Selling Your Inherited House
The average American leaves about $177,000 to their heirs. But this doesn’t take their property into account.
Selling an inherited house is a more complicated and confusing process. You need to know when the home is officially yours, how to go about selling it, and the repercussions of the sale.
Follow this guide to make the sale of your inherited property a smooth process.
Make Sure the Home Is Yours to Sell
Just because you think you are going to inherit a home doesn’t mean that you actually will. The home is not yours to sell until the probate process completes. This could take many months as the deceased’s estate goes through probate.
A Valid Will
The first is to make sure that there is a valid will. You will hear those that die with a valid will referred to as “intestate.” If they don’t have a will or the will is invalid, they are “testate.”
If there is a valid will, the estate will go through probate. An executor will pay any outstanding debt and distribute the remaining property.
If there is no will, the estate will go through administration and distribution by the court as it follows the procedures defined by the law.
Other Ways to Inherit
If you are the surviving spouse, and your spouse has children that are not yours, you could end up with what is called a “life estate.” This means you have the right to live in the home for the remainder of your life.
But you do not own the property. You do not have the right to sell it. When you pass away, the rightful ownership will pass to your spouse’s children.
If you and the deceased both have your names on the deed, then you do not need to go through probate. When they pass away, you still own the home. The only difference is now you own the home by yourself.
Just because we die doesn’t mean that our debt magically disappears. The beneficiaries are not expected to pay, but the executor will need to settle the outstanding debt before they can distribute the assets.
The home you expect to inherit may get liquidated to settle the outstanding debt. You will then receive any funds that are leftover instead of the actual home. If this happens, don’t expect to receive the full value of the home in cash.
Once you determine that you have a right to sell the home, you need to know the tax implications of selling that home. This will help you determine the best method of sale. You will need to inform the IRS of the sale because you will owe income tax on the profit you received from the sale.
You will have to pay capital gains or losses on the sale of the inherited property. To avoid this, you can use the inherited property as your home and live in it for at least two years.
This method takes the property’s full market value at the time of your loved one’s death. Then uses this value to find the difference between the home’s value and the final sale price.
If you sell the property immediately for market value, then you don’t have to pay capital gains tax. But if you wait and sell it later on for more, then you’ll pay tax on the increased value.
Report the Sale
When you sell the home, you need to report the sale on your taxes. If you are unsure of how to do this, it is best to consult with a professional to help you prepare your taxes.
Is Now the Right Time to Sell?
You may want to sell the home right away and get the whole thing taken care of. But this may not be the smartest choice.
Look at the current market conditions, is now the right time to sell in the market? Consider your current financial status and whether or not you can afford to wait.
If you decide that now is the right time, consider how you want to go about selling the home.
Sometimes the easiest process is to sell the home during the probate process. If multiple people inherit the home, it can be easier to take care of the sale right away.
Another reason to sell during probate is if the estate is to be divided up equally. This becomes much easier if the home gets sold for cash and then the proceeds join the rest of the cash in the estate.
If you choose to sell the home this way, look for a real estate agent who has experience selling inherited homes.
After You Inherit
You can also decide to let the executor go through the process and inherit the home outright. Then sell the home either on your own or with a listing agent later on.
This can be a smart choice if you are not mentally ready to part with the home. It can also be good if the home needs repairs.
Prepare the Home for Sale
Selling an inherited home is just like selling any other home, you want to prepare it so that you get the most amount of money for it. This means you need to clean the home, make any necessary repairs, and depersonalize the home.
This is going to be a tough step, but a necessary one. Work your way through the home and clean out all of the personal belongings. Potential buyers want to imagine themselves in the home, and they can’t do that if they are looking at someone else’s belongings.
Hold an Estate Sale
After you separate out the belong belongings that you and anyone else wants, hold an estate sale to clean out the rest of the items. Keep in mind that it may be wise to wait on this step. Leaving the home furnished can work in your favor to make the home look staged.
Homes that are staged sell faster and for more than empty homes. While the average sale price is 10-20% below asking, staged homes see a $400 return for every $100 spent staging.
Price the Home Correctly
Ideally, you want to price the home realistically, but higher than what you are willing to accept. Pay attention to whether it is a buyer’s or seller’s market. Look at what other comparable homes on the market sell for.
Price the home too high, and you’ll scare off prospective buyers. Price it too low, and you may not get what you hope for. Though if you get the right price, you may attract multiple buyers and start a bidding war.
When it comes to selling an inherited home, there are some unique pitfalls that are unique to this selling situation.
It can take months or even years for the executor to sort out a complicated estate. But you need to be aware of less than honest executors who delay the process so that they can use the property for their own use.
Many wills state that the assets should be divided equally among multiple parties. This can be tricky, especially when emotions and sentimental values get involved. Make sure you work with the executor to ensure that any proceeds get distributed properly.
The Emotional Factor
Selling a home is emotional enough, that stress increases when you realize you’re selling the home of a loved one who has passed away. Prepare for the entire process to be emotionally draining. Do not let yourself feel guilty for not being able to keep everything.
The Home Is Underwater
If you find that the home is burdened by large liens or a mortgage, you may decide to not accept the home. You are not required to take the items that are given to you in the will.
When you accept the home as underwater, realize that you may end up with nothing. The creditors that hold the debt will want to be paid. You may be able to negotiate with them to do a short sale and pay the proceeds to the creditors.
You could accept the home and take on the debt. You could try to sell the home and have the buyer agree to take on the debt. In reality though, who would agree to take on that type of bad situation?
Extensive Repairs Are Required
If the home was owned by an elderly loved one, they might not have had the physical or financial ability to maintain the home. As the years went by, the home deteriorated.
Now you face having to make extensive repairs to the home. These repairs could cost you thousands, or even a sale. If you are in this situation, you may want to find someone who specializes in buying deteriorated homes.
Start Selling an Inherited House
If your loved one has recently passed away and you now face the prospect of inheriting their home, remember that this is an emotional time and the whole process will take time. Don’t try to jump the gun and sell the home before you have a legal right to sell it.
Once the estate goes through probate, and you know the property is legally yours, you can move forward with selling an inherited house. Set you and the home up for success by doing a once over to clean it up.
Keep an eye out for the pitfalls, and you should have a smooth selling experience.
Contact us today and let us help you sell your inherited home fast.