Ultimate Guide to Selling an Inherited House in 2020
Even though the information on this web page is provided by a qualified industry expert, it should not be considered as legal, tax, financial or investment advice. Since every individual’s situation is unique, a qualified professional should be consulted before making financial decisions.
Selling an inherited house can be difficult. Your house may become delayed in probate. Or you may have problems settling with other siblings. This comprehensive guide will help you step-by-step through the difficulties associated with the sale of an inherited property.
I Inherited a House and Want to Sell It—Where Do I Start?
There are four possible scenarios for turning your inherited house into cash. An inherited house can be sold:
- During the probate process by the executor or administrator. They can distribute the proceeds of the sale to the beneficiaries and heirs when the probate is completed. Executor can be the closest relative of the deceased or other person named in the will, such as a paid professional attorney.
- After the title is transferred to you through probate or other procedure, and you become the new legal owner.
- If the property is held in a trust (explained later in this guide)—by the trustee, without probate. The trustee can sell the house while it’s still in the trust and transfer the proceeds to you.
- After the property is deeded to you by the decedent’s trust. If you are sharing the inheritance with others, the process is more complicated. This will be discussed in greater detail later in the guide.
Do You Need a Probate to Sell an Inherited House?
What Is Probate?
After someone dies, their estate is usually distributed to heirs and designated beneficiaries under the court’s supervision. This process is called probate. The house you inherited will go through probate unless the estate was set up to avoid probate.
When a Probate Is Required
Proper estate planning can simplify selling the family home after the death of a parent, spouse or a life partner. But without the proper planning an inherited home will have to go through the court system.
For example, an heir apparent cannot expect the local title company to grant them title to the family home—with no questions asked. They cannot assume the house belongs to them just because they are the only surviving family member. Their legitimate claim to the house must be determined through legal proceedings. And if the parent left no will or other binding declaration, probate will decide who is the rightful heir. When the decedent leaves no will, it’s referred to as dying intestate.
However, a will does not keep property out of probate. For example, an only surviving child brings a handwritten will to the title company. The decedent’s house was left in the will to the child. The child asks for a title transfer. But the title company won’t transfer the title on the basis of a handwritten document. The will must be validated by going through probate. When the decedent had a will naming the beneficiaries, it’s referred to as dying testate.
If a probate is required, there are two options for selling the house. You can sell it while still in probate. Or you can sell the house after it goes through probate—after you become the legal owner.
To sell a house in probate, an executor (in a testate probate) or administrator (in an intestate probate) has to be appointed. If the decedent appointed no one in the will, the court will appoint the closest relative as executor. The details of a probate sale will be discussed later in this guide.
Selling the family home after going through probate is like any other real estate transaction. The heir will have a clear title and can sell their property however they choose.
When a Probate Is not Required
If a probate isn’t required for your inherited house, it can be transferred to you much sooner. And you can sell a house without going through probate if certain legal requirements are in place.
Property Is in a Trust
A trust is a fiduciary relationship, where the owner of an asset gives to another person the right to hold its title for the interest of a beneficiary.
For example, a dying parent (the settlor) can transfer a real estate property to the uncle (the trustee) of this son (the beneficiary) before their death. The uncle will be managing the property as he sees best for the trust until the parent dies. After the death of the parent the uncle will transfer the property to the beneficiary. In many cases the trustee holds the title to the property for years after the death of the parent, until the child reaches the age of majority.
If the property you inherited is held in a trust, a designated trustee will handle the transfer of the property to you. The inherited property can be sold in one of two ways.
- The trustee sells the property while the property is still in the trust. And the assets of the trust are transferred to you.
- The trustee transfers the property title to your name. And you sell the property as you choose.
If the trustee sells your inherited house while still in the trust, expect the following chain of events:
- A title search should be done to make sure that the property was properly transferred to the grantor.
- The successor trustee should make sure the death of the original trustee is recorded—and the authority to sell the property is transferred.
