You've Inherited a House. What’s Next?
Inheriting a home is stressful, complicated and emotionally taxing.
The headaches of handling legal paperwork and homeselling come right at the worst moment, when you likely have the least time to deal with them.
We want to help you navigate this process with ease, leaving you with more time to spend with family and friends, and less time spent on the exhaustive home selling process.
In this guide you’ll find everything you need to about the selling process, including legal issues, tax implications, preparation, listing, and most importantly, closing the sale.
Use the sidebar on the left to quickly navigate this guide and find all the answers you need.
In the case you are left with unanswered questions, do not hesitate to reach out to one of our real estate experts in the bottom left hand corner of your screen and we’ll make sure you’re well taken care of.
First things first.
Can I legally sell the inherited house?
The short answer is yes.
The longer answer is, there are a few restrictions depending on your situation.
If the house has gone through probate, then feel free to skip this section. If not, read on to find out the guidelines for smooth sailing through the probate process.
Probate is the process of transferring assets from a deceased relative to their heirs or beneficiaries. If you are a beneficiary of the estate and are willed a house, in order to sell the house during the probate process you’ll want to follow these guidelines:
- Hire an experienced probate attorney
- Hire a licensed appraiser to get the property appraised
- Have a real estate agent conduct a CMA (Comparative Market Analysis) to determine the home’s Fair Market Value (FMV)
- Obtain court approval to sell the inherited property
- Get agreement to sell from all beneficiaries prior to listing the home for sale
If you have more questions regarding the probate process, check out our blog post here.
Mortgage and Liens
If the home you are inherited still has a mortgage, you will have to first deal with what’s called a “title lien.”
A title lien is a claim made against property in order to secure payment of a debt — in this case, the debt owed to the lender who carries the note for the mortgage.
In the case of a title lien, the beneficiaries can choose to do one of two things:
- Pay off the mortgage in full
- Sell the home and use the proceeds to pay the remainder
Be mindful that if you choose to use the proceeds to pay off the remaining mortgage balance, that it’s the estate’s responsibility to keep the loan current.
What are the tax implications of selling an inherited home?
If you’ve inherited a home and have made the decision to sell, it’s imperative to plan around taxes. While all circumstances will vary slightly (state, income bracket, etc.), it’s likely that the property will be subject to an inheritance tax along with a capital gains tax from the sale of the home.
We’ve outlined everything you need to consider when looking at the tax implications of selling an inherited property:
Home Sales Tax Exclusion
The IRS Home Sales Tax Exclusion states:
“If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse.”
Inherited property does not qualify for this exclusion because it must have been your main residence for at least two years. If you plan on moving into the inherited property, you would be able to claim this exclusion after 2 years.
Step-Up In Basis
The Step-Up In Basis is a tax loophole that allows those inheriting property to save significantly on capital gains tax.
According to Investopedia:
“Step-up in basis is the readjustment of the value of an appreciated asset for tax purposes upon inheritance, determined to be the higher market value of the asset at the time of inheritance. When an asset is passed on to a beneficiary, its value is typically more than what it was when the original owner acquired it. The asset receives a step-up in basis so that the beneficiary’s capital gains tax is minimized.
Let’s break this down with an example:
- The original purchase price (basis) of the inherited property is $300,000.
- The value of the property upon inheritance (stepped-up basis) is $500,000.
Without the Step-Up In Basis you would be assessed capital gains tax on $200,000 when you sell. With the Step-Up Basis you would be able to avoid capital gains tax, because the basis is not the appraised value when you acquired the property or $500,000.
The Step-Up In Basis allows those who inherit property to avoid owing significant taxes on property that has increased in value over the years.
Filing & Reporting Taxes
There are two situations to consider when filing with the IRS.
1. You’ve sold the house for a higher value than when you inherited it.
In this case you will have to report the sale and pay tax on the difference between inherited price and sale price.
2. You’ve sold the house for value at which you inherited it.
In this case you will also need to report the sale of the inherited property, however, you will not owe any taxes because there was not a net gain.
The IRS outlines the process of filing along with all the necessary forms to properly file and report your the sale.
How to prepare your inherited home for sale
You’ve made the decision to sell. You’ve educated yourself on the tax implications of selling.
Now, it’s time to actually prepare for the sale.
Preparing to sell an inherited home can be emotionally taxing, but getting the preparation right will allow for the smoothest transition to sale — and often a higher sales price, too.
Here’s what you need to do:
Decluttering comes in to distinct categories:
- Actual Clutter
- Personal Items
Actual Clutter is the clutter that has no business being in a house that’s going to be shown to buyers. Imagine the junk drawers and miscellaneous items have sat unattended for extended periods of time.
Here’s a step by step guide to tackling actual clutter:
- Do a quick walkthrough and quickly assess each room taking pictures if necessary.
- Designate and open space to store all of the clutter.
- Work through rooms one at a time until they contain the bare essentials.
- Take stock and decide whether to get rid of or keep the items.
Here’s the questions you should be asking as you’re working your way through the house:
- Do you need the item?
- Does it add value to the space?
- Are you keeping it out of guilt or obligation?
- Is it in the correct room?
- Is it out of season?
If you don’t need it, if you’re keeping it for personal reasons, or if it’s not going to enhance the home’s show-ability — declutter. This can be a hard process, but it’s important to stay disciplined and focused on the task at hand.
Now let’s move onto depersonalizing.
Personal belongings, keepsakes, and family heirlooms need to find a new home.
If you’re looking to sell quickly, completing this step first will allow you to start showing the home sooner rather than later. Potential homebuyers are looking for their dream home and envisioning their families living with personal belongings and photographs may distract rather than attract.
