estate

Much Ado About Estate Sales

Business

8 minute read

October 19, 2020

Be honest: what comes to mind when you hear the word estate?

Outside of a real estate context, I would more than likely picture a house like the one above.  Some mansion in the British country-side where a Bond villain lives, or where some old white man shoots skeet while his butler lets the clay pigeons fly.

I have a feeling that most of you would side with me on this one and think of “estate” as a piece of land.

Maybe it’s because we collectively drink a lot of wine from companies called something like “Jackson Estates.”

Or maybe we vacationed at a place with “estate” in the name?

Search for the definition of the word “estate,” and you’ll likely find two results:

1. an extensive area of land in the country, usually with a large house, owned by one person, family, or organization

2. all the money and property owned by a particular person, especially at death.
“in his will, he divided his estate between his wife and daughter”

While I would love nothing more than to delve into photos and fantasies about the sale of mansions in the Swiss alps, it is, of course, the latter of the two that I want to talk about today.

I’ve been on both sides of estate sales in the real estate market, having sold properties on behalf of the beneficiaries of an estate, as well as having represented buyers in the purchase of a property that had been owned by a now-deceased person.

These sales can be anything from easy and common, to downright nightmarish.

And over the past few weeks, I’ve come across both situations where the parties have handled the sale the right way, as well as where the process was unnecessarily difficult.

The first thing you need to understand with an estate sale is that when a person dies, and leaves a property to their heirs, the propety must “pass through probate.”

You hear this a lot in real estate.

Sometimes, you’ll see “Please Include Probate Clause” on the listing.  That’s not good.  More on this later.

Other times, you’ll hear the listing agent say, “The property has already passed through probate, we can do any closing you want.”  That’s great.  More on this later too.

To understand probate, let’s check out what Investopedia has to say:

Probate is the term for a legal process in which a will is reviewed to determine whether it is valid and authentic. Probate also refers to the general administering of a deceased person’s will or the estate of a deceased person without a will.

After an asset-holder dies, the court appoints either an executor named in the will or an administrator (if there is no will) to administer the process of probate. This involves collecting the assets of a deceased person to pay any liabilities remaining on the person’s estate, and to distribute the assets of the estate to beneficiaries.

Probate is the analysis and transfer administration of estate assets previously owned by a deceased person. When a property owner dies, his assets are commonly reviewed by a probate court. The probate court provides the final ruling on division and distribution of assets to beneficiaries. A probate proceeding will typically begin by analyzing whether or not the deceased person has provided a legalized will.

In many cases, the deceased person has established documentation, which contains instructions on how his or her assets should be distributed after death. However, in some cases, the deceased does not leave a will.

Let’s ignore that last bit about what happens if the deceased person doesn’t have a will, just for the sake of simplicity.

So imagine that John Smith who owns 123 Fake Street in Toronto passes away at the age of ninety-six after a fulfilling and wonderful life.  In his will, he bequeaths his property to his only son, Jim.

If John Smith passes away on January 1st, when do you think Jim is able to sell that property?

That’s the million-dollar question, and it’s where estate sales in our real estate market get very complicated, very quickly.  It’s also where, in my humble opinion, some people do it right, and many do it wrong.

You see, the process of “passing probate” takes time.  Often lots of time.

But whether the time is a little or a lot isn’t nearly as problematic as the fact that the time is always indeterminate.  Probate could take six weeks or it could take six months, but the larger problem isn’t the time as much as the variability.

Imagine that Jim Smith, upon inheriting his father’s property on January 1st, decides to put the property up for sale on January 10th.  What does Jim do about the closing date?

Here’s where things get tricky for a slew of different reasons.

Jim’s lawyer will tell him that “probate takes time!”  So Jim decides to offer the house for sale looking for a 120-day closing.

Right there, Jim is going to lose potential buyers.  Not all buyers are able, or want, to close in four months.  In today’s market, very few want to, and many are unable.  So if Jim is really going to sell this property before it passes through probate, he has to know he’s thinning his buyer pool.

Only, in my experience, sellers like Jim don’t know this, often because they hire listing agents who don’t tell them.  More on that later.