- The inherited house should be appraised to establish its value at the date of death of the settlor (for tax purposes).
- The trustee will hire a real estate agent to sell the house.
- The buyer of the house will sign a purchase agreement with the trustee—initiating the closing process.
- After closing, the funds from the sale of the inherited house will be distributed to you—or will stay in the trust for safekeeping.
Jointly Owned Property
Three types of jointly owned property don’t have to go through probate. If one of these applies to you, the property you held with your spouse will be transferred directly to you without probate.
- Joint tenancy with right of survivorship is a way of owning real estate in all states. Co-owners have an equal share of the entire property. If one co-owner dies the decedent’s share is transferred to the other co-owner—with minimal paperwork. In some states, the surviving co-owner has only to file a certified copy of the deceased owner’s death certificate. Other states require more legal documents. But the property can easily be transferred to the surviving spouse without going through probate.
- Owning a house as tenants by the entirety means the marital unit, and not the husband or the wife, owns 100% of the house. Neither spouse can sell or will the property as an individual. The property can be sold or bequeathed to a beneficiary only when both spouses agree on it. In case of tenancy by entirety, should one spouse die, the surviving spouse automatically owns the entire property. And the home does not have to go through probate. Only certain states allow this type of property ownership.
- In a limited number of states married couples can hold property as community property with right of survivorship. Community property ownership means that the property was acquired by the couple after their marriage (except for when it was inherited), and therefore both spouses have equal rights for it. Each spouse owns half of the property. Spouses are not allowed to bequeath their share of community property to someone other than their spouse. As a result, the death of one spouse guarantees that the surviving spouse will receive the decedent’s share of the property. Property held in this type of ownership does not have to go through probate.
Small Estate Affidavit
The probate process can be significantly accelerated when an estate qualifies as a “small estate“. The size of a small estate varies according to the individual state. But small estates are generally $150,000 or less.
As an example, your late mother’s estate is considered a “small estate.” She left no will, but named you as her personal representative. You file a small estate affidavit (SEA) with the probate, which greatly speeds up the probate process. But if she had no will or personal representative, you (as a close relative) can also submit a small estate affidavit. Either way, your mother’s house won’t sit in probate for as long with the SEA on record.
3 Ways to Sell Your Inherited House After Becoming the Legal Owner
First of all, we will discuss the available options you have if you don’t need to go through probate or if you choose to sell the property after it.
In this case you have three options for selling the house: a sale to a real estate investor, through a Realtor, or yourself (FSBO) to an interested buyer.
1) Sell to a Real Estate Investor
Home buying companies buy houses regardless of the condition. When the buyer accepts the cash offer from an investor, it is only a matter of days until the house closes. The seller walks away from the closing with cash in hand.
How to Find the Right Investor
Do your homework when shopping for a home buying company. A start-up cash homebuyer may not be sufficiently funded and will not offer you a good price. Or the company may have little experience—creating problems for you during the closing.
Research online to find highly rated companies that buy houses for cash. Get cash offers from several reputable ones. Make sure the company with the best cash offer has a proven track record before accepting their bid.
At House Cashin, we work with multiple investors in every location throughout the US. We only partner up with highly reputable and legitimate investors. So when you request a fair cash offer on your home through House Cashin, you can stay assured you’re in good hands.
Benefits of Selling to an Investor
When a cash homebuyer makes an offer on your inherited property, they include into it the house’s liabilities—past and present. They factor in any debts to be paid and any repairs to be made into their offer. You sell the house AS IS—in its current condition.
Repairs take time and cost money. Because the investor buys your house AS IS, you don’t have to make expensive repairs or upgrade your property…
Investors don’t use inspectors so you won’t be waiting on an inspection report. Typically, the cash offer can be given to you the next day or even on the spot, during the investor’s visit to see your house. The time from the cash offer to closing is just a few days. At closing you receive your money in full amount.
