Ultimate Guide To Sell An Inherited House

If you need to sell an inherited house for the first time, the process can look complicated, overwhelming, and time-consuming. Mainly, what makes selling an inherited home so tricky is that you may have to make high-stakes financial decisions as you go through the grieving process after a loved one’s passing. If you’re the estate executor, the challenges are even more remarkable when multiple heirs and creditors are counting on you to do the right thing.

Overall, selling an inherited home follows the same process as an ordinary real estate deal after becoming the property’s legal owner. Getting to that point will feel like a marathon, but you’ll win in the end and gain peace of mind.

Without a doubt, there are significant differences in how you need to prepare to close the deal. Some differences relate directly to taxes and others to the legal requirements that vary state-by-state.

Here’s what happens when you inherit a house and need to sell it.

What Happens When I Inherit A House?

When you inherit a property, selling it isn’t as simple and easy as it looks on television or movies. The process can be lengthy from start to finish, even if you have everything you need lined up and ready to go.

A pro tip: It’s your responsibility to consult with lawyers who specialize in inherited assets like real estate to make sure you’re following the laws in your home state.

Generally, the first step you take is to find out who is the executor because that person will have complete responsibility for handling the affairs ethically and legally.

How Do I Determine Who The Property’s Executor Is?

Usually, a person specifies in their will which their estate’s executor will be after passing away. But it’s not unheard of for multiple heirs to be included in the same will without naming a clear executor among them.

In other cases, the executor could be a trustee of the deceased’s assets, including all real estate. Also, there’s the option of appointing a real estate firm as the executor if the dealings are incredibly complicated or span multiple countries around the world.

Regardless, it’s a myth that a will’s executor is always automatically the oldest sibling or the deceased’s spouse.

When someone with millions of dollars in assets dies without a clear will in place, there’s no standard answer to who the executor should be that applies to every scenario.

How Long Does An Executor Have To Sell A House?

The executor or you as the executor are not obligated to sell the home right away, so don’t feel like you have to rush straight to probate court. Keep in mind that each county has its own laws surrounding probate timelines and must be followed accordingly. The process of submitting the will and distributing assets can take weeks, months, or even years, depending on your state. Most counties allow you 30 days to submit a will to probate. It’s imperative to verify your county’s probate laws to find out exactly how much time you have. It’s always best to err on the side of caution and file as soon as you can. Otherwise, additional beneficiaries will contest your role as executor of the estate, and you could be held liable if they are financially harmed by your resistance.

Does The Number Of People Inheriting The Property Make A Difference?

Even if you are inheriting a house with siblings, the number of people inheriting a property only matters from a legal standpoint since the executor could also be a firm or trust. Over the years, filmmakers have had a field day with legal dramas based on a disputed inheritance. The reality is that it’s usually far less controversial unless the heirs sue one another to be the sole executor.

Either way, an inherited house must go through a probate court to ensure the transfer of ownership is fair to all parties, including creditors and lenders with an outstanding interest in the place.

What’s The Definition Of Probate?

Probate is only the technical term for the tricky legalities of handling inheritances. Some states require that executors notify a probate court within a specific time after the loved one’s passing. In others, you can avoid going to probate court altogether if the property’s value falls below a certain threshold.

In Texas, for instance, an estate valued below $75,000 doesn’t need to go to probate; however, in California, a property requires a market value below $166,250 to avoid probate proceedings.

Probate boils down to determining whether or not the will is valid and applicable to the transfer of the real estate. There have been instances of fraudulent or counterfeit wills making their way to probate only to be caught red-handed.

From a first-timer’s perspective, probate can seem like an unnecessarily lengthy endeavor, but it’s really there to ensure the law protects everyone’s rights and claims to the property.

Related: The Probate Process For A House – Don’t Get Shortchanged

Can I Sell A House While The Property Is Still In Probate?

The bottom line is this: You can’t sell a home until you receive a probate ruling. Not only is this procedure the law, but it’s also common sense to make sure a home’s sale is legal before contacting a real estate agent to sell the property.

Real estate laws vary widely across the country, so not every state handles inheritances the same way, especially when it comes to outstanding mortgages and tax implications.

Do I need to determine if there is an outstanding mortgage?

Yes, you’ll need to settle any outstanding mortgages before you can legally sell the home. In fact, one of the most common issues that come to light during probate is outstanding debt, especially mortgages. When you want to sell an inherited property, it gets more complicated when there are debts owed.

A home with a tax lien is another fairly ordinary occurrence that can get sorted out in probate hearings. The takeaway for you is this: The terms of the mortgage may still have to be fulfilled before you can take ownership of the property.

For instance, some mortgages contain a due-on-sale clause. In essence, it’s a type of stipulation that forces you to pay the mortgage in full if you want to transfer the property’s ownership to someone else. A mortgage that contains one of these clauses needs to be addressed before selling.