Now, what would happen if Jim sold the property with a 120-day closing but the probate process had yet to be finalized by the time the 120 days was up?

Well, technically, Jim would be in breach.  That’s not a good position to be in!

Jim’s lawyer may have told him that probate “should” be done in six weeks, and thus a four-month closing was sufficient, but problems arise with probate!  And what if, oh, I dunno, say, a worldwide pandemic happened and the municipality was closed for months on end?  Yikes!

Most people in Jim’s position will include a clause in the Agreement of Purchase & Sale that protects them in situations like this.

For example:

The Buyer and Seller agree that the Seller, upon providing a minimum of ten (10) days’ written notice to the Buyer (excluding Saturday, Sunday, or statutory holidays), may unilaterally extend the date set for completion, one or more times, not to exceed 180 days in total, for the purpose of obtaining a Certificate of Appointment of Estate Trustee.”

Alright…

So you and your partner happen to be Mike Buyer and Maude Buyer.

You find a house that you absolutely love and you decide to make an offer.

The seller wants a whopping 120 days to close so you provide it.

You also sign the Schedule B which happens to include the above clause.

Now what?

I have no idea.  Because I’ve never sold to clients in this situation before.

I don’t like selling properties to my buyer-clients where probate hasn’t passed yet, and I’ve only actually done this twice.  The first time, I went forward without issue.  The second time, my clients tried to pull a fast-one when they purchased pre-COVID, and tried to leave the door open to getting out of the deal, and being able to move forward with the transaction at the same time.  The whole thing was a fantastic mess as they were on the wrong end of some absolutely awful legal advice, and thankfully, they didn’t get sued.  They closed on the purchase three months after the scheduled closing date.

And that was an example where we thought the purchase of an estate sale would be easy!

But what about Mike Buyer and Maude Buyer?

What do they do once they’ve purchased a house with a four-month closing, but the seller reserves the right to extend the closing another six months?

What if they own a condo?  When do they sell it?

What if they rent?  When do they give notice?

The clause written above mentions only ten days’ notice!  So what if Mike and Maude have sold their condo and are preparing to close on the house, and then eleven days before the scheduled closing, they get a notice from the seller saying that the closing date will be moved four months?  As per the clause, they can do this again, provided the give ten days’ notice, for another two months.

“Not to exceed 180 days in total.”

Sure thing.  It’s only a half of a year!

These clauses can be edited to the liking of those using them, so this could be thirty days’ notice (which it should be), and could be longer or shorter than 180 days.

But that clause above doesn’t specify what happens to the Agreement as well as the deposit if the probate hasn’t passed by the end of those 180 days.

This is also where transactions become problematic.

That clause should have a provision for the “unthinkable” just in case it happens.  It should say something to the extent of:

….in the event that the Certificate of Appointment of Estate Trustee has not been received by the Seller at the completion of the 180 days specificed herein, the Buyer shall have the option, at his or her sole discretion, to terminate this Agreement, after which the deposit will be returned in full with no deduction.”

Open-ended clauses are legal nightmares just lurking in the dark.

Buyers and sellers always think that probate will take time but will ultimately pass, and all will be well.  But when you leave things to chance, you can’t control the outcome.  I’m a control-person, so suffice it to say, the few times I’ve represented estate sales, I’ve had lawyers draw up the clauses, unlike most of the listing agents out there representing estates today.  I took that clause above – with the open-ended 180 days, with only 10 days’ notice, from an active listing.  That’s a problem waiting to happen.

So what’s my advice for people who don’t want any problems on the sell-side?

Oh, it’s so simple: wait for probate to pass before selling.

This isn’t a cop-out.  This isn’t me taking the easy way out.  In fact, it’s the exact opposite.

A little over one month ago, I met with a family who had inherited a downtown property from a deceased relative.

I told them, “You shouldn’t sell this property until probate has passed.”

Do you know what they told me?

“We spoke to two other agents, and they both said to sell now.”

Exactly.

I’m telling you now what I told them then: most agents merely care about getting their proverbial sign in the lawn.  They want the listing.  As soon as possible.  In fact, now would be the best time.