The traditional real estate transaction involves many people that complicate and delay the closing: the seller, the seller’s agent, the buyer, the buyer’s agent, inspectors, mortgage lenders, and repair contractors. When a home investor buys your house, you work primarily with them. Consequently, the paperwork is minimal during the whole process.
Drawbacks of Selling to an Investor
You will not get fair market value for your house when you sell to a home investor. The home investor assumes all liability for your house. They have to factor all of their costs into the cash offer they give you. But in exchange for a lower selling price, you have no responsibility for the condition of the home, unless you disclose known problems with the property according to the laws of your state.
Many scammers are mixed in with the legitimate home investors. These scammers are not interested in building long-term relationships within communities. And they will take advantage of unsuspecting and unknowing sellers. Research and discernment are necessary when selecting a reputable home investor.
2) Sell with a Real Estate Agent
Selling your house through a real estate agent should ultimately help you get the best price for your home. However, it is not always the case because there are many incompetent Realtors out there. That being said, a Realtor will help you set the asking price, market the house, and negotiate the sale.
How to Choose the Right Realtor
Your local real estate association can direct you to websites that rate Realtors. With a little research you can find information about sales, customer satisfaction, and other helpful statistics. Interview a few of the top real estate agents in your area. Ask them to value your house. Good Realtors will have similar valuations. Select a Realtor from those who value your house similarly.
Benefits of a Selling with a Realtor
It is difficult to set the right asking price for a property. You don’t want to undervalue the house. But at the same time you don’t want it to sit on the market for months because it’s overpriced. An experienced Realtor can help you set an asking price that will attract buyers while still valuing your house for what it’s worth.
A good Realtor represents your interests when selling your house. They know how your house compares to the other houses for sale in your area. They will market the house—making it stand out as a good value to a potential buyer.
They understand both the financial and the emotional perspective of the buyer. The traditional buyer wants the best deal possible. But if the traditional buyer is going to live in the house, they will have an emotional investment as well. A good Realtor knows how to navigate financial and emotional issues with potential buyers.
Drawbacks of Selling with a Realtor
A traditional real estate transaction will take weeks or months to complete. With a difficult property it can take more than a year. The number of people involved in a traditional sale slows the process down. Lenders, home inspectors, appraisers, contractors—all add to the time from listing a house to its closing.
It’s almost impossible to anticipate all the fees associated with a traditional sale. The realtor fee may be locked in. But the closing costs estimate from your Realtor is rarely accurate. Hidden fees are common surprises from the time of listing to the time of closing.
A traditional buyer will walk away from any house that needs significant repair. You will have to spend time and money to make the house acceptable for a potential buyer. For example, if the inherited house has any mold issues, you will have to pay for inspections, remediation, water damage restoration and prevention measures which can even include HVAC upgrades.
A real estate agent will most likely want to stage the home for the best appeal to a potential buyer. In addition to repairs, the agent may suggest updates. They may suggest you repaint that pink bedroom or replace the cracked flooring in the utility room. Updates and staging will help you get the best price for the house. But these improvements cost time and money.
FInally, the inconvenience of constant showings of your home will require you and your family to vacate the home every time a potential buyer wants to see your property.
3) For Sale by Owner (FSBO)
You can also technically sell the house yourself. For Sale by Owner (FSBO) signs are a familiar sight in most neighborhoods. With a FSBO sale you set the asking price, market the house, show the house, and negotiate the final price with the buyer on your own.
Benefits of Selling by Yourself
You do not have to pay any real estate commissions. In theory, an FSBO sale can net you more money than selling to a home investor, or selling through a Realtor. However, on average, Realtor-sold houses bring more money than FSBO-sold homes. So it’s possible that selling the house yourself won’t net you any more money than what you would have paid a Realtor to sell it, unless you are knowledgeable in the industry.
Drawbacks of Selling by Yourself
You have to set the asking price yourself. If too high, the house could sit on the market for months. If too low, you may get less for the house than it’s worth. The costs of a FSBO sale and a traditional sale are similar except for the real estate commission (around 6% in total). And you will have to do everything that a Realtor would do—showing, advertising, negotiating, dealing with legal documents, etc.
