Selling an inherited house or property will often mean having to research the ins and outs of complex matters such as inheritance tax and probate.
There is the emotional impact of dealing with the loss of a relative – perhaps a parent. And then there is the paperwork, legal responsibility and financial matters to consider when inheriting an additional property.
While owning a further property may bring financial benefits, there is a lot to consider. Especially when compared to managing a house that you already own. Our Ultimate Guide aims to put all of the information you will ever need at your fingertips.
Can you sell the inherited home?
Many people have lots of questions when inheriting a property. This is no surprise given just how complex this can be. In this section we deal with wills and probate when you inherit a house. We also look at the tax situation and how much money might be owed to the governing body.
We also deal with living in an inherited property or becoming a landlord by renting a house out. Our guide also looks at insuring an empty property. And, finally we look at how to arrange a quick, hassle-free sale of an inherited property.
Is there a will?
Firstly, let’s look at the legal side of things when inheriting a house in the UK.
Before you can sell an inherited property, you need to establish your legal relationship with it. Is the property your parents’ old house, for instance, or another property that belonged to a relative? Importantly, are you named in their will?
The first thing to do is to check if the person who died left a will. The probate process varies depending on whether there is a will or not.
Are you are named in the will as someone who can deal with the person’s estate (known as an ‘executor’)? If so, you can apply for a grant of probate from the Probate Registry.
If there is more than one executor, see the advice on the probate application form and guidance notes.
The executors must estimate the value of the deceased person’s estate (including any inherited property) to calculate the tax owed.
The US Government provides a guide to doing this as part of the probate process. While you can do an estimation of an estate’s value yourself, the probate process can be complex.
What is probate?
Legally, before you can sell an inherited property, you have to establish your relationship with the property. You may well be required to apply for probate.
This is name for the legal process that happens after someone dies. Probate includes distributing assets as set out in the deceased person’s will. This will include a list of all financial assets including both money and the deceased person’s estate.
The main purpose is to give a person (or people) the legal authority to deal with a deceased person’s estate. These people are known as personal representatives.
The situation regarding property is much simpler if you are a beneficiary in a will. This is someone handed a share of the estate by the person who directly inherits it.
You may not need probate if the person that died:
Had jointly-owned land, property, shares or money, as these will automatically pass to the surviving owners, or if they only had savings or premium bonds
You will need to get in touch with each asset holder, such as banks and a mortgage company, to find out if you need probate to access the deceased’s assets. Different rules apply to each organization. This is particularly important when it comes to selling an inherited property or house.
Applying for probate
If you are an executor in a will you can apply for probate yourself. Alternatively, you can appoint a solicitor or somebody else licensed to provide probate services to do this on your behalf.
However, if there is no will in place you will have to apply for something called ‘letters of administration’ and these can only be applied for by post.
How much does probate cost?
This will vary greatly depending on who carries out the work. Probate specialists and solicitors typically charge by the hour or as a fixed rate. The average cost for dealing with a probate claim is between 1 – 5% (and vat). Be sure to shop around before deciding who to work with. It may be worthwhile asking friends for recommendations as they may have experience of inheriting a house.
How long does probate take?
Typically probate takes around 6 – 12 months to be granted. However, the average time is 9 months. If a will is already in place it has been known for probate to be granted in as little as a few weeks but this is very rare.
Not everyone will need to go through the probate process, but it is worth seeking legal advice if you inherit a property or a share in one.
Should you sell an inherited home?
If you have inherited a house, you may be wondering if you should sell the home or keep it as a rental property. You might be considering whether or not to buy it yourself from the estate, or to sell to a sibling. The answer of course depends on several factors.
Should I keep inherited house as a rental?
Like any job, being a landlord has both rewards and risks. Let’s take a look at the rewards, and then some of the risks.
Rewards of owning rental property
Rental income has lower taxes
Renting a home can be a great source of passive income. Passive income is income you don’t earn by being an employee on a time clock. It’s called passive because you aren’t “working” for it in the traditional sense. The great thing about passive income is that it isn’t subject to several taxes such as Social Security tax.
This is different from earned income, which is what you receive from your employer. When you receive a paycheck from your employer, you pay a portion of your paycheck to the IRS: FICA, Medicare, Social Security Income, etc. These taxes add up to roughly eight percent that gets deducted from every paycheck! This type of income is called “earned income”.
Rental income can pay existing mortgage
If you inherited a property that still has a mortgage, you may be able to keep the house and let the rental income pay the mortgage. However, if you’ve never owned a rental before, you may be a little overly optimistic about how much money you’ll make.
There’s not just the mortgage, but also special landlord insurance, vacancies, property taxes and repairs you need to account for. If you inherited a house a house without a mortgage, this makes the expenses more manageable.
One percent rule
The one percent rule simply says, that the monthly rents for the home must be at least one percent of the purchase price. For example, if the purchase price of the home is $200,000, then the rents must be at least one percent of that, or $2,000 per month.
