64% of people expect to leave an inheritance to their children.
A house very much can form part of this but selling an inherited property is never easy. The paperwork isn’t simple at the best of times, even more so when you’re trying to grieve your loss. But don’t worry, it doesn’t have to be overwhelming.
Keep reading for our ultimate guide on selling an inherited house the right way.
Probate
There is a legal process you need to go through to inherit a property. If the owner had a will, this could skip a lot of the legal red tape. If there is no will, then the property usually goes to the next of kin.
Even if there is a will, most estates still have to go through the probate process. This is the legal process that makes sure you follow the deceased owner’s wishes and respect them.
Each state will have its own laws around probate so do your research. In most cases, there will be a court-appointed executor who will carry out the will. This includes making sure each asset goes to the right person.
The Initial Costs When You Sell An Inherited Property
When you first inherit the property, there will be costs you need to consider from the get-go. Let’s break them down here in more detail.
Loans & Mortgages
Often when you inherit a property the mortgage was already paid off but it’s not always the case. If it still has an outstanding mortgage, those monthly payments will still fall due.
In this instance, you need to talk to the lender right away to explain the situation. Lenders might still ask that you pay the monthly charges via a payment plan.
Others might give you a payment holiday to get your affairs in order. This can be a huge help when you have more than mortgage payments to sort out and arrange. It gives you a bit of breathing room.
Property Insurance
When a property is empty for some time you should expect some deterioration. It can attract pests and dampness may be able to set in. These properties can also attract behavior like arson, vandalism, and squatting.
Because of this, you want to make sure you have good building insurance in place. If no one will be living in the property for a long time, make sure you make insurers aware of this.
Most insurers will as that you turn off the stopcocks on the water and also shut off gas and electric supplies. They may also ask you to inspect the property at set periods for security and safety reasons.
Maintenance Costs
As with any property, inherited properties still have maintenance costs. Whether that’s mowing the lawn or repairing a broken gutter, you need to get it sorted. When you first visit the property, take pictures and make a list of work you’ll need to do.
You can then arrange them by priority and get them ticked off over time. If you live far away, you may even be able to get the neighbor to provide access. If not you’ll need to be there but don’t leave things to the last minute. It’s hard to find good contractors and most have bookings months ahead.
Inspections & Traveling Costs
Don’t underestimate the time an inherited property will take out of your schedule. If it’s close to where you live already, this should be easy to manage. If it’s further away, then you need to think about when and how you’ll get there.
Over time the cost of your time and money will mount up. If you can, ask your family for help to share this burden. Or, if there is a neighbor you can trust, they might be willing to keep an eye out and do inspections for you.
Everyone Needs to Be On Board
In some cases, there will be more than one beneficiary of the will. This can complicate matters if each person has a different outcome they want for the house. One heir might want to keep it and move in, the other might want to sell up and split the cash.
Communication is key here so make sure you talk to any co-heirs about their expectations. Don’t dismiss what they want, remain calm and go through your side of things and be respectful of each other. The goal is to come to an agreement.
If you can’t do that, then consider selling your share to the other heir. In essence, they’re buying you out so you get your money and they keep the house. This is the best case if you want to avoid a lengthy, ugly legal battle.
Get the Inherited Property’s Title In Order
So, the first steps when you sell an inherited house goes as follows:
- Go through probate
- Make sure the house is yours by law
- Decide with other co-heirs to sell
Even after you’ve been through that process you could still face troubles if the title isn’t in order.
To get a clear title, there can’t be any outstanding lien or mortgage. This means you might have to pay off the existing mortgage. You should factor that into your asking price where possible.
Dealing With Personal Property & Belongings
For a lot of people, holding an estate sale is their preferred method to find new homes for a loved one’s belongings. This can be an emotional part of the process though, but it is crucial.
It’s an opportunity to get friends and family to help out if they’re able. When you’re grieving it’s important that you don’t push yourself and try to do it all alone. You need to look after your wellbeing, so calling on your support network will allow you some support.
Though, sometimes friends and family can’t help especially if the distance is too far. In this case, you can hire local estate sales companies to help you instead and most areas will have them. They’ll either want a fee upfront or will take a cut of the sale profits.
Inheritance Tax
The good thing is most states don’t have a federal estate tax. But if you sell that property, the proceeds will be subject to federal taxes. When you sell an inherited home you can avoid paying it on the majority of the sale though.
Laws that let the value of an inherited property get stepped up to what the fair market price is on the day they died. Otherwise, you’d use the value from when the person gets access after probate is over. This is something that’s allowed across most states in the US.