Selling a House While in Probate
An accurate probate appraisal is needed before the probate process can be completed. The valuation should reflect its value at the time of the decedent’s death. The probate appraisal factors in all assets and all liabilities to determine the estate’s value. All liabilities must be paid before the court can release any assets for distribution.
Debts and Repairs
If you are also the estate’s executor, all the estate’s liabilities must be discovered. Debts such as mortgages and unpaid taxes or utilities must be paid. Repairs that will discourage potential buyers should also be made.
Taking care of an inherited house’s debts and repairs can be a time-consuming and expensive process. If these liabilities are not taken care of, a traditional buyer will be impossible to find, and your inherited house will be sitting on the market indefinitely.
However, professional real estate investors offer an alternative. When an investor makes a cash offer for your inherited property, they take the property AS IS. The allowance they make for paying off all liabilities—both debts and repairs—is included in their cash offer.
Who Can Value a House for Probate
As executor of the estate, hire a professional appraiser to determine the fair market value of the property. You can also ask a minimum of three realtors to estimate the fair market value of the house. Base the probate appraisal on the average of these estimates.
How to Get a House Valuation for Probate
Shop around for a professional real estate appraiser with a good reputation for houses similar to the one you inherited.
As an alternative, ask three or more realtors to view the house and estimate its fair market value.
Submit the appraisal report (or the average of the market values from the realtors) to the probate court.
Cost of House Valuation for Probate
If a professional real estate appraiser appraises the house, they will charge a fee. Depending on the property’s location, size and other factors, it may cost from $250 to $450.
The realtors will not charge a fee since they are each hoping to be hired by you for selling the property with their help. But for the same reason they may tell you a higher price than the property really costs.
Testate Probate Process
The executor of the estate is named in the decedent’s will and must be approved by the court. If no executor is named, the court will appoint a close family member to act as the estate’s personal representative. If you are acting as the executor of the estate, you are responsible for moving the estate through probate until the estate is settled.
What you can and can’t do as executor is spelled out in the will. Find out if you have the power to sell the house without the court’s confirmation. If so, you can sell the house through a realtor or directly to a home investor.
If the sale must be confirmed by the court, you cannot accept a bid lower than 90% of the house’s appraised value. That bid must be submitted to the court. The court will then open the house to the overbidding process. The overbid means that incrementally higher bids are submitted by competing buyers over a specified number of days.
Power of the Executor of Will to Sell Property of the Estate
Unless the decedent’s will disallows the sale, the executor of the estate has the power to sell the house as they see fit and without court confirmation. The executor’s sale is not as transparent as the probate auction. Therefore, the beneficiaries of the estate may not have the confidence in a sale that they have in an auction. But If the decedent’s will doesn’t disallow the sale, the executor can sell a property without all beneficiaries approving.
In an executor’s sale the executor decides on the asking price, hires a realtor or sells the property to an investor, negotiates the purchase price, etc. However, this is true as long as the price and commissions are fair, and there is no involvement in a fraudulent scheme.
The executor is authorized to make decisions in the best interest of the entire estate. The probate prohibits any preferential treatment of one beneficiary over another.
The executor can certainly look after the best interests of the beneficiaries, but they cannot give preference to one beneficiary over another.
As an example, can one heir sell the property if the other heirs want to keep it, but the heir had been living with and taking care of the ailing parent? Even if convinced they have a greater share, no beneficiary can act on their own or dictate their preference to the court. So in this case the final word belongs to the executor, who should take into consideration the interests of all heirs while making the decision.
When the executor has the power to sell the house without court confirmation, the executor can hold a public auction. This auction often includes personal property as well as real estate. The auction brochure will be titled “Executor’s Estate Auction”, or something similar. And both the house and other estate property will be advertised.
This type of auction should not be confused with a court-supervised auction. Under the supervision of the court, the bidding has to start at 90% of the appraised house value. In an executor’s auction bidding can start at any amount. And the executor has the right to accept or reject the high bid.