Of course, you cannot charge more for rent than what the market will bear. This particular rule of thumb is hard to follow in California where the median priced home as of December 2018 is $547,000. It’s pretty unusual to be able to rent a home for $5,500 a month unless you’re in the Silicone Valley or San Francisco.
Fifty percent rule
Landlords who use the 50% rule state that vacancy, repairs, insurance, management, etc., add up to between 25% and 50% of their rental income. This percentage varies depending upon how well maintained the home has been, the neighborhood and what kind of repairs it will need.
Even if a home is brand new, in 20 years it will probably need a new roof. In 5 years it will need new carpet and paint. If the home is older, these repairs will be needed sooner. Experienced landlords will account for upcoming repairs, even those that are several years out, and begin putting money away for them.
The risks of rental properties
Tenants are both the reward and the bane of a landlord’s success. If you have good tenants, you love your rental property. If you have bad tenants, you hate your rental property.
Avoiding bad tenants requires good screening of applicants and being a good landlord. That means fixing problems and complaints immediately.
In California, tenants have an implied warranty of habitability. This “requires landlords to maintain their property in a condition that is fit for the occupation of human beings”. If your rental property is considered to be uninhabitable due to leaking windows or roofs, mold, or drafty exterior doors, you may be ordered by the court to put your tenants up in a hotel until you solve the problem.
Everyone knows most tenants do not take care of a home like it was their own. As a result, you can expect to have more repairs for your inherited rental home than a home you live in.
Some landlords like to say, “I respect your privacy. I won’t bother you if you don’t bother me”. If this is you, you can expect your tenants to only report the worst repairs. That means they probably won’t report the leak under the kitchen sink that is rotting out the cabinet. That is, until it smells like mold.
Depreciation Recapture and your Taxes
We all know that carpet wears out, so do appliances, paint and a lot of other things. The IRS “allows” you to depreciate the value of items over time. Even though you may not have spent a dime on them! Landlords love depreciation, because it’s free money. Who wouldn’t want extra tax deductions?
Let’s assume you’ve dealt with the probate process and sorted all of the paperwork out. So now you own the inherited property – or at least a share of it.
Remember that with an inherited property you will need to keep an eye on routine maintenance and utility bills. On top of that it will be important the property is insured. All of this could be a headache especially if you are already responsible for your own home. And even more so if the property is a long way from home.
The final consideration is to establish if the property could be readily sold in its current condition. By this we mean could it be sold in a matter of weeks for a good price.
It’s a well-known fact that most house buyers like to buy modernized properties with all of the mod cons in place. If your inherited property is not particularly modern bear in mind that it may struggle to sell. In this case you may want to think about what it would take to refurbish the property throughout.
From our experience, a typical refurbishment on a 3 bed house takes around 12 weeks to complete and costs $30,000. Ask yourself if you have the time, money and energy for what could be a lengthy and expensive project? Bear in mind also that you’ll need to find trusted trades to complete all works and that more than likely you will need to project manage the refurbishment process.
If you feel this is not for you we offer the following quick sale house solution.
Choosing the right property buying company
You may wish to consider selling your inherited property on quickly and without all the heartache. While you may have an emotional attachment, a clean break could help you move on. It could also be just the tonic to enable you to realize some long-held plans.
An easy solution is for a reputable property buying company to arrange to sell your inherited house or flat quickly. If you do decide to go down this road be sure to look for a company that has a proven reputation for buying homes in any condition.
Professional home buyers should provide a genuine and speedy route to sell an inherited property without headaches. Your chosen home buyer should be accredited members of national industry bodies. Be sure to check this out.
Questions to ask house buying companies
Do they adhere to Trading Standards’ Quick House Sale framework? Not all companies in the marketplace will meet these standards.
As you make your choice, look at whether property buying companies can offer you the following benefits:
- Do they have access to a substantial cash fund? This ensures the company can buy your house within just 28 days – or within a timescale that suits you
- Will they keep things simple? You have enough to deal with following the recent passing of a loved one. Will paperwork be kept to a minimum? And is their buying and selling process transparent?
- Will the property company charge fees at any stage of the sales process? Would they cover any of your legal fees?
- Lastly, would the company help you sell your inherited property in any condition? And does it buy property in any location?
- So, while there are plenty of companies to help sell an inherited property, we recommend you consider your decision carefully.
Selling an inherited property means more to people than just bricks and mortar. Aside from its financial value, someone’s old family home – or one owned by relatives – this can spark strong emotions. But leaving these feelings aside, we believe sellers always deserve clear, straightforward communication throughout their dealings with a property company.
Selling inherited house as-is
What if your inherited home has deferred maintenance, needs lots of expensive repairs or is a hoarder house? Should you fix the home and sell it, or just sell it as-is? When selling a house as-is sale, the buyer buys the property in its current condition, saving you from having to spend any money on repairs or cleaning.
As-is doesn’t mean you don’t have to tell the buyer about known defects in the property. Legally, you must tell any potential buyer about any defects you are aware of. However, since the property was inherited, it’s unlikely you are aware of any defects. Because of this, trustees of family trusts aren’t required to complete extensive disclosures in California.
