HOW DO I SELL AN INHERITED HOME?
Many homeowners today may actually own a property that was passed on to them. If and when there comes a time you decide to sell your inherited home, we’re here to assist you with the sale. With the aging Baby Boomer population, in the years to come, a lot of their children, or other family members may inherit a real estate property .
While some may decide to keep the house, it’s unwise to take on a property, if the cost of maintaining it will hurt your finances; especially if you decide to keep it as a second home. This is why most people decide to sell an inherited house. The process involved to sell an inherited property is a little different when compared to a traditional sale. SellUsHomes is here to give you an overview of the step-by-step process to ensure a successful transaction, should you decide to sell the house.
Before we discuss the steps, let’s discuss the common reasons why some people might want to sell an inherited property.
- Multiple heirs
For a property that’s been split between multiple heirs, it will not be possible to have all the heirs living under the same roof, especially if they have their own families. Or, not all the heirs agreeing on what to do with the house.The most effective way to have a ‘balanced’ split is to sell the property and divide the cash proceeds.
- Not wanting to be a landlord
Many people may consider converting the inherited property into a rental. For many, property management isn’t their passion; probably because they just don’t have enough time and knowledge to manage it properly.
- Renovating the property is costly
It’s also common to receive an inherited home in bad condition. The property may be neglected, and have outdated decor and non-functional utilities,making it a lot harder, and costly to flip. Even if you plan to convert it into a rental property, you will need the cash to, at a minimum, get it all fixed up, and up to city codes. Sometimes, the money needed for repairs is just too much and may even exceed the worth of the property.
In addition, if there is a mortgage involved, keeping the property means paying the mortgage. Unless an heir moves into the house, as their primary residence, or rents it out, this means a second mortgage payment. An additional mortgage payment is not in most people’s budget.
These are just some of the reasons why the heirs place the property up for sale. Here are the steps in order to properly sell the inherited home.
Clarify the claim to the property
If the decedent left a will, or had a trust, then it’s going to be easier to identify who really has a valid claim over the property. However, in cases where the previous owner passed away unexpectedly, without a will, or some form of joint tenancy, it may pose a challenge. Heirs disagreeing on who should get the property is a real challenge too.
A sales situation without a will is known as a probate sale. This is the sale of a decedent’s property who didn’t specify an heir to inherit it. The property cannot be sold if it hasn’t completed the probate process, which usually takes minimally 9 months, or even longer.
Selling in Probate involves the state stepping in to take over the property. This is done by appointing an executor to carry out the sale. The appointed executor may be the closest living relative, or a court appointed administrator.
While determining the right heir, and how to allocate the inherited house, you will also want to have a Title company complete a title search. This will show if the title is free and clear, or if there are other liens, or other ownership interest on the property.
Obtain a Vacant Home Insurance Policy
It is a good idea to make sure there is homeowner insurance on the house. The purpose of this insurance is to provide financial protection from damage or loss of a home that’s uninhabited. It’s important in this case to know the difference between an unoccupied home from one that’s vacant.
An unoccupied home is one that’s usually ready for residence. In other words, furniture, fixtures, and several utilities have already been set up. A vacant home doesn’t have any personal belongings within it, which is usually the case for inherited properties that are about to be sold. Vacant homes pose a much higher risk when compared to unoccupied homes, that’s why it’s vital to obtain a Vacant Home Insurance Policy immediately.
Have the property appraised
Completing an appraisal will help you decide the inherited house’s value, and at what price to sell if for. Once you have the property appraised, you may find that the price is below the average fair market value. Knowing the value will help decide if it’s worth doing any updates, or selling As Is. Flippers can be your main audience lining up to give you offers in this situation. Sometimes, the assigned executor simply wants to get the property off their hands as soon as possible.
Once you have a buyer, make sure the offer is accompanied by a deposit or down payment. If the property is still in Probate, the purchase is subject to the court’s confirmation. Even though you’ve accepted the buyer’s offer, a representative from the probate court will have to confirm the sale.
Handle taxes
Do you qualify for the home sale tax exclusion? The short answer is NO. To provide a bit of a background, tax law provides homeowners tax exclusion when they sell their property up to $250,000 (for joint-filing, up to $500,000). Unless you’ve lived in the inherited home for 2 years out of the required 5 years prior to the sale, you wouldn’t get the exclusion.
The good news is that there is a workaround for owners of inherited properties through the stepped-up tax basis. The basis in question refers to an asset’s cost for tax purposes. In order to know whether you would have a profit or not when you sell an asset, you subtract it’s basis from the sales price. A positive number essentially means a gain, while a negative number means you have a loss.
In the case of an inherited property, its basis is the fair market value at the date of the previous owner’s passing. This step-up in cost basis may prevent the heir from owing substantial taxes.
Consider this example: A son inherited a house from his father. The original sales price of the home a few decades ago was about $150,000 and $30,000 was spent by his father on the property over the years. This means the tax cost basis before the father’s passing was $180,000. The son inherits the home, and the current fair market value is $300,000. After a few months, the house is sold for $305,000. To determine whether the son made a gain or a loss, we simply subtract $300,000 (tax basis) from $305,000 (sales price). The taxable gain is $5,000.
As you can see, putting an inherited property up for sale is more complicated than it seems. Before engaging in the sale, check to see if there is a Will and Testament, or a Trust. Check out the family tree, and who may have an interest. Find out if there are any tax issues. Remember, if you’re having trouble selling your inherited home, SellUsHomes is here to help relieve the stress. We provide fair pricing to make sure you get the most out of your home AS IS. To learn more about our process, call (734) 224-5947 or email info@sellushomes.com.