Whether you inherited a home that needs a lot or a little work, selling an inherited home is a process. Depending on your situation, you have different options that can make life easier or harder depending on what you choose.
If you want the best outcome for your situation it’s good to know your options.
In this article we’re going to simplify probate, cover different options to navigate taxes, what your legal and financial responsibilities are and how to sell the house for the most profit, with the least amount of hassle.
Probate in 4 Simple Steps
Probate is the legal process of administering the decedent estate and assets to their family members and loved ones. And unless the decedent set up a living trust, the property will need to go through probate to be sold.
Fortunately, probate is generally pretty predictable:
1. Identify & Assign the Executor
For probate to start, an Executor must be appointed. The Executor is generally named in the decedent’s Will. If not, or if there is no Will, the court will appoint an Administrator generally at the request of a family member.
2. Appraise the Property
The Executor will need to determine a listing price if the home is to be sold. The listing price can be determined with the help of Real Estate Professionals or a Certified Appraiser experienced in Probate sales.
3. List the Property
Once you have a price, the property can be sold to a Private Investor or put on the market with the Courts approval. A real estate agent will market the home with signage, a website and listing to attract buyers. An Investor will buy it outright for cash and can even assist with the Probate process.
4. Final Approval and Sale
Once an offer is accepted an official notice is mailed to any heirs of the estate. This establishes a 15 day period to object to the sale of the property. Without objection the court will schedule a date when the house can officially be sold.
Now that you have a basic understanding of what’s involved with Probate, let’s take a look at selling in more detail.
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How to Sell Your Inherited House in 7 Simple Steps
As difficult as it is, selling the home you’re inheriting is often a persons best option; especially if multiple heirs share ownership. This can immediately remove legal and financial responsibility related to owning the home.
While you’ll likely be able to sell the house for profit, you’ll need to take into account the different costs associated with the sale, such as:
- Outstanding debt, such as liens or a mortgage;
- The cost to make repairs/upgrades to list on the market;
- All closing costs & escrow fees;
- Agent commissions.
Selling the house is going to be emotional all the way from sorting personal belongings to finalizing the sale. So prepare yourself.
To get started, you’ll need to identify the Executor by locating the Will.
Step 1: Identify the Executor of the Estate
To legally sell the house you’ll need to have the Will in your possession. This document should name the ‘Executor‘ and how assets are to be split amongst family.
A Will simplifies and reduces the cost of probate. It indicates a home’s been assigned to someone without the courts having to. While probate isn’t as complicated in California, it can get expensive paying the fees involved.
What if you don’t have a Will?
If you don’t have a Will, you’ll need to file a Petition to Administer in the decedent’s county for a qualifying Family member. Any assets will also be settled under the laws of Intestate Succession and go to your closest relatives based on priority. If you’re uncertain where you stand, you may need to hire low cost legal help.
Step 2: Consider Enlisting Professional Help
Professional help can go a long way in helping you create and follow a plan. And the first place you’ll want to start is with a Probate Attorney. An attorney will prove especially helpful with relatives that disagree on what to do with the property.
1. Probate Attorney
The first person you need is a good Probate Attorney. A Probate Attorney is going to handle all the legal stuff for you. They’ll let you know what documents you need, they’ll file your probate petitions and speak for you in court.
Make sure the Attorneys you speak to are experienced. Check their references by asking to speak to satisfied clients. They’ll also provide council on the steps to take during the process. Also, if you have unique circumstances, ask if they have experience with cases like yours.
Probate Attorney fees will typically be paid from the sale of the home.
2. Probate Real Estate Agents
A real estate agent with probate experience is generally who you’ll need to handle the transaction since a regular agent may not know the correct procedures or forms to use. If a mistake is made, this can add a lot of extra time to close your hearing.
A good agent will make suggestions for repairs, market your home, do signage, create a website and hold showings. The drawback is they can be expensive and require work and money from you if renovations are required.
You’ll also need to account for:
- Any remaining debt that needs to be paid;
- Renovating costs to get it market ready;
- Escrow fees and Closing Costs; and
- 4-6% in Agent commissions
Before selecting an agent, request that your top choice meet with you and your Probate attorney to make sure the three of you will work well together.
3. Investors with Probate Experience
Investors with Probate experience will do everything a good Realtor will. The difference is they don’t come with the added work or expenses. They buy houses in ‘as-is’ condition, without fees, closing costs or commissions.
Investors provide the convenience of covering some of the upfront costs, potentially saving you thousands in fees and the accumulation of expenses from the home sitting on the market. You’ll also have a guaranteed buyer at the end of probate.
