The Complete Guide to Selling an Inherited House in California
Selling a property can be stressful enough at the best of times, but doing so following the passing of someone close to you can be completely overwhelming. Not only are emotions running high as you cope with bereavement, but there are also several issues that can make selling an inherited property very difficult. But, with the right advice and guidance, you can sell your property quickly and for a fair price, and begin to move forward.
Steps to Take Before Selling
There are several things you need to do and considerations to make before you can start to think about putting your inherited property on the market.
Coping With Bereavement
The death of a loved one can be devastating and deeply affect how you go about your everyday life. As much as you may wish to—or need to—sell your inherited home, you should first take steps to coping with your loss. Everyone handles the death of a loved one differently; it is a profoundly personal experience. If you feel like you are struggling to come to terms with your loss, there is a wealth of online advice that can help. The following websites are good resources:
While it is best to sell an inherited property as soon as you can, a short delay is unlikely to have any significant impact on your finances or the on the sale price. And with a clear head, you are much more likely to make better financial decisions.
Do I Have To Pay Tax?
When you finally feel ready to get started with the selling process, you will likely have many questions. Financial matters can be confusing, but the first thing you should know is that it’s very unlikely that there will be any inheritance tax levied on your property whatsoever if the property is located in California.
But, there are other taxes that you will have to pay immediately, including:
First let’s look at inheritance tax, or rather the lack of it. There is no state inheritance tax in California. In fact, you only have to pay state inheritance tax on property if it is located in Nebraska or Pennsylvania. In terms of federal estate tax, gifts valued up to $5,450,000 can be given tax-free for estates of people dying in 2016. That means that only 0.2% of estates in the US will pay any estate tax.
When it comes to the taxes you will have to pay, property taxes are first. For real estate in California, the annual tax bill will be mailed in October and is payable in two installments, by November 1 and February 1. You will be liable for paying property tax until you sell the home. When you do sell, liability for the property tax isn’t completely passed onto the new owners. You must still pay your pro rata share of the tax bill for the part of the year during which you owned the property. That means that even if you manage to sell the property within a year and before the October bill comes in the mail, you are still legally required to pay your share.
Capital Gains Tax
If you don’t sell the property straight away, you may be charged capital gains tax. This is a tax on the increase in the value of the property from the day you inherited it to the day you sold it. Normally, $250,000 of capital gains from the sale of your primary residence ($500,00 if you are a couple) is exempt. But this doesn’t apply to inherited properties, unfortunately, unless you have lived in them full-time for more than two years.
Let’s look at an example. If you inherited a property that was valued at $500,000, held onto it for a year and then sold it for $600,000, you would be liable for capital gains tax on the $100,000 profit. Depending on your income, you could get taxed up to 13.1% of that $100,000, or $13,100.
As you can see, if you’re planning on selling your inherited home, it can be to your benefit to do so sooner than later.
Dealing With Bills and Insurance
Taxes aren’t the only thing you will have to deal with financially. Before you sell the home, you’ll also have to pay the utility bills and the mortgage on the property if it hasn’t yet been paid off in full.
You will be responsible for all the utility bills for the house until the time that you sell. Before you complete the sale, you’ll also need request a final bill from the gas, water, and energy suppliers and let them know that you have sold the property.
There are three possible scenarios when it comes to dealing with the mortgage of inherited property. The first is that it was already paid off while your benefactor was still alive. The second is that the deceased’s will stipulated that part of their estate was to go towards paying off the mortgage prior to you inheriting the home. In both these cases, you can breathe a sigh of relief because you have inherited the property mortgage-free. However, if neither of the two scenarios has happened, then the mortgage is one more thing you’re going to have to pay towards this inherited property. As soon as the property deed is in your name, you will have to notify the mortgage lender of the change in ownership and provide them with your details so that you can continue making payments. Of course, like with any property you own, you are free to (and should) try to find a more competitive mortgage rate if there is one available.
This is the last bill you will have to worry about. It’s always best to protect your property against theft, damage and destruction—even if you aren’t living in it. Just because you are planning to sell the property straight away doesn’t mean you want to risk leaving your property unprotected. In fact, empty homes are at higher risk of theft and vandalism. Instead, purchase empty home insurance to ensure that you’re covered should the worst happen.