You have to remember that probate can go on for months or even longer. Let’s take a look at an example to break down how it works. A couple bought a home 50 years ago that cost them $80,000. Today, it would have a value of $200,000.
The couple had a child who has now inherited the property after their death. That person only needs to pay taxes on any amount that exceeds that valuation, on the day of death, of $200,000. If the home sells for $210,000, that means they would only owe $10,000 in federal tax.
Capital Gains
Any gains you make on an investment (from stock shares to real estate) fall under capital gains taxes. There are two types: short-term and long-term. The only time you will owe capital gains is when you sell off an asset.
Short-term capital gains apply to assets you’ve only owned for under a year. Long-term capital gains apply to any assets you’ve owned for over a year. Both of these go into the federal income tax that you all must file each spring.
Long-term capital gains taxes can range from 0-20%. The rate will depend on your income and the status of your filed taxes. The higher your income the more capital gains you need to pay out.
For short-term capital gains, you’re looking at the same rates as other income types. This ranges between 10-37%, again depending on your income. Like with long-term, the higher your income the more you need to pay out.
If you sell an inherited property at a loss (say because the value dipped in a tough market) you can apply a capital loss. You can only apply this if you sold the home in what’s called an “arms-length-transaction”. This means you didn’t sell to a friend or relative at a discount.
Your Tax Liability
When you’re selling your own property it’s natural to want the highest price you can get. With inherited properties, it’s a different animal altogether. This is because, as stated above, the proceeds fall under taxable income.
You need to consider these tax implications and the time you invest when setting the price. If you sell for a little under the market value you could make more money over time. You’ll have fewer capital gains taxes to pay.
It’s true that the seller’s income influences how much tax you’ll need to pay. Another big part in working this out though is how much the inherited property sale closes for. No one wants to pay more tax than they need to and by doing it this way you could close faster, close that chapter in your life.
Options For How to Sell Your Inherited Home
One of the biggest inherited property sale tips we can give is to consider how you want to sell the home. There are a few options available to you and they suit different people. We’ll break them down below.
Real Estate Investors
Home buyers are real estate investors that will buy your home as-is, regardless of condition. When you accept a cash offer from a home buyer, you could close the deal in as little as a few days. At the end of it, you walk away with cash in your wallet.
The Pros of Selling to an Investor
When a cash home buyer makes you an offer this will include all the liabilities with the house. They factor in the debts that need paying off and all repairs that remain outstanding. You’re selling your house as-is in its current condition.
Repairs take money and time to fix, you don’t have to deal with this if you sell “as is”. No expensive repairs or upgrades to make it appeal to current buyers on the market.
Investors won’t use inspectors so you don’t have to hang around waiting on the report. Usually, the cash offer will come the next day, or even right there on the spot. As we said, the closing process could take only a few days and you’ll get the full offer in your bank account.
Traditional transactions will involve a lot of people with specific jobs including:
- The seller
- The seller’s agent
- The buyer
- The buyer’s agent
- Inspectors/appraisers
- Mortgage brokers/lenders
- Repair contractors
This can complicate and delay the closing process. When you use a home buyer, you’re working only with them. As such, there is less paperwork, less waiting around, and less delay in the process.
The Cons of Selling to an Investor
The offer you get for your home will reflect its current condition and the work it will need. If your home isn’t market-ready you won’t get the market value. Remember, the investor is taking on all the liability and that will reflect in what they’re willing to pay.
If you exchange for a lower price though you don’t have any responsibility for any repairs. In some states, though there are laws around liability if you disclose any issues. So, be careful how to handle that part of the process and do your homework for your state.
Another thing to beware of is scammers. Many are mingling out there with legitimate investors. Scammers don’t care about building a long-term reputation within the local community. Often they move locations, targeting sellers who won’t hear about their bad reputations.
Make sure you research any home buying company in full before you commit. Ask around the local area to see if they’re well-known and check out online reviews. This will give you an idea of what to expect and whether you can trust them to give you a fair deal.
Finding the Right Investor
Do your research when you’re looking for a home investor. A home buying firm that’s starting out might not have enough funding behind them.
This means they might not give you a good offer. Or they might lack experience, which could delay and cause issues when closing. Look online to find highly-rated companies that are cash buyers.
Field offers from 3-4 of the reputable companies you find so you have something to compare. Don’t go for the first off you get, you want to make sure they have a track record of success beforehand.
Real Estate Agents
Selling through a real estate agent can help you get the very best price. But that isn’t a guarantee and there are a lot of realtors out there who aren’t good at their job. Get a good one though and they will help set things like:
- The asking price
- Marketing the house
- Showing buyers
- Closing the sale
With so much that goes into a traditional house sale, this can be of huge benefit to you. Not to mention having access to their cast knowledge of the local market.
