The scenario: Your parents have passed away and left a home. How do you sell it?
How to Sell an Inherited House
The process of selling an inherited house begins with gathering information about it. This information, which we cover below, will guide the pre-selling decisions you must make, including:
Should you sell it?
Would it be better to rent the house?
What is the best way to sell it?
When should you put it on the market?
Important Mortgage Information to Find Out
One of the first critical pieces of information you need to find out is the mortgage situation you have inherited.
Has the mortgage been paid off by the estate?
The mortgage may have been paid off by your parents’ estate, which means nothing is owed on the house, and you own it outright with the other beneficiaries if there are any.
Does the mortgage have a due-on-sale clause?
There may be a stipulation that the loan is paid in full if a non-family member is getting the house. If the house is transferred to a family member, usually, that beneficiary can just assume the mortgage. A due-on-sale clause can mean the loan has to be paid off.
Is there more than one mortgage on the house?
You need to find out if there are multiple mortgages on the property. They must all be satisfied for a sale to be finalized.
Is the house worth less than what is owed on it? (Is it underwater?)
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The house may have a mortgage on it that exceeds the value of the home. This situation is called being “underwater.” It can happen if a house was purchased at a time when the market was hot and real estate prices were high. If home values have fallen since the purchase, the house may be worth less than the loan that was taken out to purchase it. Beneficiaries have a couple of options in this scenario. The bank holding the loan may agree to a “short sale,” which means it will accept less than what is owed as payment in full. In some situations, you may also have the option of refusing to accept the house and allow it to go into foreclosure. Check this option with your attorney.
Did your parents take out a reverse mortgage on the house?
A reverse mortgage is a financial product more often taken out by older homeowners than younger ones. It is taken out on homes that either have significant equity or are owned outright. Reverse mortgages allow homeowners to access their equity, with the loan being repaid when they move out (or pass away).
Find out the status of the mortgage on the house you have inherited. The best scenario, of course, is that the mortgage has been paid off. Probably the worst case is if the house is underwater. Regardless, having the facts will position you to make the best decision possible for whatever the situation.
Important Tax Implications to Understand
A second important area of information you need to discover is the tax implication of inheriting the house. Specifically, what will be your tax liability for taking possession of the inherited house? It can be helpful to speak to your accountant or probate attorney about this matter since tax law varies from state to state.
About Capital Gains Tax
Capital gains are a type of tax paid on the difference between the purchase price of a house and the sale price. If a house was purchased for $100,000 and sold for $250,000, capital gains taxes must be paid on the difference of $150,000.
Fortunately for Inheritors, There is the “Stepped-Up Tax Basis”
A tax protection for inheritors of appreciated property is the “stepped-up tax basis.” This says that you will not be taxed on the appreciated amount (the $150,000 in the example above). Instead,
you will only pay taxes on the amount the house appreciates from the date of the owner’s death until the date you sell it. In the example above, If the house was worth $230,000 at the time its owner died and $250,000 when you sold it, you will only be responsible for taxes on $20,000. The stepped-up tax basis in this example is $230,000.
Estate Taxes and Inheritance Taxes
Estate taxes are imposed by the federal government, and inheritance taxes are imposed by state governments. Not every state imposes these taxes, however.
Yes and no. The executor is the court-approved individual tasked with settling the deceased’s estate and authorized to sell a house that is in probate. However, the court may require the executor to notify heirs before putting the house on the market. Some stipulations may be in place that keep the executor from acting on his or her own.
Estate taxes are paid by the deceased’s estate before beneficiaries receive any distributions. Estate taxes usually impact only those in top income brackets.
Inheritance taxes are paid by beneficiaries. They are levied on inheritance (money or property) left by a deceased person.
Important Stakeholders/Co-Beneficiaries to Consider
Who else is inheriting the property? You may have siblings or other family members who are also beneficiaries of your parent’s estate. Conversations with these co-inheritors need to happen as soon as possible.
If your parents left a will and spelled out how they wanted their assets and possessions distributed, it will be relatively easy to carry out their wishes. If they did not leave a will or if the will is ambiguous, things will need to be worked out. Sometimes, when beneficiaries cannot agree on the distribution of assets, the court will need to step in.
When there is one inherited home and multiple beneficiaries, several options can be considered.
One sibling can keep the home and buy out the others. The buyout can occur as a cash purchase or a financed arrangement.
The home can be sold and the profits split evenly.
The home can be retained and rented. The profits from the rent, after expenses are deducted, can be split.