The executor’s auction is the quickest way to sell a probate home. An auctioneer is hired, and the house is sold on the scheduled auction date. While a court-supervised auction can take weeks to complete, due to the overbid process.
The success of an executor’s auction is largely dependent on the degree of advertising. A well advertised auction can attract motivated buyers who will bid the house to its fair market value.
As long as the executor’s auction has been properly marketed, it is the most transparent way of selling a probate house. Multiple buyers bid what they are willing to spend. And the highest bidder gets the house.
Can the Executor Sell a House Before Probate Is Granted?
If the house does have to go through probate, it cannot be sold before probate is granted. But as long as the estate is testate (an estate with a will), with a named executor, the marketing process can begin.
While the temptation to speed things up is strong, it’s not wise. First, the probate has to approve any named executor in the decedent’s will. What if the named executor sold the property, only to be later disqualified by the probate as the estate’s executor? Second, the house has to have a probate appraisal before selling. And this can’t happen before the probate is even granted.
The executor can, however, sell an inherited house after probate has been granted but before probate is settled. Everything in the real estate transaction can be completed except for naming the buyer in the deed. But the title company will not transfer title to the new buyer until the probate is settled.
Since the probate process can take months or even years to complete, selling the house during probate can speed up the process.
How Long Does the Executor Have to Sell a House?
The time an executor has to sell a house varies from state to state. Some states have a limit of one to three years. While other states have no limit.
Intestate Probate Process
If the decedent had no will (died intestate), the house can still be sold during probate. Since no executor was named in a will, the court will appoint an administrator to sell the property. The process is similar to the testate process, but the court usually has a larger supervisory role. The administrator has limited authority, and must confirm any sale with the court.
The administrator can hire a real estate agent to sell the property, but cannot accept an offer less than 90% of the house’s appraised value. This offer is then submitted to the court which will open the offer to overbids (higher offers) for a specified period.
The house can also be auctioned. But this type of auction differs from the Executor’s auction in two ways:
- The opening bid must be no less than 90% of the house’s appraised value.
- The auction is not actually concluded on the day of the sale. As in the private sale, the court will open the winning bid to overbids (higher offers) for a specified period.
Can Administrator of Estate Sell Property Without Beneficiaries’ Approval?
As the administrator of an intestate estate has no will to follow, they are only required to distribute the estate’s assets to the heirs of the estate. The estate administrator can sell property as they see fit. While the administrator has a duty to distribute the estate’s assets to the rightful heirs, the administrator can show no preference.
As an example, one of the heirs may have lived with the decedent in the decedent’s home. The decedent may have promised the home to that heir, but neglected having a will drawn up. This heir may want to remain in the home after the probate has been settled. But the administrator may go ahead and sell the house—distributing the heirs’ property equally per state statutes. When no will is present, the administrator can legally ignore the wishes of beneficiaries and heirs.
How Long Does a Probate Sale Take?
An estate can stay in probate from 6 months to decades. This is not good news if you are the heir or beneficiary of an inherited house.
If the house you are about to inherit is a part of an intestate estate, there is little you can do to speed up the process. But if you are both beneficiary and executor of a testate estate, the process can go faster.
The quickest option is selling the house to a real estate investor in a private sale. An investor will buy your inherited house AS IS. You will not need to settle any debts against the house or organize any necessary repairs and wait for their completion. The investor will take care of these issues after the property is sold. The cost for all repairs will be included into the cash offer you will get for the property you are selling AS IS.
Problems When Two or More Siblings Inherit a House
Inherited property split between siblings can complicate a real estate transaction. There’s no problem if all the siblings want to cash out. The house is sold, and each sibling gets their share of the proceeds. But problems can arise when one or more of the siblings want to keep the house.
If the house in still in probate, the siblings need to negotiate a mutually agreeable resolution. Courts don’t usually restrict beneficiaries and heirs from negotiating mutually agreeable terms. When conflicts between them cannot be resolved, the executor or administrator will sell the property. And no sibling will have the opportunity of keeping the family home.
