Inheriting a property can be quite an overwhelming experience because it involves emotions and the nostalgic effect of inheriting the property of a loved one can’t be ignored.
There is an unprecedented feeling of excitement from expecting a sudden influx of wealth.
Also, there is an unfamiliar feeling of not knowing how to go through the entire legal process.
The mental pressure from siblings or other beneficiaries to sell the property can’t be excluded.
However, if you want to sell or buy an inherited property then this article is for you.
I will let you in on everything you need to know about it.
From understanding the basics, to legal and financial procedures, and valuing inherited property amongst other information.
I will cover all the important aspects of the process.
- Understanding The Basics Of Inherited Property: What An Inherited Property Is And How It Works
- How To Determine The Value Of Inherited Property
- Buying Inherited Property From Multiple Owners
- How To Sell An Inherited Property
- 5 Most Common Mistakes To Avoid When Selling Inherited Property
- Frequently Asked Questions About Inherited Property
- Final Thoughts
Understanding The Basics Of Inherited Property: What An Inherited Property Is And How It Works
After the grieving period is over, you may decide to sell or buy out the inherited property.
It is necessary to know what an inherited property is and how to go about it.
An inherited property is any property that is passed down from deceased persons to their heir or heirs.
It may include real estate, securities, bank accounts, retirement accounts, and valuable assets.
“Property” in this case does not only refer to real estate or land but it includes vehicle, capital, etc.
The first step in understanding the basics of inherited property is to know how to inherit it legally even though you may have been stated as the heir in the Will of the deceased.
The only way it can be done is through a legal process known as probate.
Of course, it can be complicated depending on the circumstances surrounding it.
However, you mustn’t be rash when dealing with an inherited property transaction because it’s important to understand how it works.
Inherited Property And Probate: What You Need To Know
The most challenging and complex part of buying or selling an inheriting property is that you have to go through the probate process.
This is a legal process that determines who will inherit the deceased also known as the “decedent’s” asset or property.
The procedure takes place within a specified period after the death of the decedent but not without presenting the death certificate.
It is advisable to seek the help of a probate attorney.
The executor or “administrator” usually a family member or friend as stated by the deceased in the Will can begin the probate.
The administrator works with the probate court to finalize the entire procedure from locating the properties to evaluating them.
Of course, the debts and taxes left by the deceased must be paid before distributing the inherited property according to the Will to the heirs by a probate court.
If it’s found that the debts or taxes exceed the amount the property is valued at, then the property is deemed insolvent by the court.
To be “deemed insolvent” means the beneficiaries won’t have access to it.
Also, it’s advisable to follow due procedures to avoid spending legal fees before realizing that the inherited property will be used to pay off the deceased outstanding debts.
However, know that the probate process may be lengthened as a result of the Will being contested by other inheritors and the deceased dying without leaving behind a Will.
This is when it becomes even more complex, consuming time, finances, and resources.
But it’s much easier when the probate proceeds with the availability of the deceased Will.
How To Determine The Value Of Inherited Property
When you decide to sell an inherited property, you need to determine what’s called fair money value.
This is done as at the time you inherited it (also called the cost basis).
If you want to sell the property for more than the amount it was worth then you will have to pay capital gain tax on the profit.
There are many ways to determine fair money value.
Get A Local Realtor To Estimate The Value
A local realtor’s estimate may not be as valid as the one from the Internal Revenue Service (IRS) as an official.
A simple piece of advice is to ask for more appraisals from more than one local estate realtor and taking the average might be reasonable.
He or she will provide a written estimate by referring to similar properties in the neighborhood and the local market conditions.
Use Of Tax Assessment Record
You can run a quick check on an online real estate value calculator to get an estimate of how much your inherited property is worth.
You can get an insight from it but its estimated data may not be reliable and can’t be used for legal purposes.
It’s best to request a recent tax assessment from the county clerk’s office.
The IRS allows beneficiaries to use the value from the home assessment on the date of the owner’s death.
Hire A Licensed Real Estate Appraiser
This is the most reliable and legally recognizable estimate.
This appraisal can determine the value of the property on the date you and the other beneficiaries inherited it and its recent value.
