Benjamin Franklin once wrote in a letter that “… in this world nothing can be said to be certain, except death and taxes.” The truth of this statement becomes very clear when we lose a loved one and inherit property as a result.
How do you go about selling inherited property? With the emotions and memories tied up in a loved one’s home, it certainly isn’t easy and if there are siblings involved, the process can become even more muddied.
Since we’re talking about fixed property, the three straightforward routes available are moving into the house, renting it out or selling it. But selling inherited property comes with its own unique real-life problems, naturally complicated by the strong emotions involved.
When selling inherited property, the estate must first go through probate before the court will give the executor (of the will) authority to act. Only then can the estate’s assets be distributed and the estate’s debts settled. At this point, if all the heirs agree, the sale of the inherited property can go ahead.
Unless you live in or near the neighborhood, you’re going to need the help of dedicated professionals; at the very least, a reliable tax attorney and sympathetic real estate agent. With the input from these two professionals, you’ll be able to make a plan and find the best solution for all involved.
Preparing for Sale
Before selling inherited property, the home will have to be cleared of personal belongings and prepared for sale. Your real estate agent, with in-depth knowledge of the locality, will be able to tell you what upgrades or repairs need to be done before putting the property on the market.
When selling inherited property, there may be improvements or modernization required to attract potential buyers but from a financial angle, it may be best to do the bare minimum in order to get a buyer. Once again, your estate agent will help you understand what other houses in the neighborhood are selling for and what will need to be done.
If the home is in bad condition or very dated, a better route may be to sell to an investor or a cash buyer looking for a bargain. The option of selling inherited property “as is” usually means a lower price but can be feasible if the house needs extensive cleaning or major repairs. An investor will not ask you to repair anything or pay any commissions so you will save time, money and hassle when you sell to an investor that pays cash and closes on your timeline.
Beneficiaries will need to ascertain if there are any existing liens on the property and selling inherited property will usually involve a ‘creditor claims’ period before the effects can be distributed to the heirs. In some states, the Probate Court may need to issue a License To Sell Real Estate.
In the interim, the homeowner’s insurance will need to be paid up and the estate or trust named as the insured, should anything happen to the home between your loved one’s death and the sale. If there are any mortgage payments, property taxes or utility bills, the same will apply to them.
After selling inherited property, any remaining mortgage balance along with any real estate commissions, transfer taxes and other closing costs will have to be paid.
Consult a tax adviser who will be able to explain the tax implications involved in selling inherited property. Tax considerations are based on the property’s value on the day the person died that left it to you. Tax owed is the difference between that value and the amount you receive for the property when you sell it. This is the taxable gain.
Selling inherited property is never an easy procedure. If there are other people involved, communication and respect for emotions are key. Going it alone has its own set of challenges but choosing the right professionals will help ease the process.