Common Issues With Inherited Properties
You might think that having sorted out property tax, the mortgage, utility bills, and home insurance, that you’d finally be able to put the property up for sale. And you might. But inherited properties are rarely perfect, and there’s a good chance you might have to get over one of the following hurdles first:
The Property Needs Renovation Work
Of all the reasons why sellers can’t put an inherited property up for sale immediately, this is by far the most common. Typically, houses owned by the ill or elderly are rarely kept up-to-date or in the best shape. It’s no secret that you become less concerned with having a state-of-the-art kitchen as you get older, not to mention fixing the roof. These issues tend to only come to the fore when it is time to sell. So what kind of renovation work can you expect to face? And how can you go about fixing it?
Serious Structural Issues
Forget about replacing the wallpaper or carpet—there may be much more serious structural issues with the property that will absolutely have to be fixed prior to selling, including:
- Foundation repairs: The foundational structure of the house in California is more important than probably anywhere else in the country thanks to the San Andreas fault. If the property’s foundations need strengthening, you could be looking at an average bill of between $5000-$7000.
- Roofing renovations: Whether it’s replacing a few broken tiles or the entire roof, it will be almost impossible to sell a property with a faulty roof. Unfortunately, it is one of the most expensive repairs, with an average price tag of $12,000.
- Electrical rewiring: This can be a serious fire hazard, and while much electrical work is moderately priced, the bill can soon get out of hand if the entire home needs rewiring. For a small to medium-sized home, expect the bill to run to around $10,000 to replace wiring throughout the property.
All of the following can be repaired by a renovations contractor, but these types of major issues unfortunately come at a significant cost.
Infestations may not seem as serious as structural damage, but they can be just as harmful to the health of your property and your chances of selling as anything else. Let’s break down the most common infestations:
- Asbestos: Usually asbestos is only discovered during the inspection prior to completing the sale. Not only is it a deal breaker, it also means the seller has wasted time and money putting a property on the market that will never sell. If the home you are inheriting is particularly old (over 50 years), it’s worth having an inspector around before putting the property on the market. Newer properties built after 1970—when asbestos was declared a carcinogen and eliminated from commercial use—are very unlikely to have asbestos. If you find asbestos in your inherited property, then you need to get experts in straightaway. Unfortunately, removal can only be carried out by trained professionals, which means high labor costs and a bill that could easily run into tens of thousands of dollars.
- Mold: This can be a particular problem in houses that have been left vacant for a period of time, but it can occur in occupied homes as well. It is especially prevalent in coastal properties. A standard inspection will uncover any sign of mold and it can be cleaned by anyone using shop-bought products if it is small. Large scale mold problems—where mold is in several rooms, inside the walls, on the ceiling and on the floor—will require a professional to remove. Mold remediation is a multi-step, multi-day process with costs that will vary depending on the scale of the problem, but will likely be thousands of dollars rather than hundreds.
- Termites: These little buggers can go unnoticed for years, which makes it a common issue in inherited homes when the new owner carries out their first property inspection. The damage with these bugs is two-fold. First, there is the cost of getting them exterminated. While this has become a routine procedure with several different extermination methods available, it can still cost several thousand dollars to carry out. Secondly, there is the structural and cosmetic damage that they create. As we learned above—fixing these types of issues doesn’t come cheap.
All of these issues can go unnoticed until the day you sell the property. As a result, it is in your best interests to commission a full survey of your new property soon after you inherit the house, before you take your decision to sell any further.
The Property is a Mess
Your inherited home may be located in a beautiful part of the state and paid off in full, but if the property is left in a mess, it can be a nightmare to clean and sell.
- Hoarding: We’ve all seen hoarding portrayed on television shows, but the truth is that this is a more common reality than you might imagine. Unless it is a distant relative, you’ll probably already know if you’re inheriting the house of a hoarder, so you will at least be prepared. If not, you may be shocked to find how extensive and difficult the cleanup process is. Just to clear the trash itself can take up to a week and cost $5,000-$20,000. You will then have to deal with mold, mildew, and leftover toxins. All in all, you’re looking a renovation project lasting several weeks and costing upwards of $30,000. Even then you might still struggle to sell the property. Remember, neighbors talk—and they may just let prospective buyers know what they are getting themselves into. The negative stigmas around hoarding could easily drive prospective buyers away.
- Pet Damage: It’s not just messes left by your benefactor that you have to worry about. Their pets can cause just as much damage. This is particularly common in homes belonging to seniors who may not have been the most attentive pet owners in their later years. If pets have run wild in a home for an extended period of time, then you’re probably facing more than a few scratched walls. Carpets, furniture and electrical wiring can all be targets for pets who want to sharpen their claws or take their frustration with being kept inside out on something. If you need to replace flooring, dump furniture, and replace wallpaper or repaint walls, it’s going to be several thousand in cosmetic repairs alone. That’s not to mention the odor that pets leave behind—your average air freshener just won’t do the trick.
