Selling an inherited house in California can feel like an overwhelming task, especially if you don’t know what to do. Losing a family member, especially a parent, is heartbreaking on its own. No matter how prepared you might feel, it can still be a traumatic event. Then you add the stress of settling the estate while you are still grieving.
For people in California, inheriting property can bring up the many questions involved with how to sell an inherited property during such a difficult time.
If you find yourself in this situation, this guide can offer some help.
We will walk you through the step-by-step process of selling an inherited house with as little stress as possible.
1. What Is the Status of the Estate?
Most children know whether or not they will inherit their parents’ house. However, most do not know what exactly that entails. There are many steps you must go through before you can take official ownership of an inherited home.
Most inherited properties are passed down in one of three ways: probate, death deed, or living trust.
1. Probate
Inheriting your parents’ house isn’t as simple as listening to someone read a will. Most inherited real estate properties must go through a probate process. This is especially true if there is no will at all.
Probate is a court-supervised process that transfers the assets of someone who has died to someone else. The court will assign an executor (if there is one named in a will) or an administrator to help with the probate process. This typically includes collecting assets, paying off any debts and liabilities, and distributing the remaining assets to any beneficiaries. Probate will also oversee the potential sale of any inherited properties.
The entire probate process can take anywhere from nine months to two years to reach completion. State and local laws will affect how probate works in your situation. Many people enlist the help of a probate attorney to help the process go quickly and smoothly.
Learn More: Can You Sell a House During Probate?
2. Transfer on Death Deed
A much simpler way to inherit a home is through something called a transfer on death deed or a beneficiary deed. With this type of deed in place, you will immediately take over ownership of your parents’ property when they die and avoid the hassle of probate.
This type of deed is only available in certain states, including California. However, the specific laws regarding a transfer on death deed will vary from state to state.
With a transfer on death deed, you can sell the inherited home as soon as you are ready. However, you will still need to pay estate taxes on the home.
3. Living Trust
Another simple way to inherit your parents’ home is through a living trust. This is a legal document that lists your parents as the trustees of their home and assets and names you as the beneficiary.
A trust is one of the best and simplest options, especially when there are multiple heirs involved. Your parents should outline in the trust which person will make the final decisions surrounding the sale of the home.
When your parents die with a living trust in place, you can skip probate, bypass some estate taxes, and sell the house whenever you choose.
2. Identify the Executor
Some people assume that because they are inheriting a house, they will get to decide what to do with it. Unfortunately, this is not always the case.
If your parents have a will, they will have named an executor. If not, your parents’ estate may go through probate and there may be a court-appointed administrator. In either case, this is the person legally responsible to make all the final decisions surrounding the estate. This includes the sale of the house.
There may be some situations where there is no single executor or administrator. In that case, you and any other heirs will have equal decision-making power surrounding the sale of your parents’ property. If everyone does not agree on what to do, this can result in long legal battles and expensive lawyer fees.
3. Dealing with Sibling Disagreements
If you have any brothers and sisters, you will likely share the home inheritance with them. If there are any conflicts, you’ll want to mitigate these disagreements as quickly as possible.
If family members are scattered everywhere and relocating to fill the home isn’t feasible, the inherited property is going to sit and collect dust while racking up a costly maintenance bill. The longer it takes to solve these issues, the more money it will take and the more stress it can cause.
Even if selling is the clearest decision, other members of your family may not see that. You’ll need to frame out your talking points and find the right way to approach the situation if you
want to avoid unnecessary conflict.
Here’s a few tips to help get you started.
1. Deal with Possessions First
Before you decide how to handle the property, you’ll need to clear it out. Take advantage of this opportunity to set the right tone and establish a pecking order. If the instructions left behind weren’t explicitly clear, set some ground rules.
For example, take inventory of all the valued possessions, and let the adult children start picking first. Work down the list until everyone is mostly satisfied with what they have. This is the best time to get everyone in a rational mindset, while working together to sort out their feelings during the process.