Another common occurrence in inheritances is taking ownership of a property with a reverse mortgage and an equity loan. Typically, reverse mortgages are a way to receive on-going payments against a home’s equity value. But when you move out of the house, you have to finish repaying the reverse mortgage’s terms.

Unfortunately, it’s also possible to receive a property that’s “underwater,” a property that’s worth less on the market than the value of the mortgage. The good news is that no law forces you to become the owner of an underwater property.

If you find yourself in this situation, some lenders may authorize a short sale so they can receive at least a portion of the mortgage.

Overall, one of the best situations you can find yourself in is when the estate pays off the mortgage for you before you even take ownership of the home.

The lesson for you as the property’s future owner is this: if your loved one makes a thorough will, accounting for mortgages and taxes ahead of time, probate will be faster, and there will be no financial surprises when you least expect them.

If I Sell Inherited Property Is It Taxable?

Do I need to pay capital gains tax after inheriting a property?

If tax law is too difficult for you to understand without professional advice, you’re certainly not alone. Taxes are one of the most confusing aspects of taking ownership of inherited property.

No law says you or your heirs will automatically have to pay high taxes (i.e., a “death tax”). Typically, capital gains taxes apply to selling investments, real estate in this case. The tax is determined by the purchase price, offset by any renovations or add-on while you had ownership.

But during an inheritance, standard capital gains taxes may not apply since you can take advantage of stepped-up taxes. With a stepped-up tax, you’ll only have to pay taxes based on the value of the property when you finalize ownership.

Stepped-up taxes make it fair to inherit a property that has become a substantial investment over the years. If your family purchased a large land plot for only $5,000 in the 1960s, you wouldn’t have to pay the taxes if the property is now valued at $500,000.

Although the general rule of thumb is that you’ll have to pay more taxes the longer you hold on to the property before selling it.

Will I Need To Pay Estate And Inheritance Taxes Too?

The answer mostly depends on the size and scope of the estate you inherited. Once again, your home states can make a tremendous difference since 11 states have no inheritance tax or an estate tax.

The federal government determines the amount of estate taxes that are owed based on the value of the assets when the person passed away. On the other hand, inheritance taxes only apply to the individual “payouts” to all of the will’s beneficiaries.

As a hypothetical situation, let’s say that your older sibling was inherited a new Lamborghini, but you received the real estate. You won’t have to pay taxes on the sibling’s sports car and vice versa.

Selling An Inherited House The Right Way

Selling an inherited house can be tricky the first time around. Hopefully, you’ll only need to do it one time in your life. Any real estate deal is faster when the legalities are simple or easily remedied in probate. Going through probate is by far the best and most efficient way to sell an inherited house.

You can’t take ownership of inherited property or sell it before probate completes, not legally, at least. But once you finish probate and determine tax liabilities, preparing the home for sale comes last.

How do I prepare an inherited home for a sale?

Provided you’ve jumped through all the right legal hoops, preparing to sell an inherited home is relatively straightforward like any other real estate deal. The difference lies in an inherited property’s taxes.

You could choose to sell the home as-is, but you still have to remove the previous occupants’ personal items, which may or may not have sentimental value to you. Some people who’ve recently lost a loved one struggle mightily with this step, but it’s necessary.

How do I prepare an inherited home for a sale?

Provided you’ve jumped through all the right legal hoops, preparing to sell an inherited home is relatively straightforward like any other real estate deal. The difference lies in an inherited property’s taxes.

You could choose to sell the home as-is, but you still have to remove the previous occupants’ personal items, which may or may not have sentimental value to you. Some people who’ve recently lost a loved one struggle mightily with this step, but it’s necessary.

What about maintenance?

The next step is to address any maintenance issues like faulty roofing or a flooding basement. It goes without saying that inherited properties tend to be older and may require modern renovations. If the repairs are too pricey, then selling the property as-is might be your only option.

But if you can afford to fix the home up a bit, the next step is to have a full, thorough inspection of the house. A professional home inspector will be able to pinpoint defects and other damage that you don’t. Selling the home may already be challenging enough without bad plumbing driving down the value of the property.

What kind of profit should I expect?

The hard truth about selling an inherited house is that you have to be realistic about it as an investment. In the movies, inherited properties are always beautiful. Still, in reality, an inherited home may not be worth as much as you think, primarily if the property hasn’t been maintained in decades.

The location of the property may have been ideal when the home was initially built, but today? Your buyers may not see it that way anymore.

Generally, buyers love to see waterside properties more than any other kind, but those homes may lie in flood plains and suffer periodic disasters. Your parents may have learned to deal with the nuisance, but you have to understand that you may not get the price you ask if you’re selling the property nowadays.

To get the best deal, in the end, don’t overprice the property based on its perceived, sentimental value. Real estate purchases still rely on intense negotiations to make it fair for all parties.

Selling an inherited property can be a lengthy process, so we hope this article makes it easier for you if you don’t know where to start.

For more information about selling an inherited house, check out our blog posts below.

• The Probate Process For A House – Don’t Get Shortchanged

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