These might seem like extreme scenarios, but they are actually quite common. Of course, carrying out the renovation work isn’t your only option. By dropping your asking price substantially, you may be able to persuade a buyer looking for a fixer-upper to take a chance on your property. Of course, how big the discount depends on the mess you leave them to clean up.
If you inherited the home of a relative who took out a reverse mortgage, you are on the hook for the repayment in full. More often than not, we’ve seen lenders demand payment immediately from the new owner upon the property changing hands, under threat of foreclosure. But because they are still responsible for taxes, bills, and the maintenance of the property while they find a way to settle the debt, this often leads to inheritors with no way to pay.
What Is A Reverse Mortgage?
A reverse mortgage is a kind of loan offered to homeowners aged 62 or older, which allows them to liquidate the equity in their home without monthly payments. They can defer any payments on the loan until the day they die or move. But once they do pass away, the entire sum is owed by the estate or the person who inherits the property. In other words, you.
What can I do about it?
If this happens to you, it can feel like inheriting the property is a curse, rather than a gift. But it’s important to remember that your friend or relative probably didn’t know what they were signing you up for when they bequeathed their home to you. If you are struggling to make the payment, you only have two serious options. First, federal rules state that survivors should be offered the option to settle for a percentage of the debt. While some lenders will demand payment immediately, you can work toward a resolution whereby you follow federal rules or set up a payment plan with the lender. The second option is to sell the house as quickly as you possibly can. With a fast sale, you can use the money to pay off the mortgage immediately. Of course, there are downsides to this, the major one being that you will almost certainly have to accept a lower price than the property is worth. You aren’t guaranteed to sell the property, either. And every week you wait to sell, the outstanding balance of the loan and the pressure on you from the lender is likely to increase.
The Home Holds Too Many Memories
Coping with losing someone is incredibly difficult. But it gets even more difficult when you are constantly around the things that remind you of them. A house can be the biggest reminder of all, bringing back a tidal wave of memories. Of all the hurdles you may face when selling an inherited property, selling a home that means so much to you is probably the most common and the most difficult to overcome.
Finding Someone to Sell on Your Behalf
Selling a home is typically a very hands-on experience, one that often requires weeks or months of attention and frequent trips to the property. But what can you do if you can’t face setting foot inside the house again?
- Let your spouse or children sell it for you. This is perhaps the most straightforward option for people who have a strong support network that they trust around them. Just because it is your property, it doesn’t mean you have to oversee the sale.
- Let your realtor handle everything. If you don’t have that kind of support network or the people you trust aren’t able to take on the responsibility, you can arrange for your realtor to do everything on your behalf. Of course, depending on the state of your property and the work that needs doing, they may charge a substantial amount for the service.
- Don’t sell the property. If you are unable to find someone to handle the sale for you, then another option is to not sell the property. If the house is in good condition, you can hire a property manager to rent the house out on your behalf. Alternatively, you can just let it sit unoccupied until you feel ready to handle the sale yourself. Remember, though, you will continue having to pay the mortgage, utility bills and property tax.
The sale of a property shouldn’t come before your mental wellbeing. If, during the process, it all becomes too much, then put the sale on hold and refer back to the Coping With Bereavement section of this guide for links to helpful resources.
Moving On if You’re a Spouse
Selling the home of a parent is hard enough, but living by yourself after years and years of having your spouse for company is another thing entirely. It’s no surprise then that when one partner passes away, the surviving partner often chooses to move away from the family home for good. But before you can sell, you need to decide where to move:
- Downsizing. For the senior that still wants to live an independent life despite losing their life partner, this will be the most favorable option. By moving into a smaller home or apartment, you not only move away from a house that holds too many memories, you also move into a property that makes life much easier for you. You can choose a neighborhood that places you close to the things that matter, your family, medical care, or the golf club, for instance. You can also choose a property that has been designed for someone of your age, both in terms of style and accessibility.
- A retirement community. Alternatively, you can move into a retirement community or assisted living facility. The benefit of this option is that you get to socialize with people of your own generation on a daily basis, which can be a great comfort to someone who has recently lost a life partner. And even if you don’t need some of the services that communities like these provide just yet, it can be reassuring to know that they are there if you need them.
