 15 day period elapses.
With time crunches, (for example, if there is a foreclosure sale scheduled) and the estate cannot afford the 15-day waiting period, then all heirs can sign a Waiver to the Notice of Proposed Action, which is a judicial council form that can be prepared by the probate attorney. Once all heirs sign the Waiver of Notice of Proposed Action, you can proceed and close immediately. The
15-day period would not apply.
The initial deposit required under a full authority probate case could be as little as 3%.
Remember, these cases do not require court confirmation, thus, they are not subject to a 10% deposit requirement. Your probate transaction is not going to a judge for approval. All escrow needs to close your transaction are: 1) the Order for Probate, 2) the Letters, and 3) the Notice of Proposed Action.
What is Limited Authority in California Probate
In cases with limited authority, the same documents are issued; the Order for Probate and the Letters. However, the difference is the personal representative has limited authority.
The sale price of the property must be within 90% of what the probate referee values the house. It cannot be lower. The probate referee is randomly appointed by the court. What they do is complete a judicial council form known as the “Inventory & Appraisal.”
In limited authority cases, there are two separate valuations given to the court by the probate referee. The first valuation is given under a “Final Inventory & Appraisal”, which provides the property value as of the date of death.
For example, if the probate case is filed in 2020, but the decedent passed away on June of 2018, the Final Inventory & Appraisal will provide the value of the property as of June 2018.
The second value provided to the court is a “Reappraisal for Sale Inventory & Appraisal” which provides the court the current value of the property for the purpose of the sale. In limited authority cases, reappraisal has to be done within 1 year from the time you intend to sell.
The property cannot be sold for less than 90% of the reappraised value. Therefore, the court needs this information to be current before you appear in court for the confirmation of sale (Probate Code 10309).
The court also requires that a “Notice of Sale of Real Property” be published in a local newspaper in the county where the property is located, if there is no such newspaper, in such newspaper as the court or judge may direct (Probate Code §10300(a)). The publication is required at least three times over a period of no less than ten days before the sale, and the third publication must be at least a week after the first.
The purpose of this publication is to notify potential buyers that the property will be open to auction in court. Once the newspaper publication is completed, you can execute the Probate Purchase Agreement.
The initial deposit for limited authority cases is 10%. Your buyer needs to clear all contingencies, except for the contingency of court confirmation. Once all contingencies are cleared, the probate attorney will prepare and file the “Report of Sale and Petition for Order Confirming Sale of Real Property.”
This petition discloses the total commission that is to be paid to the real estate agent, the sale price, the address of the real property, the values provided by the probate referee, the deposit amount, and the starting over-bid amount along with the formula for overbids.
What is the Overbid Formula for California Probate?
Let’s look at a scenario under which the sale price is $526,000. Based on the overbid formula,
the first bid in court, if any, must start at $552,800. That calculation is reached as follows:
- Original Bid: $ 526,000
- 10% of first $10,000 of original bid: $ 1,000
- 5% of (original bid minus $10,000): $ 25,800
- Minimum overbid (a + b + c): $ 552,800
The court filing fee for the petition for confirmation of sale is $465. Once paid, the court will set a hearing date. On the date of the hearing, if any over bidders appear in court, the probate attorney will request a 10% deposit from all bidders. The money is to be paid only with a cashier’s check.
Once a sale is confirmed, the judge will sign an “Order Confirming Sale of Real Property” awarding the real property to the highest bidder (Attached as Exhibit F is a sample of an Order Confirming Sale of Real Property). Escrow will need a certified copy of this order to close escrow.
In addition, escrow must be given the estate’s Tax ID number. The probate attorney will establish the estate’s Tax ID and provides it to escrow. When escrow prepares the 1099 for the sale of the property, they must use the estate’s tax ID to report the proceeds, not the decedent’s social security number.
Once escrow closes, real estate agents get their commissions, and the buyer obtains possession of the property.