In addition, do the same for furniture, area rugs, etc. Style preferences vary widely, so lean towards the conservative side when choosing what to keep and let go. It’s a tough formality to follow, but try your best to leave sentiment out of the decision making process for the sake of potential buyers.
If you find you don’t have a good place to store all of these important belongings, it may be best to rent a storage unit so that you can work on finding a new home for these items later and get the house to market quicker.
Now that you’ve removed all the clutter and stored personal items, it’s time to get deep-clean the home.
If you’re pressed for time and want to sell the house quickly, it may make sense to hire a cleaning service. These services are often able to deep clean homes big or small in as little as a day.
If you’re going to be cleaning the house yourself, stock up on all the necessary supplies and much like the decluttering process, work your way through each room, being mindful of places collect dust or out-of-sight nooks and crannies. In addition, cleaning the home allows for you to take a second pass at any clutter you may have missed along the way.
This step to preparing the home may or may not be necessary depending on the condition of the property or the color scheme.
A full paint job may be necessary if the paint has significantly faded over time, or the color scheme is rather unique (IE. Bright Green Walls). In this case it is advised to use neutral colors throughout the house.
If the paint job looks good with only small scuff marks and peeling here or there, you can simply do a touch up by finding a very similar color.
Once again, if time is of the essence and a full repaint is required, it may be in your best interest to hire a professional painter.
We all know that first impressions are important, and the walk from car to front door is a potential buyers first look.
If the lawn has been well-kept up to this point, a quick mow, some weed-pulling, and a few bags of mulch might be all it takes to get things looking great.
If that is far from the case consider hiring a professional landscaping crew to come up and get the house looking up to par.
What are your options when you sell?
There are quite a few ways to sell the home, but not all achieve the same outcome or provide the support necessary during this time.
Let’s quickly take a look at your options:
For Sale By Owner or Flat Fee MLS
With a for sale by owner listing you are signing up to do all the work required to get your home sold.
With a flat fee mls listing you are paying to have your home listed on the MLS, allowing realtors in your area to see that the property is available for sale and bring buyers to the table
In both cases you will be required to do the following:
- Pricing the Home
- Online Marketing/Advertising
- Yard Sign & Lockbox
- Answering Inquiries
- Scheduling Showings
- Hosting Showings
- Managing Negotiations
- Managing Paperwork
Be prepared to put in a significant investment of time with this method of listing the home. If the process of listing on your own sounds intimidating consider the following alternatives.
The next option is using a traditional agent. This means that the agent will take care of all of the task listed above, but at a set commission.
The commission structure when using a traditional agent is usually 3% for your agent (the listing agent) and 2-3% for the agent that brings a buyer (buyer’s agent), for a total of 5-6% in commission.
What this means is at the closing table you’ll be required to pay 6% of the closing value of the home.
The last option is using a Clever discount agent.
Clever agents provide the same services as traditional agents, but at a much lower commission.
The commission structure when using a Clever partner agent is a flat fee of $3,000 dollars for homes less than $350,000 and only a 1% commission when the home is above $350,000, in addition to the normal buyer’s agent commission.
Instead of paying 6% on the closing value of the home, you’re now looking at 2.5 – 4% in total commission costs.
Sell or Buy a Home with Clever and Save Thousands!
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What to expect during the sales process
The home selling process for an inherited home does not differ much from that of a traditional home sale, however, based on how you have decided to list (with or without an agent), the process varies considerably.
The first step in the process is showings.
If you’ve already completed the preparations such as decluttering, painting, and landscaping this process should be a breeze.
If you’ve listed with an agent, they will coordinate the showings and make sure to find a schedule that works best for you.
In the case that you’ve decided to list for sale by owner or with a flat fee mls service, you’ll be responsible for coordinating showings. This means being available to walk the potential buyer through the home, or adding a lockbox so that agents are able to easily access and bring their client through.
Much like showings, the open house process will be differ based on how you listed the home.
If you have an agent, your agent will reach out to local agents notifying them of the open house and giving them an opportunity to bring any buyers during that time.
If you have listed without an agent, you’ll be responsible for all the responsibilities of setting up an open house.
These responsibilities include:
- Preparing a property description sheet
- Preparing and staging the home
- Spreading the word
- Following up with prospective buyers
Arguably the most important part of the home selling process, if you’ve reached the negotiation phase it means you have a somewhat serious buyer.
In the case that you’ve listed FSBO, you’ll once again need to handle these offers and counteroffers. Make sure you are well acquainted with common repairs and their relative costs so that you are able to avoid unreasonable offers.
The most difficult part of the home selling process with an inherited house is making sure all family members are on board.
It’s important to have a clear sell price in mind and to set reasonable expectations.
The last thing you want would be a great offer from a buyer to fall through because of disagreements in the family. Thoroughly discuss sell price, possible repairs, and method of sale before listing the home.
Expenses Don’t Stop Until you Close
The last element to account for during the sales process is that you are on the hook for the expenses while the home is on market.
These expenses include:
- Routine Maintenance
- Unexpected Repairs
- Property Taxes
This is where the decision to sell your home with an agent or for sale by owner really counts. If you list the home yourself and the process takes longer than expected, your costs will start to accumulate.
An agent ensures that you sell your home quickly and for the most money, avoiding all the expenses that pile up over an extended period on the market.
Selling a home is a huge undertaking, not to mention the home of a family member or friend. Remember, the most important thing during this process is to get the help and support you need. If you’re looking for a clear path forward, follow this guide and you should be well on your way.
If you’ve read this guide and felt overwhelmed, don’t be alarmed. Clever Real Estate experts can help you navigate this process by getting you connected with a top-rated agent with extensive experience in selling inherited properties.
Not only will this agent help you sell your home, they’ll have the legal knowledge and relevant industry contacts to get you to close the quickest, while selling your home for the highest possible value.
We’re here to take your call at 1-833-2-Clever.