The drawback is you’re not likely to get full market value.
However, in many cases you’ll make MORE money with an investor, since they cover many expensive fees for you.
If your home is in really bad shape, selling to an investor is a fast, guaranteed option for a hassle-free sale. A good Investor will help you step-by-step through probate to ensure you know exactly what you need to do at all times.
4. Tax Professional
You should only handle taxes on your own if you feel like you understand them well enough. Though taxes on an inherited home are some of the simplest you’ll deal with, you don’t necessarily have to deal with them on your own.
When in doubt, you can always contact a tax professional and have them review all of your information. There’s nothing wrong with soliciting the advice of someone whose career is dedicated to handling situations like yours.
Step 3: Determine the value
Pricing your inherited home is going to be a big decision. While online home estimators are great tools and can give you a ballpark estimate of how your home compares to others in the neighborhood, they can be misleading.
These figures should never be taken as a realistic amount of what you can expect since price really depends on:
- Whether the home has an existing mortgage
- Debts
- The condition
- As well as the state of the real estate market.
Here’s what you can do:
1. Get local price estimates
The simplest way to get an estimate is by having two or three local real estate agents walk the property and give you a figure. Local agents are going to know what’s going on in the market and whether your area is hot or cold.
Once you have a few different figures take the average to get an idea of what you can consider listing your home at.
2. Pay to have a professional appraisal
If you want a more accurate estimate, conduct a formal appraisal with a licensed appraiser at the time of the decedents passing, since capital gains taxes will be calculated from the value at this date.
This is especially true if the property is income-producing or multi-family (duplex) as such assets are harder to value compared to single family homes since there’s more comparable data.
To find a licensed appraiser in your area speak with local real estate agents, mortgage brokers or banks for recommendations. Also be prepared to spend several hundred dollars for an appraisal.
3. Don’t price too high
The only rule of thumb is to be realistic about your asking price. Buyers are always going to try and get the lowest possible price for your home.
However, while a low price may start a bidding war, a highly unrealistic price will drive prospective buyers away. You’ll need to set a price in between the two with just enough room to negotiate a higher price for yourself if possible.
4. Don’t get discouraged
Market conditions can drastically change a sellers asking price despite what comparables may show. Offers can have tens of thousands of dollar difference of your asking price whether it’s a buyer or sellers market.
Due to this as well as how the sale is negotiated, you’ll unlikely get your initial asking price. So don’t be discouraged if what you end up with falls a bit short.
5. What if you inherited a house with a mortgage?
If money is owed to the lender on the home, you inherit the mortgage the moment you officially inherit the house. This will effect the price you can value the home at and profit you expect to receive.
If you want to sell before payments become due, you’ll need to determine a price quickly. Otherwise, remember you’re now responsible for any debts left over, the mortgage, property taxes, utilities and maintenance in the meantime.
The longer the home sits the more expenses are going to pile up.
6. Inherited a house with no mortgage?
If you inherited a house without a mortgage or many repairs needed, you’ll likely get the best price selling on the market. Keep in mind you’re still responsible for property taxes, maintenance, utilities and insurance in the meantime.
In some cases you’ll get lucky and be able to sell quickly. In most cases, it can take weeks or even months before the home sells, so make sure to account for the house to get more costly the longer it sits unsold.
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Step 4: Understand your Taxes
Did your relative pay property taxes every year? Or will you need to pull from the proceeds of the sale to cover the cost? As soon as you obtain ownership of the property, you’re responsible for the property taxes.
However, selling an inheritance is going to have the largest tax implication. If you make a profit on the sale of the home you’ll be subject to either short-term or long-term capital gains tax.
Fortunately California does not impose an Estate or Inheritance tax.
Let’s take a closer look…
Capital Gains Taxes & Losses
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When you sell an inherited property, you’re required to report the sale on your taxes. The outcome of the sale determines whether it’s treated as a capital gain or loss. If you make money on the sale, you’ll have to pay capital gains tax.
Here’s the catch: the cost basis of the house depends on when the original owner passed away.
If you sell the house right away at its current value, it’s a direct exchange. If you have a $400,000 property, and you sell it for $400,000, that’s considered breaking even in the eyes of the capital gains tax.
If you sit on the property for a while, including living in it or renting it out, and it continues to gain value, you’re only responsible for the difference between the value of the home when you first received it and the amount you sold it for. If the $400,000 house becomes a $425,000 house, you’re only responsible for paying the gains tax on the $25,000 difference.