How you handle the possessions will set the tone for the rest of the process. If you let things get chaotic now, they’re only going to stay chaotic when you approach the issue of selling the property.
2. Have the Discussion about Selling
Wait for everyone to process what’s happened. If a loved one has recently died, that’s going to take an understandable emotional toll on everyone. Give everyone time to grieve and go through the motions before you have the conversation about selling.
There are two ways to approach thisconversation.
You’re going to want to handle this differently, depending on
whether you’re the sole inheritor, or other people have an equal claim to the
property.
1. If You’re the Sole Inheritor
If the property was handed directly to you, other family members may feel sore about not having been chosen to receive it. Because of this, watch your attitude regarding the situation. You can’t comeacross greedy or boastful, as this may heighten emotions.
The discussion should highlight the sensible reasons why you want to sell the property. If you’re in dire straits and you need the profit to keep yourself afloat, be honest. If you
can’t afford to maintain or manage the property, now is the time to bring that up.
2. If You Share the Inheritance
You aren’t the only one who gets to make the decision to sell the property if you share it with siblings or other family members. If everyone else agrees to sell, there isn’t much more
to do besides finding the value of the home and locating the right buyer.
If you can get others to see your point of view, you’re going to have better luck taking a diplomatic approach to the conversation. Allow everyone involved to be heard, and say as much as they need to say without cutting them off.
As the person who votes to sell the property it’s your responsibility to outline your plan and consider the impact it’ll have. Empathy’s very important at a time like this, and now is the time to show it.
If others want to keep the property for sentimental reasons, you need to understand that while being prepared to explain that sentiment can become a burden when it comes to
property if it can’t be maintained.
Since selling is your proposal, you need to make sure your ducks are in a row before you
start throwing around your ideas.
Set the groundwork that you’ll be transparent throughout the entire process, and that everyone will have access to all information. Not only does this hold you accountable, but it keeps you trustworthy.
3. Check Everyone’s Needs and Concerns
As with most estates, others involved may fear you’re being motivated by greed. Talk to everyone else about their needs and concerns.
If you have a sibling that’s in need of a new vehicle or is struggling with crippling debt, take their needs into account.
If everyone can see that they’ll benefit from the sale of the home, they’re more likely to follow
the plan that makes their and your lives easier.
You’ll have much better luck getting things to move quickly if your family understands that you don’t intend to make out like a bandit and leave them all in the dust. Incorporate them into the selling process as far as they wish to be incorporated.
Show everyone the value of the home on paper, and make sure they know the exact amount you’ve sold for. You’ll need to make good on all of your promises, and everyone needs to walk away feeling like they got their fair share.
When meeting with your siblings you’ll also need to determine the following:
List out each person’s responsibilities for settling the estate and write down what portion of the proceeds each person will get, especially if it is not equal.
If all else fails and your family cannot come to an agreement do not worry as this is fairly common. You may however need to hire a professional mediator to help sort the situation on your behalf.
Stressed about selling your inherited home?
Selling an inherited home in California can be a long stressful process. If you want to sell your inheritance with the least amount of hassle, stress and further headaches, request a guaranteed all cash offer and receive it within 48 hours.
We can help you close faster than listing so you can move on with life sooner than later.
4. Decide How you Want to Sell the House
Like any other real estate property, there are multiple avenues you can take to sell it. While you can take a traditional route and hire a real estate agent, you could also try selling it yourself, or sell it quickly to a cash buyer.
Use a Real Estate Agent
Hiring a real estate agent who specializes in inherited property may help with any conflicts you have with other heirs. An experienced agent can help you navigate the complexities of selling an inherited home and give you the attention and empathy you need during this difficult time.
Sell it Yourself
Another option for selling your inherited home is to sell it yourself and list the house as For Sale by Owner (FSBO). According to the National Association of Realtors, 7% of homes sold in 2020 were FSBO.
While taking the FSBO route may yield a higher profit, it also comes with more responsibilities.
You will need to:
Sell Inherited Property Fast with a Cash Sale
Another option for selling an inherited house is to look for home buying companies. This option is one of the quickest ways to sell a house and eliminates much of the typical time-consuming and expensive processes you normally have to go through when selling real estate.