The Pros of Selling with a Realtor
It can be difficult to know how to price your inherited property for sale. You don’t want to set the price too low, but you don’t want it too high either. If it’s too high it could sit on the market for months, putting buyers off.
A realtor can help you set the asking price to attract local buyers while still getting what it’s worth. They will represent you when selling and know the local market well. By comparing similar homes that have sold in the area, they can use this to find the right buyer types.
They also understand the financial and emotional toll of selling inherited homes. There are also the emotions of the buyer too, most buyers want the best deal. If they’re going to live in that house though, they want to have an emotional connection to it too.
A good realtor can remain sensitive in your time of grief. They can also navigate the needs and wants of the buyer, keeping everyone comfortable. It can take a lot of stress away from your shoulders at a difficult time.
The Cons of Selling with a Realtor
To complete a traditional sale you’re looking at weeks or even months. With some properties and chains, it could even be a year or so before it completes. Because of the number of people involved this can slow the process down.
Lenders, appraisers, inspectors, contractors, and attorneys, they’ve all got a role to play. And those roles often add time on top of closing the sale. Then there are the fees to consider.
It’s pretty impossible to know all the fees you’ll face when going through a traditional sale. There are fees for the realtor which you’ll know before hiring them. But the closing cost estimate you’ll get isn’t often accurate. A lot of hidden fees can crop up as a surprise.
Traditional buyers will also walk away or not consider a house that needs a lot of repairs. Because of this, you’ll need to put the work and money in to get it up to market standard. For example, if there is an issue with dampness in the inherited property, you need to do the following:
- Pay for inspections
- Remedy the issue
- Pay to restore any water damage
- Put preventative measures in place
This all comes out of your pocket. Hiring a real estate agent can also help stage your home for buyers when they come to view and for photos. While it can attract buyers and get a higher price, you’d still need to pay for it.
They know the features that buyers desire, so may recommend various upgrades. For example, they may tell you to paint a purple room a neutral color or replace a worn-out old carpet. Again, while it can add to the value, it’s still at an initial cost to you.
There are also home viewings to consider as these can become an inconvenience. If you’re living there during the process due to distance, you’ll need to leave each time a buyer comes round. Once or twice is fine, but more than that it might be a hassle.
Choosing the Right Realtor
Checking out your local realtor association can get you to a few comparison sites. You want to do some research about their sales record and what customers thought of them.
Interview a few of the top choices in the local area of your property. Ask them what they think the house is worth, most good realtors will come in at a similar amount. Trust your gut feeling, you’ll get an idea of who you want to work with.
FSBO (For Sale By Owner)
There is also the possibility that you could sell the home yourself. FSBO signs are common in a lot of neighborhoods. With these types of sales, you’re doing all the work yourself. This includes:
- Setting the price
- Marketing the home
- Showing buyers around
- Negotiating the final price
- Hiring the attorney to close the deal
As you can imagine this can be time-consuming and difficult if you haven’t done it before. But, if you succeed, it could save you a lot of money on fees if you cut out the middlemen.
The Pros of Selling by Yourself
A big benefit of FSBO sales is you don’t pay any commission to a realtor. The theory is that you can keep more of the money than if you used a realtor. You’ll also get a higher price than if you use an investor.
On average though realtor sales still bring in the highest sales prices. It’s possible that even with the best intentions, you won’t end up making more than you would with a realtor. Even with the fees, sometimes you can’t beat that local real estate market knowledge.
The Cons of Selling by Yourself
You need to set the price yourself and this is tricky if you’re not a seasoned expert. If you set it too low, you’re not getting the full worth of the house and could miss out. If you set it too high, like with a realtor, it can stagnate in the market.
The cost of selling FSBO and with a realtor is more similar than you think. The main difference is the commission which is usually 5-10%. You’ll also still have to take on the duties a realtor would do. Marketing in particular can add up, and you still need to get the house in a good condition.
Selling an Inherited House the Right Way
Selling an inherited house is an emotional issue, but it’s important you get it right. This includes making sure you go through probate, get legal ownership and get a clean title.
From there you need to decide how you want to sell. If you want a quick sale and don’t want to make repairs, selling to an investor might be a good choice. It’ll take all the stress off your shoulders and you can get closure without a sale dragging on for months.
If you want a home buyer you can trust, contact us for your cash offer today. At Smith Liquidations we’re specialists in honest, transparent sales making the process easy for you.