However, it can be a little tricky for commercial properties and income-producing properties.
Buying Inherited Property From Multiple Owners
Inheriting a property that has multiple heirs or more than one sibling as a beneficiary is always under conflict.
In most instances, other co-heirs will decide to sell it while you will want to keep it due to some sentimental attachments to the property.
Either way, as long as it involves multiple ownership of inherited property, you have several options to choose from.
Before doing that, you need to do the following before the buying-out procedure.
- Obtain an updated estate plan.
- Get the house inventoried and valued.
- Check to see if you can reach an agreement with other inheritors.
However, the inheritance buyout procedure is not complicated.
What is important is that you need to carefully consider your options and also work with a realtor who specializes in inherited property.
Options For Buying Inherited Properties From Multiple Heirs
- Buy The Property When It’s Listed Or Auctioned
This situation doesn’t happen often.
In most cases where the other heirs insist on selling their inherited property, you want to keep it but have no other way to go about it.
You can simply wait, when the house is listed or on auction then you can buy it.
- Pay Your Co-heirs Their Share Of The Real Estate Property
They will sign their deed over to you once the payment is done.
This is more convenient and less stressful because you will avoid the issue of settling it in court.
- Set Up A Contract Agreement With The Other Beneficiaries
At this point, everything must be done in writing, also called a deed of trust.
The agreement states how much you will be paying for the other part of the property, the time frame, and the interest rate.
You can decide to pay it every month till it’s paid off.
This is meant to avoid conflict in the future as a result of misunderstanding.
- Refinance The Inherited Property
This option has pros and cons. Its cons include getting involved in debt while the pros are that you will buy out the property without delay.
Refinancing an inherited property refers to applying for a loan from agencies that specialize in estate funding.
You need to come up with at least some percentage of the amount needed and the rest will be provided by the agency based on their conditions.
However, as a prerequisite, your property must be in good condition.
Even if it means you and the other inheritors have to contribute to the repairing of the property.
Note that the interest rate of inheritance loans is always higher than banks.
The agency will directly make the payment to the other beneficiaries that are selling the property.
You will assume the loan and pay the agency. When the refinancing is complete, the property deed will go to you.
How To Sell An Inherited Property
Losing a loved one can be emotionally devastating and having to sell the inherited property adds even more complexity to it.
Here are simple steps that will guide you through the selling process:
Check What The Will Says
This is the first step you must take. The Will is a legal document left behind by the deceased stating the inheritors and how his or her properties will be shared.
The location of the will may not be within the home but with the deceased solicitor or the executor.
Once you locate the will the next step is to apply for probate.
Apply For Probate
This involves the executor and those that apply as stated in the will or the closest relative if there is no will.
There will be no need for probate if the will states joint ownership of the inherited property.
Prepare The Property For Sale
Whether it will be viewed or listed, a clean and tidy property will likely attract prospective buyers.
It’s your choice if you choose to paint or decorate before selling the inherited property.
That also depends on if you want to sell it to a high-end investor and make more gains.
There are three channels through which you can sell your inherited property.
In the end, it depends on what you want. Is it a time frame, price, or knowledge of the areas, here are the three channels through which you can sell your inherited property.
- Traditional estate agents.
- Auction houses.
- Regulated property-buying company.
They have their pros and cons and you need to think it through before deciding to choose a channel.
Pros Of Selling An Inherited Property Through Traditional Estate Agents.
- They offer the best price (it’s the best channel if that is what you want).
- They have a local knowledge of the area.
Cons Of Selling An Inherited Property Through Traditional Estate Agents.
- No guarantee of sale and it may take about 3 to 6 months. It’s the slowest channel.
- prices are not fixed because buyers may renegotiate the price after surveying your property.
- You may be tied into a long-term marketing contract till your property is sold.
Pros Of Selling An Inherited Property Through The Auction House
- It’s the fastest channel.
- You are sure to get at least 90% of the market value of the property.
- There is nothing like agent fees.
- You are not tied to any marketing contract.
- The sale could be completed in a month provided there is a buyer.