Most cash buyers are going to be businesses, like SoCal Home Buyers. Companies like ours specialize in buying homes with as little stress as possible. While the final sale price may not be as much as you would get through a standard sale with an agent, you can usually sell the house “as is” and the sale can be finalized in a matter of days instead of months.
A cash home sale can be the ideal option if your parents’ home has fallen into disrepair or if you live out-of-state and do not want to worry about the property for months on end.
Alternatives to Selling an Inherited House
You are not required to sell an inherited home. Many people choose to move into an inherited property, especially if it is one they feel emotionally connected to. If you decide to move into an inherited house, you can sell your previous home. You can use the funds you get from that sale to make upgrades and repairs to the inherited house.
Another option to selling an inherited home is to put it up for rent and turn it into an investment property. This can provide an additional source of income. However, as a landlord, you will be responsible for any necessary property repairs and tenant issues which can become problematic.
5. Go Through Your Parents’ Finances
In addition to dealing with the physical house, you will also need to look into your parents’ financial history. If they have any lingering debt or ongoing bills, you will need to manage those things. You can usually pay for those things using money from the sale of the estate, including the house.
Access their Financial Accounts
Your parents had monthly bills. If they have direct debit payments, you will need to make sure there is enough money to cover those payments. Or, if the services are no longer necessary, you will need to cancel those accounts.
To access your parents’ financial accounts, you will need to provide a copy of the death certificate. You may also need their Social Security number and any other legal documents provided by the court. This will allow you to close any standing accounts.
If your parents set you up as a beneficiary or created an account that was transferable upon death, gaining access to the account can be even easier.
You will have to continue paying basic monthly expenses, such as the electric and water bills, for as long as it takes to settle the estate.
While analyzing your parents’ financial information, look for accounts like:
While some accounts you can close immediately, like phone and cable, others will need to remain open until you sell the house.
Run a Title Search
Your parents may have had liens or judgments against their property. You can run a title search to check for any of these. These issues can include taxes in arrears, a reverse mortgage, or a home equity loan. If any of these issues exist, they will need to be paid before any profits from the house can be dispersed.
Submit a Death Certificate
You will need to submit a copy of the death certificate to officially notify lenders and creditors of your parents’ death. Once you do this, you should be able to close the accounts.
6. Check the House’s Insurance Policy
Contact the insurance company for your parents’ home insurance policy. Let them know about the death and ask them about any policy changes you might need to make. Many insurance companies will not cover damages caused by vandalism if a house is left vacant for an extended period. You can usually get a vacant home insurance policy until the house is sold.
7. Keep the House Secure
Vacant houses are an easy target for burglaries and vandalism. Beyond getting insurance for a vacant house, you need to secure the property before leaving it empty.
Find Important Documents
Find any important documents that you might need to settle your parents’ estate. This may include insurance policies, financial statements, and other legal documents.
Secure Valuables
Document and secure any valuables you find in the house. Consider taking photos or videos of all items so there are records of each one. This can be useful if there are any disputes among the heirs. Let everyone involved know where the valuables will be kept until the estate is settled.
Pick Up the Mail
If the mailbox is overflowing, that is a quick sign to thieves that a house is empty. You can either regularly pick up the mail, have it held at the post office for up to 30 days, or you can forward it to your own address.
Change the Locks
Your parents may have given out keys to friends, neighbors, and others. While these people likely won’t cause any problems, it is better to limit access to the house by changing all the locks. This can help clear up problems if items turn up missing.
Lock Doors and Windows
Before you leave the house, make sure that every door and window is locked. A simple wooden dowel rod slipped into each window and sliding door track to keep them from opening can provide an extra layer of security.
Get a Security Camera
For the times when you can’t be at the house, a security camera can help you monitor it remotely. Make sure you maintain internet connectivity at the house so you can continue to check for intruders or other issues.
Stressed about selling your inherited home?
