Inheriting a home from a loved one can be a gift, albeit a stressful one. Depending on your specific circumstances, you might have several options regarding what you can do with the home itself, including selling it, renting it out or moving into it. Though the most common option for an heir to choose is to move into the home, but many people prefer to sell them instead. If you’re thinking about selling your home, read through this guide to help you understand the process and get started.
Understanding the Moving Parts
There are a few questions you should ask yourself before deciding whether selling a home is right for you.
– How much is the house worth?
You can use an online home value estimate tool to figure out the home’s worth. This price can be compared to other similar homes in the area for a better idea. Even so, the given amount isn’t necessarily what you’re going to sell the home for. The price depends on several factors, such as the condition of the home and the health of the housing market local to the inherited home.
– What’s the mortgage?
You’ll need to figure out how much is left to pay the on home mortgage by asking the mortgage company. You can also use a home sale proceeds calculator in order to figure out how much you stand to make selling the house.
– Are there any other debts?
Alongside the amount left on the mortgage, what else might you need to pay for? Were the property taxes paid on time, or did they pile up? Will the proceeds from the home have to go toward paying them off? Have you found any liens against the property?
– How many people will inherit the home?
Selling an inherited home that more than one person owns can make things more complicated. Does everyone who owns the house agree to the sale? Who will talk to the real estate agent? Who will manage the estate sale?
Other considerations are as follows:
- Tax implications such as capital gains. One of the first matters you have to look at is how the sale is going to financially impact you. You might be subject to taxes on the proceeds made from the sale or even from the property inheritance itself. Laws may vary in different states.
- Inherited properties don’t qualify for a home sales tax exclusion. Usually, when you sell a property, you can enjoy a tax exclusion for at least two years. Homes that were inherited are not eligible for this unless you plan to live in the house for a minimum of two years.
- Inherited homes might be able to enjoy the benefits of the stepped-up tax basis. Usually, proceeds are determined using the buying price as well as that of any improvements and renovations done to the home. When it comes to an inherited home, the tax is based on the fair market value of the home during the passing of the previous owner. This stops any heirs from owing far too much in taxes on a home that appreciated a lot over the years. If you own the property for some time before you sell it, you will be responsible for taxes on the property value if it increases while you own it.
Understand Where and How To Report Proceeds of the Sale
The IRS requires anyone who sells an inherited property to report the profits as a taxable income. The amount that is taxed is based on the fair market value of the home as well as any other home improvements. You can find the forms and instructions you need through the IRS Gifts & Inheritance resource. Even if there are no taxes to pay, it’s still a transaction you have to report.
There is a difference between an estate tax and an inheritance tax. Tax law isn’t easy to understand, so it’s important that you talk to an attorney or an accountant who can make sure you are doing everything you have to do in the proper manner.
Get the Property Ready for Selling
If you have decided to go through with the sale, there is a process you’ll need to go through. There are a few tips for cleaning out and preparing the home to be sold.
- Clear out personal items. It can be emotionally taxing to go through a loved one’s belongings, as this can bring back a lot of memories. Even so, it’s important to do this first. You can keep some things for yourself and other members of the family, and then figure out what you want to donate, sell or throw out.
- Host an estate sale or yard sale. Once you have divided up the personal belongings, you can choose to hold an estate or yard sale for all of the rest. Homes tend to show better when they have been emptied and cleaned. Still, if that is too much pressure on top of all that is going on at the time, you can get in touch with an estate sale specialist who can help you go through these items and get them priced for selling. After the house has been decluttered, you can start to consider what changes you can make to help the house sell.
- Wait for the estate to go into probate. If your loved one has a Will, the estate could need to go through probate before you can sell the home. This is the official proving of a Will. Many states have a probate process, but it is often only available to small estates that are valued either from a few thousand to a few hundred thousand dollars.
- Find out who has legal responsibility. If the owner has left a Will, the executor is the one who has been given the responsibility to distribute the assets of the estate, including the property. If the property is instead in a Trust, the trustee is given this responsibility. In a situation where siblings have inherited an asset together, one of them will have the ultimate authority to handle the transaction.
- Pick the right agent. Though it is tempting to pick an agent based solely on who you know, enlisting the help of family or friends to get the sale coordinated isn’t always the best plan. It’s a good idea to ask a lot of questions when seeking out a real estate agent to ensure they are in line with what you need.
- Sell the home to a local Home Investor Buyer. Selling to an real estate investor like an iBuyer, will eliminate the need for repairs. fees. commissions and showings, which is beneficial for those who don’t want to deal with having to prepare their home and then wait around for offers to come in. With an investor, you can get options selling a house for an all cash offer.
Pricing and Negotiation
Pricing the inherited property can be a difficult decision, as it may feel like it is worth more than it is because of its nostalgic past. The true price depends on many factors such as the condition of the housing market in the area, any remaining debts or mortgage payments. There are a few tips to keep in mind when pricing and negotiating the sale of the home.
- Don’t overprice it. It’s a good idea to list a property at a realistic price, but one that is slightly higher than what you want to settle for. This will leave room for negotiation. An unrealistic listing price can make potential buyers turn away, while a lower price can pull them back in. Lower listing prices are sometimes used as a strategy to bring in more potential buyers who might be moved to a bidding war. Sometimes, this means you could end up with a larger sale price by the end of it. Think about pricing it low enough to attract potential buyers, but still high enough that you have some negotiation wiggle room.