Cons Of Selling An Inherited Property Through An Auction House.
- The hidden fees may be high.
- No guarantee that you will get the price you stipulated.
- Property may not be sold on the day you auction it.
- You may have to wait for another auction date which is likely (in the next 2 to 3 months).
Pros Of Selling An Inherited Property Through A Regulated Property-Buying Company
- You get a sale that’s discreet within a month.
- Your solicitor’s fees are paid for you.
- Once they agree on a price, there is no further negotiation.
- Mortgage funds are not required for cash sales.
There are no cons for this channel except you have to be careful when negotiating to avoid being cheated on (the price).
Things To Look Out For When Choosing A Regulated Property Buying Company.
- Can you sell your inherited property within a time scale that suits you?
- Do they have substantial cash for the transaction?
- Is their buying process simple and transparent?
- Will they charge any kind of fee at any stage of the transaction?
- Do they have unfavorable conditions set before selling your inherited property?
5 Most Common Mistakes To Avoid When Selling Inherited Property
It’s a well-known fact that inheriting a property is a wonderful experience.
Although it’s such a good thing, note that it usually comes with a sea of emotions and these emotions may cloud your sense of judgment.
Once emotions and money come together, it turns into a worst nightmare or disaster. To avoid this windfall, below are the red flags when selling an inherited property.
Letting Emotions Get The Best Of You
It’s a natural thing to get emotionally attached to your inherited property.
This may make you hesitate to sell, offer it for a low price, or make rash decisions.
In the long run, your property taxes increase, you incur loss or you regret.
All you need to do is to take a deep breath and think twice.
It’s also a wise decision to get a certified financial planner involved in the situation.
Being A Spend Thrift
Being generous in giving is a nice thing to do but doing it to the detriment of your financial security is the problem.
You will also be tempted to buy what you otherwise wouldn’t have.
Cool off, think it over, and try to avoid mindless spending on what you may term as “just a small indulgence”.
It’s best you have a budget and get a qualified accountant to help you out.
Doing It Yourself
DIY is a great thing but when it comes to inherited property you obviously need to contact an expert to get advice on how to go about it.
You may overestimate the value of the property and hence your hope gets high.
Also, you may not be able to manage your 401(k) plan or capital gain tax calculation well and your financial future will be in danger.
The expert will advise you on possible life insurance or investment opportunities for beneficiaries like you.
Failure To Make Repairs
Declutter the house and possibly repair some areas of damage like leaky faucets, broken windows, blocked bathroom drains etc.
You have to know that the property will eventually belong to someone in future and your potential buyer may want to see a nice property.
Put in a lot of effort and make sure that your inherited property is in a very good condition.
Failure To Have Savings
Inheriting a property is once in a lifetime opportunity and you must have a spot for savings on your budget for rainy days after the sales.
It’s a well known fact that this is not a constant source of income and failure to save means you will soon swim in a pool of debt.
Frequently Asked Questions About Inherited Property
Can I Sell Half Of My Inherited Property?
Yes, you can sell half of your inherited property but you will need to pay capital gain tax on the sales.
Also, you have to consider the type of property ownership according to the will or discuss with other co-heirs.
When Does An Inheritance Become A Marital Property?
An inheritance becomes a marital property when it is acquired while in marriage.
How To Avoid Paying Capital Gains Tax On Inherited Property
To avoid paying capital gain tax, there are many approaches to it.
You can rent or sell the inherited property upon acquiring it without delay.
Also, you may move into the property and occupy it.
Lastly, you can choose not to inherit it but just think through this option.
Is Inheritance A Community Property?
Yes, an inheritance is a community property. A community property is said to be a jointly-owned property by couples and is subject to equal division in the event of a divorce.
Inherited property is like a dice with many sides to it. Going through the grieving, legal and financial phases can be very frustrating.
The good news is this, you can navigate through these procedures with the help of an attorney and a financial planner.
You can choose to keep, rent, sell your inherited property or even buy-out your co-heirs.
Whatever may be your decision, know that you have a lot of options to choose from and always think through each option.
Don’t forget to avoid the red flags when selling the inherited property because it will save you a lot of problems.