How to Sell Inherited Property

An inheritance can a blessing, but sometimes, it can be a boon. Here at Valley Cash Offers, we want all of our sellers to be educated on the ins and outs of every situation they may encounter so they can make the best decision for their particular situation. In this article, we’re going to be discussing all of the things you need to know about the process, so you can retain your peace of mind.

 

Rational Decisions in Duress

Inheriting a property can be an emotional time since the heirs are likely related or close with the deceased. Tack onto that the responsibility that comes with the inheritance and it can become overwhelming to feel like a real estate agent in training. In the case of multiple heirs, otherwise positive relations can turn into arguments about the best way to handle the property. Luckily, you are not the first person going through this process! This article will give you the basics of how inheritance works, a few possible scenarios, and a timeline of what happens if you elect to sell.

 

Was there a Will?

• Yes: If the deceased had a Last Will and Testament, you are in good luck. Only about 4 out of 10 Americans have Wills despite the fact that it greatly simplifies the early part of the inheritance process. The Will likely recommends an Executor, the person responsible for the terms of a Will and sorting out finances of the deceased.

 

If the Will lists you as the only heir and recommended Executor of the property, you have the good fortune of making all decisions along the way, but also all the responsibility. While the Executor has all the power and liability at the end of the day, siblings can help carry the load of dealing with real estate agents or buyers, ongoing maintenance and mortgage costs, or check-ins on the house if living nearby.

 

• No: The absence of a Will adds time to the process, but hopefully no disputes. Since most Americans do not have a will, a probate court will name an Executor, technically known as an Administrator or Personal Representative. After the original owner passes, the court will decide who is the Administrator following state law. This varies, but a common priority list might follow this order: spouse, children, siblings, next of kin, creditors.

 

Options Other Than Selling

In case you are on the fence about selling, there are three options you should consider:

• Move In or Rent: Both moving in and renting share similar pros and cons. A sentimental part of youth is rescued, the house might be an upgrade from the heirs’ current living situation, and an unencumbered house has only the everyday maintenance fees and taxes that an adult heir would likely understand.

 

However, a property with debts or multiple heirs complicate the situation. A single heir won’t have any disputes with siblings but will have to consider if the costs associated with the house are worth the move in or attempting to rent. In fact, the heir(s) might not be able to afford the outstanding loans, liens, or judgements, and would be forced to sell. Siblings might not agree whether the house should be sold or not. Buyouts can be tricky if multiple siblings want to move in, or if only one sibling does but is not able to afford the buyout. In this case, the siblings might agree to have the buyout payed over a longer period of time, essentially a mortgage loan between family.

 

• Choose to Reject the Inheritance: A house that has more debt than its market value is know as “underwater”. In this case, the named heir(s) can choose to reject the property, at which point it will be put into foreclosure by the proper creditors. Note that in this route, the heir has forfeited all decisions related to the future of the property.

 

Timeline of Selling

Rejecting inheritance is certainly the easiest route, but of course that means no financial gains for the heirs. Moving in or renting come with their own complications, but most adults understand the basics of what that entails. Selling, the best option to make the most profit in one shot, is something many adults have never done before. An increasing number of Americans are renting rather than buying and might not understand the responsibilities of ownership in the first place. The easiest way to explain selling is to use a timeline of significant events, granted some of these events overlap or are ongoing.

1. Petition Probate Court: Probating is the process in which property of the deceased is distributed to those named in a Will. In the absence of a Will, property is distributed according to next of kin as defined by the state, and the court determines the Administrator. Once a member of the family petitions a Probate Court, the court will confirm the validity of the Will and the Executor, as long as there are no disputes or laws that invalidate parts of the Will.

 

Depending on the state and complexity of the estate, it’s possible that a probate attorney is not required, however, they are generally recommended. A probate attorney will show their worth if there are disagreements between heirs or if any laws supersede terms of the Will.

 

2. Retain Home Insurance or Obtain Unoccupied/Vacant Insurance: If there is a surviving spouse named on the home insurance that plans on continuing occupancy of the house until sale, they can continue the existing policy without interruption. No matter the heir, they should contact the insurance provider and notify them of the death. Some companies will require documentation like a death certificate and/or proof of Executor or Administrator. Most home insurance requires the house to be occupied continuously, or unoccupied no more than 30 days. The Executor can attempt to continue the existing policy by keeping the house furnished and checking in routinely for damage. If that is not possible, they can hire a property manager for check ins and required maintenance.

 

Unoccupied or Vacant Insurance is the best bet if the situations above don’t work for the Executor. This still requires contacting the insurance company, likely providing documents to prove Executor privileges, and then choosing the best policy. If the insurance company can show that the house has not been occupied for more than 30 days or vacant insurance is not provided, the company will not honor the policy in the event of damages and the Executor will be on the hook for out-of-pocket costs.

 

3. Continue Maintenance and Payments: Along with insurance, continuing payments can be overlooked during this emotional time. The Executor must make sure that mortgage payments, insurance, utilities, taxes, etc., are payed in a timely fashion. Loss of utilities can cause significant damage, for example a house without heat in a cold winter could result in several burst pipes. That would be an extraordinary cost on top of other stresses. Taxes and mortgages that go without payment will be discovered by a future buyer, and the Executor will have to settle them before sale.