- Don’t anticipate getting the asking price. Many people list a home for sale based on comparable properties and their prices. Depending on the conditions of the market, the offers might be as much as tens of thousands of dollars before what you’re asking for. Talking to a reliable real estate agent that will negotiate and otherwise advocate for you is recommended.
- Don’t accept the very first offer you get. Unless you are fortunate enough to receive a full-price offer, try not to decide on an offer too quickly. Depending on the market, some buyers might make a first offer that is must lower than the listing price and much lower than the amount they are okay with paying.
- Understand negotiation tactics. Understanding what strategies a buyer could use to try to purchase the home may help you decide what you are and aren’t willing to make compromises on. If you’re armed with knowledge and already are decided on what you’re willing to compromise on, you are well-equipped to make any counter offers. It will also be easier for you to easily state your expectations and to leave a deal if it doesn’t meet your requirements.
- Don’t settle for less than what it is worth. Buyers want to buy the property for the lowest price they can. Sellers, on the other hand, want to get the most money they can for the home. This is especially true when the home is inherited because sellers often have childhood memories. For this reason, offers are usually countered, and sellers and buyers tend to agree on a final sales price that is priced in the middle somewhere.
- Don’t make concessions too easily. Potential buyers may bring forth an unfair offer that is too low, ask for funds placed in escrow for improvements or repairs or even ask for assistance with closing costs. Talk to you a local real estate investor or appraiser before giving any concessions on an offer.
What To Expect During the Sale Process
The process of selling a home has multiple steps starting with market research and resulting in a closing. It can take weeks to months depending on the variables. The following are a few key points to expect along the timeline when selling a home:
- A home inspection is arguably one of the most crucial parts of a real estate deal. Having a certified home inspector look at the home to find problems like broken pipes, rotting structures, cracked foundations or electrical issues is important. They can find the issues that might cause you financial problems down the line when the buyers notice them. You can have the home inspected before listing it to find these issues beforehand. This can be beneficial as opposed to waiting for the buyer to make an offer, only to retract it during the selling process.
- Once you have listed the property, your real estate professional will usually have a live video chat tour or an open house. Just because the home is listed on the market, this doesn’t mean your expenses have come to a stop. If there is a mortgage on the property, you’ll still need to pay them. Utilities such as trash removal, electric, sewer, water and cable will still need to be paid.
- The timeline on selling a home can vary, but when there is more than one family member involved, there are personality conflicts and legal issues that may crop up during the sale, which could prolong the process. You might also have questions about ownership transfer between relatives or other questions you need answers to before moving forward. Talk to your real estate agent to get advice about this and work with the estate planner to move through these issues more easily.
Obstacles When Selling an Inherited Property
Any real estate transaction is likely to come with pros and cons, especially when even a typical home sale can have hurdles of its own. You are more likely to run into some surprises with an inherited home than you are with a traditional property. Keep the following points in mind when approaching a sale of an inherited home.
- Executors can and do keep an estate in probate for many years. This lets the executor or any other beneficiary use the home and other estate assets without having to transfer its ownership. It is a temporary situation since all property has to eventually be handed off to another party.
- Be careful with equal distribution. Personal Wills might state that the value of the estate has to be evenly divided between the beneficiaries or siblings. Challenges could crop up when it’s time to agree on the asset’s values, especially when the belongings are of a sentimental nature.
- Let go of guilt. Not only can it take a toll on your emotions to go through decades of your loved one’s possessions, but those who inherit them may feel guilt over not holding every item in the home. Not everything can be kept, and that’s okay.
- Check for other options if the property is “underwater.” Those who inherit a home may disclaim it if there are problems like climate risks or if there is more money owed on the mortgage than the entire home is worth. You may also want to make sure there are no liens on the property before you put it on the market.
- There may be more repairs than anticipated. If the previous homeowner was, for any reason, unable to maintain the home and upkeep it properly, the inherited property could have issues that are hidden. These will usually crop up during a home inspection and, depending on their severity, they may end up costing you thousands of dollars. In some cases, they can even cost you a sale.
- Accept that disagreements will happen. Aspects like the purchase price, who gets to take up residence in the home, how the repairs need to be managed or anything else involving the property might cause arguments. It is common for siblings who usually get along well to end up fighting about the details of a home they inherit. If you are selling the home with any siblings, it’s a good idea to have resources on hand to help you get through any disagreements that might arise. If you’re prepared to deal with the disagreements, they don’t have to turn into massive obstacles.
Selling a property that you have inherited from a loved one while also going through the grief of losing them can be a trying and difficult emotional time. The stress that comes with selling a property even in normal circumstances can overwhelm even the most even-keeled person. If you are armed with the proper information, you can prepare yourself to work through the difficulties that will arise selling an inherited home, making the process smoother.
In this article, we have examined some common issues that those selling an inherited home have run into. Alongside this, we have put forth some tips that may help you navigate the process more easily. When you get ready to sell your inherited home, revisit this article and use it as a guide to get through the process as smoothly as possible.