California Probate Deposits

California Probate Deposits: Is a 10% Deposit Mandatory?

 

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Dear Phyllis,

Several months ago, my wife and I made an offer on a probate. The asking price was $925,000, and because we weren’t the only offer, we offered $940,000. However, we received a counter requesting that we make a 10% earnest deposit, increasing our escrow deposit from $28,200 to $94,000. Not really understanding much about the intricacies of probate, we relied on our agent’s advice. We didn’t accept the seller’s terms after he explained that the $94,000 would be held in escrow for several months. Later we learned that the home sold for $910,000. Our real estate agent contacted the seller’s representative, who explained that while our offer was higher, the lower offer agreed to the larger escrow deposit, so they got the deal. I certainly don’t see how this is ethical or fair to the seller. Can you offer some clarity?

Disgruntled

Dear Disgruntled,

In some instances, the estate’s attorney will require a ten percent deposit for Los Angeles probate sales requiring confirmation from the court. After the buyer removes all contingencies, this deposit becomes non-refundable, and a court date to confirm the sale is requested. Typically, the court date is about six weeks after the request (it could be more or less depending on the court’s calendar). At the appointed time in court, other potential buyers may outbid the (in escrow) price. The overbid amount is a complicated formula, but roughly five percent more than the original buyer’s agreed-upon selling price.

To recap: the buyer has opened escrow and received loan approval. They have conducted their physical inspection and, when applicable, negotiated any credits. Approximately six weeks later, the buyer goes to court with their Realtor, where other buyers can appear and overbid their price. If the original buyer wishes to continue the bidding process, it can go back and forth with the original buyer and any other bidders. The overbid increments are established at the judge’s discretion. There may or may not be overbidders.

In your instance, you would have been out of the home-buying market as soon as you removed contingencies. The court date would be ordered, and your $94,000 deposit non-refundable. You would be in escrow waiting, hoping the court would confirm your sale. I understand your reluctance to have moved forward with the ten percent deposit.

I understand that the ten percent deposit is suggested by the court and not required and is ultimately up to the estate’s attorney. In my experience, when listing probate properties for sale, most attorneys will forego demanding the ten percent deposit and will accept the more customary three percent upon opening escrow. As you have learned a 10% deposit not a reasonable request to make of a buyer. As such, many buyers will walk away, which can cause the property to sell for less.

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