How many agents are going to walk into your home and say, “I know you want to sell now, but I’m happy to work with you over the next two, three, or six months, and work toward getting the highest possible price by setting up the best possible conditions?”

Not many.

But I did.  That day, with that family.

I explained to them that the stakes in our market are too high to not sell any property in a perfect situation, especially when you control the situation.

Many buyers aren’t interested in long closings, indeterminate closings, and/or flexible closings.

In our market, the best results on the sell-side arise when there are a slew of interested buyers.  This is why, as we have discussed ad nausem, most listings are under-priced and an “offer night” is held one week later.  Get eyes on the property, draw people in, and have them bid against each other.

Now, if you randomly eliminated a subset of buyers, say, all the buyers who’s names start with a vowel, or are born in the summer, then you’d have fewer buyers interested in the property, and likely end up with fewer offers, and a lower sale price.

Sometimes, the elimination of buyers in the buyer pool isn’t random.

Like when you push away buyers who don’t want the uncertainty of buying a property that hasn’t passed through probate.

And this is why I advise all would-be sellers so simply wait the six weeks or three months so they can set the table for a successful sale.

That’s what I’ve told two potential sellers since this past summer, and both took my advice.

Others may not agree, since we see properties listed on MLS all the time where probate hasn’t passed.

There’s absolutely no question in my mind that the process of selling a property is much easier when it has passed through probate, and likewise, no question remains about the difference in sale proceeds one would obtain if title were free and clear.

If you’re a seller, heed my advice.

If you’re a buyer, be very, very careful.

And if you’re reading this and you’ve been in these situations before, we would all love to hear some real-world examples!

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

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10 Comments

  1. Potato

    at 9:26 am

    “What do they do once they’ve purchased a house with a four-month closing, but the seller reserves the right to extend the closing another six months?

    IANAL, but in practice couldn’t the estate can rent the house to the buyers so they can move in whenever they want? In theory, there are the same risks — if the putative trustee leases the home on behalf of the estate and then in probate it turns out that there was another will and someone else was the actual trustee, the lease could get thrown out along with the agreement to purchase. But you don’t need a court to sign off on a lease so everyone involved can decide to take that risk to make things work in the real world. If everyone involved was comfortable enough that probate would pass to list and buy the property in the first place then they should be willing to take the risk of leasing too…

  2. hoob

    at 9:42 am

    The other half of my house (semi) is an estate sale that is taking place more than 12 months after my neighbour passed away. I’m not sure how much of this was probate, and how much of it was COVID and timing the market, but it’s clear in this case that the stakeholders decided to play the longer term game.

    That aside, I am immensily curious how the property will sell in this market. The agent on the sign is well known in the area. It’s the canonical “little old lady lived in her house for 40 years and it’s now on the market” — inside is very dated, and it’s a small 2br property without any potential to top up or push out. But I know she took good care of the property so it’s “solid bones” for sure.

    I’m expecting a quick flip that refreshes the interior. I’m girding myself for a few months of WFH with reno noise, party wall agreement fun, etc.

  3. Serge

    at 9:46 am

    Exactly. Thanks for posting about probate cases.

    Just an anecdote from the recent history:
    I was bidding on a detached house in Toronto-West in December 2019. The homeowner has passed away 1 month ago, and his children were selling the property without sorting out inheritance questions. Strange clauses were added on-the-fly to Schedule B, closing dates were moving from Feb to Apr 2020 and beyond… without any clarity when the process would definitely conclude.

    In the end, I went in with a defensive strategy and was outbid by $50k by somebody else. Ultimately, I bought a better house 1 block away.
    The funny end to the story: the original Estate Sale house is still empty 11 months later, with dark windows and overgrown lawn, without any hint of human activity. I guess the probate got massively delayed, and the buyers moved on…
    Lesson learned: it’s important to stay out of trouble on estate sales.