 

4. Choose a Real Estate Agent (or Not): A real estate agent is not necessary and will take a percentage of the final sale, but can help remove some of the headache that goes into selling a house. They can handle many of the items listed below like assessing the market value of the house, prepping the house, listings, marketing, open houses, and negotiations. A real estate agent is almost unavoidable if the Executor does not live nearby.

 

5. Assess the House: Absent a real estate agent, assessing the house is one of the most important parts of selling the property quickly. Ask too high and buyers will not step in the door. Ask too low and the seller(s) won’t maximize their profit. The seller can research online for properties that have similar qualities like acreage, square footage, number of bedrooms and bathrooms, etc. They can also step in the shoes of a buyer, attending open houses in the area to get a feel for what the market is like.

 

Assessing the house is more than just determining market price. There are mortgages, liens, judgements, and potentially hidden complications like unknown liens, illegal deeds, missing heirs, or errors in public record. These all affect the overall profit that the seller(s) can expect to make.

 

6. Prep the House: Another item that a real estate agent could take over, prepping the house will speed up the sale. Hire a home inspector to find any structural or mechanical issues with the property (i.e. a failing roof) and determine if you would prefer to fix the issues yourself, or deduct the cost of fixes from the listing price. It is important to research return on investment (ROI) for any fixes being considered; repairs may help sell faster, but they likely entail a loss of profit. If there are extensive fixes required, consider selling to a cash buyer, typically a company that pays below market value, but can provide money in 30 days or less and won’t be as concerned about damages to the property.

 

Other prepping advice includes removing clutter (as much as 1/3!), removing family photos (buyers can envision themselves living in the house), painting as needed on the interior (light, neutral colors are preferred), keeping the exterior groomed, and maintaining a clean interior, especially kitchens and bathrooms.

 

7. List the House: After the house is prepped, it is advisable to get professional photos for listings and pamphlets. This is critical because many buyers won’t consider touring a house if the first images they see are low quality and poorly lit. List your property on several sites like Realtor, Trulia, or Zillow. Locally, place ads with pertinent information about the house and be available to answer questions or potentially give private, scheduled tours.

 

8. Host Open Houses: The listings you provide should also contain dates for open houses. After prepping the house, routine cleaning will keep the property ready to show. There has been evidence that pleasant scents like pine, herbs, green tea, or vanilla leave a positive impression on buyers. Have pamphlets ready to go for anyone that visits and be friendly and straight forward with inquires.

 

9. Negotiate: The listing price should be above the lowest price the seller will accept since negotiation is almost always guaranteed. Without a real estate agent, one should familiarize themselves with buyers’ negotiating tactics. They might make an offer several thousand dollars below the listing. Learning negotiating skills can help identify who is a serious candidate and who is a waste of time and energy.

 

10. Close the Sale: Closing refers to ownership being transferred to the buyer after payment is made and all obligations of the contract are met. A real estate attorney can take care of purchase agreements, mortgage documents, title documents, and transfer documents. There are states that require real estate attorneys, sometimes at every seller/buyer transaction. They typically charge by the hour, but depending on the complexity, finding an attorney that changes a flat rate might be more logical.

 

By the date of move in, the seller must have all possessions removed from the property (unless a grace period is specified in the contract), any agreed-upon repairs must be finished, and the house should be clean. A final walkthrough will occur within 24 hours to ensure everything is in order.

 

11. Pay Taxes and Finalize Financials: In addition to paying mortgages, liens, and judgements before finalizing sale, the seller will be liable for taxes on capital gains. If the seller owned and lived in the house for two of the past five years, the seller can claim $250,000 in profit, tax free – $500,000 if the sellers are married and file a joint tax return! However, that is not typically the case with inherited properties. That is when a stepped-up tax basis comes into play. For example, a house purchased 20 years ago at $70,000 is sold by the heir for $300,000 today. Luckily, the capital gains tax is not applied to the $230,00 profit. Rather, the market value of the house is assessed when the owner passes away, in this case, say $250,000. Now the seller only has to pay taxes on a $50,000 profit, a significant difference!

 

Consider All Options Before Selling Wisely

The article focuses on selling an inherited property, but keep other options on the table, especially since emotional times can lead to irrational decisions. Carefully discuss these options with anyone else who equally shares the inheritance. Most professionals urge heirs to very carefully consider if they really want to hold onto the house. Does it really make sense to move into the house if you can’t afford the costs? Do you really want to the headache of renting, especially at a distance, just to keep the house in the family on the off chance that you or a sibling will move in later? If the costs of the house exceed its worth, it certainly makes sense to reject the inheritance and allow the property to be foreclosed.

But if you reach the conclusion that the house should be sold, you are now equipped with baseline knowledge of how to do so. Getting help from probate attorneys, real estate agents, and real estate attorneys will make the process much simpler.

Remember to keep your wits about you. Parts of this article may seem obvious, but emotional times can cloud your mind. Determine the Executor, assess the property, maintain and prep the house, negotiate a profitable sale, pat the correct taxes, and you will have successfully completed the sale of your inherited property.

If you’re looking for someone who can work with you to make sure you’re getting the best deal in the Modesto, Turlock, or Central Valley area, we’d love to work with you.