You’ve inherited property and are not sure what to do next. Here is what you need to know to make the best decision.
Why do you want to sell?
Selling an inherited family home is complicated. There may be several dynamics at play and it’s important to be honest about why you are selling. If there are other family members involved in the decision, agreeing on the why will help minimize family drama.
Perhaps, the house is the cause of family strife and you want to find the fastest, most painless exit.
Do you want it to remain in the family? If so, which family member is best positioned to purchase and ensure it stays within the family?
Does it matter what happens to the house after you sell?
What condition is the house, and do you care whether the next owner invests in a remodel or converts it into a rental property?
Do you just want to get the maximum amount of cash? Or do you want to sell it as quickly as possible?
The ownership of an inherited property typically must be transferred to heirs through the probate process. In most localities, if there is a Will involved, this process begins by going to the court clerk's office to file the Will via some method of probate.
The length and requirements of the process will depend on several factors, including whether there is a valid Will and how cooperative the heirs are in working together and completing the processes. For example, if there is a Will involved, but the only asset needing to be probated is real estate, then Tennessee courts will approve a “muniment of title probate”, which only requires the filing of a few documents with the court and can usually be completed within a matter of a few days.
If there is a Will involved and the family has multiple types of assets to distribute - real estate, personal property, vehicles, bank accounts, etc. - then a full probate may be required, and that process could take between six and twelve months to fully complete, and longer in some special situations.
If there is no Will involved, then you can often sell real inherited real estate by having an Affidavit of Heirship signed by two people who are not direct members of the family, but who know the members of the family and can identify the deceased person’s heirs. An Affidavit of Heirship is an affidavit that identifies the deceased person, states whether they were married, widowed, or single at the time of their death, and identifies their children, and perhaps other related family members, who are, by state statute, the heirs of the deceased person. When no Will is involved, it only takes a few days to obtain Affidavits of Heirship, so that is typically a quicker process.
Regardless of whether the deceased person had a Will, the State of Tennessee requires that the Bureau of TennCare be notified prior to selling real property to ensure that there are no Medicaid liens on the property. This is a quick process that can be typically be done by filing a form with the Bureau of TennCare.
In order to sell an inherited property there must be a buyer, and any buyer will require a clear title. Title companies play an important role by ensuring a title is not clouded, meaning there are no other parties who could assert a claim or encumbrance on the property.
Before transferring ownership, title agencies will make sure no lenders, contractors, local governments, state governments, the IRS, Medicaid, nursing homes, or any other party has a claim against the property. Just because probate is complete does not mean there is a clear title. Oftentimes, a state agency will have provided health care benefits in return for an interest in the property. In other cases, there may be unpaid federal taxes that could cloud the title to a property.
In Tennessee, before you can sell real estate, you must obtain a “Release” from the Bureau of TennCare, which is a document that confirms that the deceased person did not owe money to the state for nursing home benefits. In addition, most states have a “creditor claims period”, which is a period of time in which creditors of a deceased person can file liens against the estate through the probate court. Typically the title company helps to ensure either that the creditor claims period has expired and, if it has not, the title company can often escrow closing proceeds until the creditor claims period does expire, which allows the family to sell inherited property without having to wait for the creditor claims period to expire and the probate process to be complete before selling the property. That way, if you have an interested buyer, you can sell the property without having to wait four, six, or even twelve months for the creditor claims period to end.
If you have inherited a property, you may not know about any debts or creditors' claims until you go to sell the property. Because of that, it can be a good idea to purchase a title search through a title agency or real estate attorney to see if there are any issues that need to be resolved prior to selling.
You typically have three primary options when selling an inherited house.
There is often one sibling or family member who wants to own or rent the house for either emotional or financial reasons. This can get emotional, so you should have a rational process to protect the family relationships from resentment. To ensure that the matter is handled fairly, you may need to get a third-party appraisal while the family member gets a pre-qualification from a lender to buy the home. To ensure the family member is serious, he or she could pay for the appraisal cost. You can get a realtor’s opinion, but keep in mind the realtor is incentivized to get the listing.
Oftentimes, the sibling who wants to purchase the inherited house cannot afford it. Avoid creative financing (i.e. rent to own) with a family member. Creative financing rarely ends in success. The most common mistake families make is renting an inherited property to a family member, who subsequently refuses to pay rent or otherwise comply with other family requests, which results in a family member having to be sued for eviction.
If you do choose to rent to a family member, you need to require a written lease agreement and decide who in the family will have the responsibility and authority to evict the family member if the need arises. In our experience, renting to a family member typically results in the parties going to eviction court, which almost always ends in broken family relationships. If you want to sell or rent inherited property to a family member, it is always best to make it an arm’s length transaction.