Sell through agent or to an investor
You have a couple choices to sell your home. You can choose the traditional route and sell through a Realtor®, or you can sell to an investor who buys homes as-is. It’s important to evaluate the amount of repairs prior to selling and the amount of time it will take to repair and sell, as well as the costs.
Traditional selling process with Realtor
Is the home is in good condition? Getting a fresh coat of paint and carpet may be all you need in order to get the most dollars for your inheritance. For just a few thousand dollars, you may be able to spruce up the home giving it a fresh, clean and appealing look for buyers. In this case, selling through a Realtor® is probably your best option, unless the family members are in a hurry for their inheritance.
If the home requires a lot of repairs, then you will probably not be able to sell the home for top dollar unless you’re in a seller’s market. If you’re not, you have to decide if you want to hassle with fixing the property up and selling it or selling it as-is.
Even if you are looking to sell your inherited house as-is, you can still sell the home through a real estate agent. However, in addition to the discounted price you will be also be paying real estate commission. It may also take longer to sell your home due to its condition, even with a discounted price.
Hassle free sale with investor
If time is important and family members want their inheritance quickly, or simply to not have to go through everything that was left in the house, selling to an investor may be a better choice. Investors buy homes, as-is, with minimal inspections. There are several benefits to selling to an investor over the traditional real estate sale process.
First, most investors are used to buying homes where the previous occupant’s things are left. This frees up the family members from spending what sometimes is several days from having to sort through everything, clean the house out, and haul things to thrift stores or to the dump. In addition, unlike traditional buyers, professional investors will not judge or belittle your family member’s home.
Hidden Hurdles When Selling an Inherited Home
Any real estate transaction can have its share of ups and downs, and the process of getting from offer to close is often rife with obstacles. Selling an inherited home is certainly no exception; in fact, you may be more likely to encounter some surprises simply because the circumstances are different or you’re not as familiar with the property as you think you might be.
- Executors can keep an estate in probate for years. This enables the executor or other beneficiaries to have use of the home and other assets, without actually transferring ownership of the property. This is a temporary situation, however, as all property must eventually be transferred to another party, as this article explains.
- Handle equal distribution carefully. Many personal Wills specify that the estate must be divided equally between siblings or beneficiaries. This means the value of the estate must be distributed equally, but challenges arise when it comes to agreeing on the value of assets such as sentimental belongings. This article suggests ways to handle the equal distribution of assets among siblings.
- Try not to feel guilty about items you choose not to keep. Not only is it emotionally draining to sort through decades of cherished possessions and memories, but heirs are often riddled with grief and guilt about not holding onto every belonging that carries a memory.
- If the property is “underwater,” you may have other options. This article explains that heirs may choose not to accept an inherited home at all if there are environmental concerns or more money is owed on the mortgage than the home is worth. You’ll also want to check to ensure there are no liens on the property before putting it on the market.
- You may be facing more repairs than you realized. If the home was occupied by an elderly loved one who was unable to keep up with regular home maintenance adequately, the property you’ve inherited could have both visible and hidden problems that will almost certainly arise during a home inspection. These issues, depending on their severity, can cost you thousands of dollars – or even a sale.
- You and your sibling(s) may not agree on things like the purchase price, who gets to live in the inherited house, how necessary repairs should be handled, or really anything involving the property you’ve inherited jointly.
The truth is even siblings who otherwise get along quite well can find themselves in a heated argument about their former family home. This article offers tips for handling a home you’ve inherited with a sibling.
- Selling a home you’ve inherited from a loved one who has passed carries much responsibility. It’s already an emotional process and adding the typical stress that comes with selling any property can easily be enough to send even the calmest, coolest, and most collected person over the edge.
Arming yourself with the information and resources provided in this guide will prepare you for any obstacles that may cross your path, making the sales process smoother and more bearable.
After the Sale
Reporting sale proceeds
Those who decide to sell an inherited property are required to file a report to IRS declaring the sale’s proceeds as taxable income. The amount of tax to be paid will depend on the stepped-up basis, which is calculated through the current market value of the property and other additional expenses for repairs. Usually, your account can help you claim a loss on the sale.
Settle all property-related finances
Expenses do not end after you list the property for sale. Payables like mortgage payments, utility bills, and regular household maintenance need to be settled accordingly until the property is sold.
Do you like paperwork? Because being a landlord involves quite a lot of administration.
The Go Compare article states:
“The thought of being in control of your own investment may sound appealing. But if you’ve put resources into a rental property you probably shouldn’t be thinking in the short term.
‘View it as a long-term investment; it costs you to get in and it will cost you to get out,’ said David Hollingworth of London & Country Mortgages, Gocompare.com’s mortgage product partners.
If you want a quick release of cash, your money is locked in by being a landlord. If you choose to get out of the situation, it may take some time to sell the property on. Especially if you use traditional estate agents.
Did you find this real estate blog searching for answers or help?
We are a real estate consulting agency and offer a wide variety of services including cash for home deals.If you are currently looking to sell your property as is, send us an e-mail or call today for an offer.
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