Selling an inherited home in California can be a long stressful process. If you want to sell your inheritance with the least amount of hassle, stress and further headaches, request a guaranteed all cash offer and receive it within 48 hours.
We can help you close faster than listing so you can move on with life sooner than later.
8. How Are You Taxed When Selling an Inherited Property in California?
In most cases, when you make money, you are expected to pay taxes on that money. This includes selling an inherited property in California. In some states, you may be liable for state, estate, or inheritance taxes, but California does not enforce these. However, you may still have to pay capital gains tax or property tax.
Is there an Inheritance Tax in California?
There is no inheritance tax in California. You may inherit a house, property, or money without paying taxes. The one exception to this rule is if you inherit a retirement account. In that case, you will have to pay income taxes when you make withdrawals from the account.
Estate and Inheritance Taxes
Currently, only 14 states impose estate taxes after an individual has died. California is not one of them. However, if you are a California resident and you inherit a property in a state that does have estate taxes, you must pay estate tax on that inheritance.
In addition to state-level taxes, the federal government also has a federal estate tax. However, an estate must be worth over $10 million before this federal estate tax applies. Currently, only two out of every 1,000 people who die are subject to this tax.
Capital Gains Tax
If you inherit a property and then sell it, you will either get a capital gain or a capital loss. If you earn a capital gain, you will have to pay capital gains taxes. If you sell the property for a loss, you can write off that loss on your taxes.
The capital gains amount is determined by the difference in property value between when your parents died and when it is sold. This is called the “step up in basis” rule. It limits the capital gains amount to the value of the house when your parents died instead of when they bought the house.
The amount you must pay will depend on your taxable income. Capital gains tax rates range from 0 to 20%, and you will only be taxed on the home’s “stepped-up” value.
For example, if the house is valued at $500,000 when your parents died and then you sell it for $515,000, your capital gain is only $15,000, even if your parents bought the house in the 1970s for only $100,000. You then only have to pay taxes on that $15,000.
On the other hand, if you sell the house for $475,000, you may be able to claim a capital loss of $25,000. However, you should always talk with a tax advisor to understand how selling an inherited home will affect your tax situation.
Property Tax
After your parents have passed, there will still be property tax charged to the property. If they were making monthly payments as part of their mortgage escrow, keep up with those payments. If their mortgage was paid off, determine how they were paying their taxes to see if there are any payments due. Unpaid property taxes can lead to a lien on the property, which will make it more difficult to sell.
Once you sell the property, you will no longer have to pay property taxes on it. This will be the responsibility of the new owner.
Tax Exclusions
One way to avoid paying capital gains taxes when selling a property is to live in it first. The home sales tax exclusion applies if you live in a house for two years before selling it. This is a good strategy to avoid paying taxes on capital gains if this is an option.
Proposition 19 in California
In late 2020, Californians approved Proposition 19. This proposition, called The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disaster Act affects property tax rules in some situations. A real estate lawyer or real estate agent can clarify how this rule might apply to your situation.
9. Distribute or Sell Any Personal Property
Once you know how the legal and financial aspects of your parents’ estate is going to play out, you can start sorting through their personal property.
1. Distribute Property to Heirs
The first thing you need to do is contact anyone named in the will to let them know they are inheriting something. For example, if your parents’ will says the antique china cabinet goes to your Aunt Susan and the old grandfather clock goes to your brother, then that is exactly where that property needs to go.
Depending on the status of the estate, the probate court may be involved in the dispensation process. The court may require a detailed inventory of all property before distribution starts.
Once you have distributed all specifically bequeathed property, you and any other heirs and family members must decide what to do with the rest. This can get difficult if multiple people want the same item. If there is an executor or named administrator, they will be responsible for the final decisions on who gets what.
If the disagreements become too difficult to overcome, you may need a mediator to help handle the personal property decisions along with the sale of the home.
2. Host an Estate Sale
Once all the prized possessions and valuable property has been claimed and distributed, you may be left feeling overwhelmed with everything that is still in the home. Try to avoid feeling guilty for items you don’t choose to keep. It can be emotionally draining to sort through a lifetime’s worth of memories and possessions. You are not responsible for taking ownership of someone else’s belongings.