Listing the property with an agent is often the best way to get the most cash from the house, but it’s not always the fastest or the most painless. If the inherited property has deferred maintenance, the buyers will likely have inspections that will lead to another round of negotiations or a canceled contract.
Many inherited properties need expensive updates and the inspection is a common reason for contracts to fall apart. Even when the buyer does not cancel a contract based on problems and maintenance issues discovered in an inspection, the buyer - or the buyer’s lender - almost always require the family to repair all identified problems or defects, and that can be a substantial expense for the family trying to sell.
If you do list the property for sale with a real estate agent, make sure someone has the responsibility and authority to negotiate during the process, but be prepared for the closing to take time as most purchases will be contingent upon the buyer’s financing and the home inspection. You’ll also need to assign responsibility for getting the house ready for listing photos. The right agent can provide helpful guidance and negotiation through the process, but expect to pay 6% of the gross sales proceeds in commissions for their expertise.
You might consider remodeling the property to maximize the sales price, but know this option can also maximize your pain. If the family chooses to do this, make sure and answer the following questions:
Selling an inherited property for cash without a realtor is a popular choice because it is often the fastest and most painless option. With legitimate cash buyers, there won’t be any inspection or financing contingencies so they can close the sale of the property within one week.
Cash buyers can be an especially good option if the house needs work. The right cash buyer is able to add value through construction expertise that neither you nor homeowners can create.
Beware, however, of wholesalers. Wholesalers don’t add value to your property by investing in the property. Wholesalers don’t flip houses. Wholesalers flip contracts. Wholesalers act as a middleman by negotiating a contract with you and then selling (or assigning) that contract to an actual flipper. You can put the most money in your pocket by bypassing wholesalers and selling directly to a cash buyer who is going to add value to the house.
Many of the “We Buy Houses” yard signs you see at intersections are actually wholesalers. Ask any cash buyer for examples of houses they have purchased and remodeled. If they can’t provide multiple examples, they are likely a wholesaler who is going to sell your contract to someone else for a profit. If the wholesaler can’t find a buyer for your contract, they will walk away from the contract.
Instead of selling to a middleman, bypass the wholesaler and sell directly to a reputable flipper.
If you consider delaying the sale of the property for better market conditions, keep in mind the costs of holding a property. In addition to property taxes, mowing, utilities, insurance and maintenance, vacant houses don’t age well and are very vulnerable to vandalism. This is why it’s so expensive to get insurance on a vacant property.
Renting is an option, but there are significant holding costs with that, too. Unless you intend to hold the property for over 5 years, the best time to sell is probably now, because the condition of the property will only deteriorate unless someone is caring for the inherited house. You can always take the cash and invest it in another investment vehicle that doesn’t require mowing, plumbers, and property insurance.
When you inherit a house, understand water is the enemy. Water is the enemy of all houses and especially so in non owner-occupied houses. Termites and mold are the biggest risks in vacant houses and the cause of both is water. If you inherit a house, keep the gutters cleaned out and downspouts flowing away from the foundation. Most water damage can be traced to poorly maintained gutters, but that’s not the only source.
Make sure pipes are properly winterized in any vacant house, because a burst pipe can go unnoticed for days or weeks when a property isn’t occupied. Mold grows really fast where heat pumps are not circulating air. If there are upstairs bathrooms or air conditioning units in the attic, be sure the pipes are turned completely off because the worst kind of leak is the one that’s on the second floor.
The second worst is the one in the crawl space because termites are subterranean and bore vertically from the ground to the roof. If you are renting a house, the renters have no reason to check the crawl space for water intrusion and that is of critical importance. If the roof is old, consider replacing it, because this will both protect the property and add value to it.
Squatters are people who live and often do business in vacant houses. While you are deciding on how to sell your inherited house, keeping the yard mowed and lights on will help deter squatters. If you find someone living in the property, do not confront them without authorities present. Squatters have rights and you can be liable for handling the situation improperly. Worse, there might be drugs or drug related business occuring that could put you in harm's way.
If you’ve read this far, you know there’s a lot to consider when thinking about selling inherited property, so start by answering the first question: Why are you selling? If you choose to sell with an agent, choose a quality agent who will prioritize your interests. If you are determined to sell to a family member, make sure you do it in a professional way so the house doesn’t end up damaging your family relationships.
If selling to a cash buyer, choose a reputable firm like New Again Houses® that has the expertise to close the transaction quickly and add real value with a quality remodel.