  4. Sirgruper

    at 12:53 pm

    Very good thoughts. “Probates” (actually called Certificate of Appointment of Estate Trustee with a Will) are very delayed in Toronto and can take 9 months. Less in smaller jurisdictions. They can also be sped up if there is a pending sale. You also don’t always need “probate”. Sometimes people will put the title in joint tenancy and you just need a Survivorship Application which takes no time to speak of. And for people that have owned their property for a long time, they may have owned the property in the old Registry System and it may be a “first dealing” in Land Titles and you do not need “probate”. Agents definitely need to take direction from the client’s real estate lawyer that has searched title.

    P.S. David. Do you have title searched before you list a property? I’m guessing you do but way too many agents do not and they should. People forget or don’t know what is on their title. Often there are encroachment agreements, easements, restrictions, old undischarged mortgages etc. that they forgot about but should be disclosed on the listing and the Agreement of Purchase and Sale or cleaned up before listing. Just another way to prepare for closing.

    1. Azalea

      at 10:57 am

      Sirgruper, the ‘first dealings exemption’ can avoid probate only when there is little money or other assets that do not have to go through probate. I’m referring to common single Wills and estates that do not include trusts or a second will.

      I was gifted an entire estate, including a ‘first dealings’ home. However, my 92 year old father sought good estate planning from a certified estate lawyer and gifted his money prior to his death so he had less than $10,000.00 in one bank account just before he passed away. This bank account was made ‘joint’ with me, so it would pass to me immediately upon his death and thus not require probate. Monies exceeding this low $10k threshold would not normally pass to the ‘joint’ account holder and would trigger probate as most banks will not release anything over $10k without a Certificate of Appointment of Estate Trustee.

      However, if the bank requires a Certificate of Appointment before releasing the monies the estate House, whether or not a first dealing, HAS to be included with the assets requiring probate.
      A good estate lawyer, a good estate plan, and an upfront bank manager, will tell a client with a common single Will that it is best to give money before death and keep only less than $10,000.00 held in a joint account with a beneficiary.

      Sadly, many people mistake a ‘first dealing’ house with being probate-free and only find out that the house will have to be included and go through probate when the bank will not release any monies until probate is completed.

      1. Sirgruper

        at 3:20 pm

        You still wouldn’t need “probate” to sell the house and thus no wait time which was David’s issue. Further in your case, if the account was joint, it passes by right of survivorship and it is irrelevant the amount in the account. I agree though, estate planning is tricky and the more complex the estate, the more your need a tax/estates lawyer to guide you through it. This would include having a primary and secondary will, designated beneficiaries on brokerage accounts etc. I was trying to keep the discussion simple:)

  5. Steve

    at 5:13 pm

    As an executor of an estate with a vacant land asset ( no will was in place and also the deceased forgot about the land for about 30 years, not realizing he even owned it), it took two years to be able to complete a real estate closing on this land, from May 2018 my first becoming aware of the land to the June 2020 closing.

    The estate court approval was just before the March 2020 lock down for me to get sole trustee approval to sell the land. The ETA ( Estate Administration fee or probate fee was paid in April, 2019.

    I have still not been able to distribute the net sale proceeds because of delays with CRA.

    David is absolutely correct do not go near a property whereby the estate trustee is in mid-stream on the whole process. It can take a very long time.

  6. Marty

    at 5:18 pm

    Since you asked: And if you’re reading this and you’ve been in these situations before, we would all love to hear some real-world examples!

    Well, first of all, my “butler” does not handle the skeets. My valet does.

    Secondly, I agree with your advice. Grandpa did not live to 96 for you to sell his house 11 minutes after he dies.

  7. Kims

    at 6:10 am

    Thank you for this clarification. I am currently waiting on Probate and both the estate lawyer and realtor said wait until it clears to sell. I now fully understand..

  8. RC

    at 2:02 pm

    We had this situation yesterday, we loved the house, but it was an estate sale awaiting probate with a 5 days notice and 180 days closing clause.
    We made an offer with 10 days notice and 90 days closing. We were so devastated when we didn’t get it and felt we should’ve offered more since we absoutely loved the house and the asking price.
    We tried to get more clarity on the reason for the probate clause from the selling agent and that made him furious. As you said these sales could be smooth or it could be nightmarish but since the agent was so angry with our inquiry of the probate clause maybe it will be the latter. Thanks for you blog

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