The courts will step in if beneficiaries cannot agree on what to do with the house. In this scenario, the courts will usually order the house to be sold and the profits distributed among beneficiaries. Court and legal fees will be taken from the house proceeds before distributions are made.
Probate: An Important Process to Be Aware Of
Probate is the term for a legal process that happens with a deceased person’s estate. Probate ensures that a deceased person’s debts are all settled and that his or her assets are distributed fairly.
Most estates must go through probate. “Summary” probate is the term for an expedited process available for small estates (those valued at several thousand to several hundred thousand dollars). Other larger estates must go through the regular probate process.
Some estate properties are exempt from going through probate.
These include 1) properties that your parents put into a living trust and 2) properties that have a “transfer on death” deed (also called a “beneficiary deed”).
When an estate is in probate, the court affirms the executor of the will. The executor may have been named in the will, but the court must legally recognize the named executor before he or she can take action in settling the estate.
It can be helpful to hire a probate attorney for assistance in navigating the requirements and timeline of the probate process. Do not downplay the importance of complying with probate requirements and stipulations. Missing a deadline or ignoring requirements can hold up the settling of an estate, including selling a house.
Selling an Inherited Property
Using a Realtor to Sell the House
Selling a deceased person’s house is more complicated than selling one’s own home, but the basics of the process are the same.
Find a realtor
Empty the house
Make repairs and upgrades
Decide on a listing price
Put the house on the market
Work with a probate attorney and an experienced probate realtor to sell your home. These professionals will help you navigate probate requirements and deadlines efficiently and on time. Make sure you have court approval before selling the house.
Disposing of the contents of the home
Disposing of the contents of the home is a necessary but often painful process for family members. Start with the items listed in the will that are bequeathed to specific heirs and remove those. Next, divide up meaningful possessions. Sometimes a mediator’s services can be helpful if beneficiaries cannot agree on how to split the belongings. Lastly, deal with all items remaining through an estate sale or by donating them to charity.
Make repairs and upgrades
Consult your realtor on repairs or upgrades you should make to get the house in a more saleable condition. He or she may be able to recommend trustworthy tradespeople to do the work. Schedule the repairs to be made as quickly as possible. On the other hand, you may also choose to sell the house as-is, potentially netting a lower profit but avoiding the hassle of overseeing workers and the upfront cost of repairs.
Listing the house
Before you list the house, consult with your probate attorney to confirm that the probate court has granted permission to put the property on the market. The court may require proof that all beneficiaries agree with the listing price and the timing of putting the house up for sale.
Selling the House to An Investor
Selling a house can feel like a daunting project even in the happiest of times. Selling an inherited home can feel overwhelming, especially for family members coping with grief and the multitude of demands associated with settling the estate. Selling an inherited house to an investor is an alternative to putting a house on the market. When an investor is involved, the sale process simplifies drastically. When selling a house to an investor, the following are eliminated:
Realtor fees (usually around 6%)
Closing costs (usually about 2%)
The wait for a sale
Offers falling through
Contracts falling through
Houston Capital Home Buyers is a Texas-based investor that purchases inherited homes. We purchase houses in their existing condition, which means there is no need for repairs or renovations. We return offers within 24 hours of receiving requests, we pay cash, and we can close in as few as seven days.
Who is HCHB?
Houston Capital Home Buyers has been purchasing homes for over 12 years. We have conducted over $41 million in real estate transactions and helped hundreds of families expedite their home-sale process. They closed quickly, walked away with a check, and began the next chapter of their lives. We are a U.S.-veteran-owned company. Our commitment to serving our country with integrity and honor is the same commitment we bring to serving our customers and clients. We have worked with many families who needed to sell an inherited home. We understand the emotional dynamic often at play in these situations and bring respect, patience, and kindness to every person we work with. HCHB buys homes throughout the United States. We enjoy an excellent reputation among members of our communities and industry circles. The Better Business Bureau has awarded us an A+ rating. Selling your inherited house to HCHB is simple.
Call us or email us to request an offer on your home
We will visit the house to look it over and give you an offer within 24 hours
If you accept, we will sign a contract and guarantee to close in as few as seven days (you can choose the closing date)
When it comes to probate, don’t worry. Our experienced staff will work with the probate requirements and timelines to assure the sale.
Wrapping It Up
If you have inherited a house, you must identify several essential pieces of information right away. These include:
Determining the status of the mortgage on the home,
Determining the tax implications of selling the property, and
Understanding probate requirements and timelines
When the house is cleared for sale, there are two routes to choose from: selling it with the use of a realtor and selling it quickly to an investor. Houston Capital Home Buyers is an investor that works with people who need to sell an inherited house quickly.