While you can choose to throw everything away if you wish, you might be able to make some extra money by hosting an estate sale. Selling items may also help you feel better about not keeping them, as opposed to simply throwing them away.
Most estate sales take place directly in the house. Interested buyers walk through the home to find items they want to purchase. Sometimes these sales are done in an auction format and items are brought out one by one.
An auction can also be a good way to resolve family arguments. Whoever wants to pay the most for the item gets it.
10. Prepare the Property for Sale
With the house finally empty, you are almost ready to sell. There are just a few more preparations to do before you put up the “for sale” sign.
Do a Deep Cleaning
The house will need a deep cleaning inside and out. With all the property removed, this should be easier. Now is also the time to decide if you are going to do any repairs or updates.
If your goal is to get the best possible price for the home, you might consider updating the kitchen that hasn’t been touched since 1984 or replacing the stained carpets. On the other hand, a simple cleaning and a fresh coat of paint might be all that’s needed.
Sell the House “As Is”
If you do not have the mental or emotional energy to make repairs or even clean the house, one option is to sell it “as is.” While you might not get as much money, you might avoid capital gains taxes, if you sell the house for at or under the fair market value.
Another benefit to selling an inherited house “as is” is the disclosure rules are more flexible. Since you did not live at the house, you are not expected to know about any or all of its potential problems. However, if you are aware of any issues that could affect the home’s value or desirability, you are still required to disclose those. If you don’t, you could be liable for future repair costs.
Disclose Any Deaths on the Property
While the rules around death disclosures vary by state, here in California, you are required to disclose any deaths that happened on the property within the past three years. If asked directly, you must also disclose any other deaths on the property that you are aware of, no matter when they occurred.
If there were any high-profile deaths or other notorious situations that occurred on the property that may affect its value or desirability, you should also disclose that information.
Get an Inspection
If you want a solid understanding of the condition of your parents’ house, you may consider getting a pre-listing inspection. However, if any problems are uncovered, you will then be required to either make the necessary repairs or disclose that information to any potential buyers.
11. Determine a List Price
The last step in selling an inherited home is choosing a list price. Unfortunately, many children set unrealistically high expectations for the value of the home. This is especially true if it is a home they grew up in and view with strong sentimental feelings. With the high emotions that come with grief, your judgment can sometimes be impaired.
You will need to focus on fair market value to set a realistic list price for the house.
Get a Comparative Market Analysis
A real estate agent can put together a comparative market analysis (CMA). This estimates the fair market value of a home based on recently sold comparable homes (comps).
Consider Your Tax Liability
When you sell your own home, you want to get as much as you possibly can. However, when selling an inherited property, there are much greater tax implications.
If you sell at or below the fair market value, you might end up making more money than if you sold it for a higher price and had to pay the capital gains tax. Selling for less also draws in more interested buyers, which can lead to a faster sale.
How Long Can You Wait?
As the house sits, you continue paying its bills month after month. The sooner you sell the house, the less you will have to pay for upkeep and operating costs. So the faster you and your family can make decisions about what to do with the house, the better off you will be during this difficult time.
If a quick sale is your top priority, selling for cash may be the best option. Cash sales tend to close significantly faster than traditional financed purchases. In addition, many cash buyers are more willing to purchase properties “as is.”
Frequently Asked Questions
SoCal Home Buyers Offers a Low-Stress Process for Buying Inherited Homes
Here at SoCal Home Buyers, we understand the emotional toll that comes with the death of a parent and inheriting real estate. There are so many things to plan and go through that the additional weight of selling a house can feel unbearable.
We want to help make this process easier, with as little stress as possible. We specialize in buying homes for cash in southern California. If you have recently inherited your parents’ house, we will work with you on your timeline and can close in days instead of months.
You won’t have to deal with repairs or even getting rid of items you don’t need or want. You can take a cash offer and feel relieved that the process is over.
