Getting an inheritance, even one that involves real property, is usually a good thing in the long run; however, it can be stressful and frustrating while going through the process of getting everything disposed of before splitting up the money. I have dealt with a number of instances of real estate that was inherited by one or more people upon the death of the owner. Most of the time it involves whatever home the owner was living in at the tie of their death; but recently I’ve also had vacant property (land or lots) cases.
Usually there are two or more siblings and one of them is designated at the Trustee or Estate Representative for the estate of the deceased. It is that person who usually has to make the decisions involved in selling the property – the listing price and the eventual sale price and all price decreases in between. They also have to deal with other issues, such as existing mortgages and tax issues. There is a good article covering some of the questions that can come up written by Benny L. Kass and published on the Realty Times web site - Dealing With An Inherited House. Benny’s article focused upon a couple of questions about the potential consequences of informing the mortgage company and the tax consequences of a sale. You should read that article in addition to what is here.
The most normal scenario with most estates is that a small group of people (usually the children of the deceased) now find that they own and are responsible for a vacant house, perhaps nearby, but just as likely in another part of the state or even in another state. If the deceased still had a mortgage on the place they may now be responsible for paying that bill, as well as for taxes and insurance and any other bills that concern the property. If the deceased left no money in the estate that can be used for those purposes, those bills can quickly become a burden for all of the survivors. Not many things tear otherwise close families apart more quickly than disagreements about money and inheritances. Usually the decision to list and sell the property as quickly as possible is a no-brainer.
Determining what price to put on the property is the key to a quick sale at the best return for the estate. Overpricing will result in the property just sitting there with the bills mounting; however, under-pricing it has a downside, too – the property may inadvertently become stigmatized, if people begin to believe that something must be wrong with it to justify the low price.
Many times homes that have been lived in by elderly owners in declining health will have suffered years of neglected or deferred maintenance. I have been appalled by some homes that I visited after a death and wondered how anyone could live like that. Such behavior is usually caused by a lack of money and a fear of being forced into a nursing home if the problems are brought up to children or relatives. We read about elderly people freezing to death in their homes every winter because they had a broken furnace and no money to fix it. What about their relatives? Many times they were too ashamed or too stubborn to ask for help.
If you’re considering buying a home like this, make sure that you have a very thorough hoe inspection done, so that all of the issues and potential problems can be identified ahead of the purchase. The estate may not have the money to fix anything, but you can usually bargain for a price reduction to deal with the issues. You should be aware that there are several things that could be wrong in a house that would prevent you from being able to get an FHA mortgage. You may need the flexibility of having a conventional mortgage lined-up, if you want to pick up a bargain estate house.
If you are the person responsible for selling the house, I’d advise that you get a really good Realtor who can identify the potential problems or get a home inspection done yourself, so that you know ahead what the issues are that you will be negotiating about later. I never advise putting much money into repairs at this point, unless the things that need attention will prevent a sale. Your Realtor should be able to advise you on the items that are currently on the list of things that an FHA or VA appraiser will be looking at that cold impact the sale. You might not be able to offer the house with an FHA or VA mortgage.
When it comes time to actually close the sale, the executor of the estate should make sure that all of the beneficiaries of the estate are aware of the sale and the price and hopefully in agreement; so that he/she doesn’t face a lawsuit from an angry sibling later. In most instances it is easy to gain that agreement. The various beneficiaries usually just want to sell the place, split the money and get on with life.
Sometimes, however, the property that is involved may be a “family retreat” – a lake front cabin or “a place up north”. In those cases not all family members who shared in the inheritance may wish to give the place up. They may have to work out a deal to put a value on the property and allow those who wish to retain and ownership of the property buy-out the others who just wish to cash-in and move on. The key to allowing that to happen without acrimony is to get a good appraisal that all parties can agree with, before proceeding to any buy-out negotiations. Outright purchases or land contract will then be options, if the property is not mortgaged. If it is mortgaged then, usually, only an outright buy-out with new mortgage will work.
Whatever the case, get the advice of a good Realtor and a good estate lawyer then listen to their advice.