Can Siblings Force the Sale of Inherited Property?
The probate process is meant to resolve any problems between two or more siblings who inherit a house. An executor/administrator will not pass a house through probate that one sibling wants to keep, and another wants to sell until they agree on what to do. But what happens when the house was kept and the disagreement arises after the title has been transferred to more than one person through probate or other procedure?
As an example, a brother and a sister inherit the family home when the mother dies. The brother had been living with and caring for the mother at time of death. The sister wants to sell the home and use the cash for a new business. But the brother won’t move out.
The sister can negotiate a buyout with her brother. He retains title to the house, and she receives a cash equivalent to her part of the inheritance. This buyout can be structured in a number of ways.
If the brother can’t or won’t buy her out, she can take legal action against him to receive her share of the inheritance—partition action. If the court orders to sell the house, the proceeds will be divided between the siblings. This way is expensive for all parties, as the money to pay for the lawsuit are usually taken from the profit after the house sale. Not to mention the damage to family relationships caused by suing own family members.
Tax Implications When Selling Inherited Real Estate
Is Money from Selling an Inherited House Taxable?
Please note that inheriting a house may make you subject to an estate tax, if the estate is large enough. Each state has its own threshold, bust in most states it’s pretty high—around a couple of million dollars. The estate tax is based on the value of the proceeds and property you received from the estate. The estate tax has nothing to do with selling or keeping the house.
In other states there is an inheritance tax with no exemption threshold. It’s similar: you pay it just because you inherited a property, and sometimes you need to sell it just to be able to pay the tax.
Selling the real estate has additional tax consequences. You will not be taxed on the selling price of the house. But you will be taxed based on the capital gain or loss of the house.
Inherited property can take advantage of a stepped-up tax basis. As an example, your parents paid $100,000 for the house 25 years ago. Since then, they had remodeled the house for an additional $50,000. That increased their basis to $150,000. The stepped-up basis is not $150,000 but the value of the property at the time of the surviving parent’s death. At the time of your mother’s death the property was appraised at $400,000. You spent another $20,000 to bring the house up to date. When you list the house for sale, your basis will be $420,000—not $150,000.
If you sell the house for $440,000 you will owe a capital gains tax of $20,000—minus any other deductible expenses. If you sell the house for $415,000 you will have a capital loss of $5,000, which you can deduct from your income tax.
Home Sale Tax Exclusion
The home sales tax exclusion can affect the capital gain. For example, you move into the inherited home. After 18 months you decide to sell it. You think it will sell for $450,000—a gain of $30,000. And you want to avoid that tax if at all possible.
If you wait until you have lived in the inherited house for two years, you will not owe any capital gains tax. The home sales tax exclusion will exempt you from the capital gains tax if the home has been your primary residence for more than two years. This exclusion is $250,000 for single taxpayers and $500,000 for those who file jointly.
How to Report the Sale of the Inherited Home
If you inherited a house and sold it, you must report any capital gain or loss on your federal income tax form. Schedule D is an appendix to form 1040 and is used to report capital gains. The gain/loss is the increase/decrease between the price of the inherited home at the time of sale and the house’s value at the time of inheritance.
How to Sell an Inherited Home Fast
The probate process can take months or even years to complete. If the house you inherited is currently in probate, you may not want to wait that long. Consider asking the estate executor or administrator to sell the house to a company that buys houses. The executor/administrator has the authority to sell the property as they choose. And they could choose to sell the house fast to a real estate investor—at the request of the beneficiaries. Cash house buyers buy property with cash. Cash house buyers buy property AS IS. This will greatly speed up the probate for all parties concerned.
If the property is already out of probate, a real estate investor can buy the house and get the cash to you quickly. Inherited homes typically need significant repair and updating. With a home investor, you make no repairs or updates. They buy the house AS IS. You get your money faster.