In rare cases, the property may have decreased in value over the years. Since the ownership was transferred to you, if you sell it for less than the price it was initially worth, you may be able to claim the sale of the property as a tax loss of up to $3000.
Can you avoid capital gains tax on your inherited property?
One way to limit your capital gains is to sell the property as quickly as possible so it doesn’t have time to appreciate.
You can also help avoid paying property tax by selling before the next due date from the property’s local municipality.
If you feel like the property isn’t a good investment, you also have the ability to disclaim the inheritance to avoid paying any of the taxes associated with it.
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Step 5: Work with your Siblings
We know working with Siblings can be near impossible sometime. And you’ll have better chances getting things to move quickly if everyone knows you don’t intend to make out like a bandit and leave them in the dust. Try and incorporate them into the selling process as far as they wish to be incorporated.
It’s important that you talk to everyone about their concerns. If you have a sibling that’s desperately in need of a new vehicle or is struggling with crippling debt, take their needs into account. If another is living there but not paying rent consider what solution can be found for them.
If you can show your family that their needs are being put first, they’ll be more likely to work with you. You’ll need to make good on your promises, and do whats right and fair for everyone so everyone’s satisfied.
Step 6: Determine how you’re going to sell
When it comes to finding a buyer, you really only have two good options: you can list with a realtor, or you can sell to an investor. Both have distinct advantages and disadvantages.
We commonly see two situations that identify the best route to take:
- Your property needs major repairs with a mortgage, legal or debt issues.
- Your property that needs minor repairs, with or without a mortgage and minor or no legal or debt issues.
If you’re closer to situation 1, sell the home to an investor.
If you’re closer to situation 2 , you’re probably better off listing it with an Agent.
For anyone in between, you’ll need to determine how much work you want to do, which option provides you with the best benefits, least amount of hassle and out of pocket expenses.
Step 7: Prepare & Sell the Property
If selling to an investor was your best option above, you can skip all the repair work. Investors don’t require repairs or upgrades. You simply take what you want and leave the rest for them to handle at no added cost.
If you’ve decided to list with an Agent, you may need to invest your own money for things like trash haul away and getting it market ready. If you had an appraisal done, you should have an idea about how much you need to spend on repairs.
You’ll have some important decisions to make, and you’ll need to weigh the information you have in order to determine whether the time and cost of making repairs are worth it.
If you’re not sure what your best option is, give us a call for a free consultation: 951-331-3844
In the meantime here’s what you can do…
1. Clear out personal belongings
One of the most difficult aspects when inheriting a home is going through your loved ones belongings. While you can’t take everything with you, it is worthwhile to hang on to a few cherished items for yourself or your family.
After you’ve gone through everything, the next step is to organize what’s going to be given away, sold and thrown away into different piles.
2. Hold an estate or yard sale
For anything that you decide to sell, you can hold either an estate or yard sale. Your inherited home is going to show much better when it’s clean, empty and staged, if sold on the market with a Realtor.
With an investor you won’t need to clean, empty or stage anything. You can take what items you want and they will typically handle the rest for you.
3. Consider Minor Repairs
There’s a lot of improvements you can make that are inexpensive. Repainting walls to neutral colors like light cream, tan or beige, for example, showcases a property for what it is, rather than the taste of the person who lived there before.
Old carpet should be thoroughly cleaned, and hardwood refinished if it’s beat up. If you can afford to replace old flooring, it may be worth doing so. It can add a lot of value especially if it’s tile or hardwood.
Even new carpet is an improvement over old carpets, especially if severely stained or show signs of pet damage.
4. Wait for Probate to finish
Inherited properties must go through probate (proving the Will) before it can officially be sold. This can be a long process that can take anywhere from 3 to 6 months or longer to finalize, so be prepared to wait.
If selling with a Realtor you’ll likely need to wait even longer to find a buyer. Make sure to take into account any added expenses you’ll be responsible for while you wait. These can easily stack up quick so emergency funds are helpful.
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If you don’t want to wait months to find a buyer, and would like to find a buyer now, we would love for the opportunity to help you sell your inherited home!
SoCal Home Buyers is one of the leading Real Estate Investors in the local Southern California area. We focus on helping sellers like you with tailored plans to sell inherited real estate without the stress and hassle of a traditional listing.
If you need to sell an inherited house give us a call, we would love to see what we can offer you for your home!
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We buy houses from homeowners that need to sell inherited property in Los Angeles, Riverside, San Bernardino, San Diego, and Orange County. You can either fill out our online form below or give us a call at: 951-331-3844 to find out how we can help you with selling your inherited house today!