- Moving in with relatives. Finally, there is always the option to move in with relatives. This is a great opportunity to spend more time with the people that matter most in your life. Even if you don’t need their support, it is always preferable to live in a home where you will feel loved.
Emptying the House
Even if you feel able to take on the sale of your inherited property yourself, emptying the home can break the heart of even the most stoic of individuals. Packing all of their belongings into boxes, deciding what to keep and donate—it’s all too easy to see something that brings back feelings of loss and despair. Thankfully, this, too, can be handled by other people such as:
- Friends and relatives
- Removal companies
- Cleaning companies
- Your realtor
If it is someone who knows you well, they will be able to decide on what to keep and what to give away or dispose of. If you choose a professional company, however, they can simply pack everything into boxes and move it into storage. Then, when you are ready, you can go through your loved one’s belongings yourself.
Selling the Property
Congratulations, you’ve made it this far! As you’ve seen, there is far more to the process of selling an inherited property than you might ever have imagined. There’s just one more area to cover: finding a buyer, accepting an offer, and completing the deal.
Deciding How To Sell
When it comes to selling your inherited property, you may assume that there is only one way to do it: hire a realtor, market the house, wait for someone to put an offer in, accept it, and sell. But you would be wrong. In fact, there are three different ways you can sell your home:
- The traditional method: This is the method mentioned above and the one that the vast majority of Americans use to sell their home. You hire a realtor who values your property, creates marketing materials, puts it on Zillow and other websites, shows people around your home, and negotiates on your behalf.
- For sale by owner: If you want to cut the middleman (the realtor) out of the sale then you can try to sell the house by yourself. The advent of property websites makes this method far easier than it was twenty or even ten years ago. Instead of having the realtor do everything for you, you do it all yourself. This means it is a much more intensive process for the seller, but in reward, you don’t have to give away a percentage of the sale price to your realtor.
- Sell direct: With this method, you don’t have to give away a percentage of the sale price to a middleman, nor do you have to do any of the heavy lifting yourself. Once you make contact with a company that will buy your home directly from you, the company will send round a consultant to value your property and make you an offer on it. If you accept, the sale can be completed as quickly as you wish.
Selling an inherited property using the first or second method can be very difficult. If the home has any of the typical issues discussed above, you will seriously struggle to sell without completing the necessary renovation first. As explained, this can come at a very high cost.
That’s why many people choose to sell their inherited house directly. By selling direct, you won’t have to change a thing about the state of your property. That’s because direct sale companies buy homes regardless of their condition. The price won’t be as high as it would be if the property were as good as new, but it will still be a fair price considering the state of the house. They will also take responsibility for emptying the property of the previous occupant’s belongings. So you won’t have to face packing up your loved one’s personal items at a time of emotional stress. And because the direct sale company will pay in cash, you can complete the transaction as quickly as you want. If you’re quick enough, you won’t even have to make any mortgage payments on the property.
Getting an Evaluation
This step is necessary no matter how you want to sell the property or when you want to sell the property. That’s because any future capital gains tax will be based on the value of the property when you inherit it. If you are unsure of selling, then I recommend inviting a realtor and a sell direct company to value your property. This should give you a fair and balanced view on the value of your inherited home and the likely amounts you could receive by using each sales method. Remember, however, that while a sell direct company will tell you exactly how much they will be willing to pay for the property, a realtor may inflate their figure to persuade you to use them to sell the property.
From Choosing to Sell to Getting an Offer
The timeline from the point you decide how to sell your property to getting your first offer can be very different.
- By selling traditionally or by yourself, you or your realtor will need to market your property for weeks, sometimes months, before you receive your first offer. During this time, you or your realtor will have to pay for marketing materials to be created and distributed, and you will have to hold an open house and show people around the property. Throughout this period, you will be paying the mortgage, utility bills, and property tax. In the worst case scenario, you might never receive an offer on the property.
- By selling direct, you’ll receive a valuation and an offer within 24 hours of speaking to a consultant. You won’t have to mess around with marketing materials, put the house on any websites, or do anything to change the appearance of the house. All you have to do is decide whether or not you will accept the offer.
If time is of the essence for you, there’s no doubt that a direct sale will be the fastest option. Instead of struggling for months to sell your house, you may be able to sell and move on within days, which, in the case of an inherited house, may be exactly what you need.
From Accepting an Offer to Closing the Deal
If you think accepting an offer on your property means that the sales process has finished, you’re sadly mistaken. You could have weeks, maybe months, left to wait until you can finally close the deal.
- By selling traditionally the date of completion depends on the chain of the buyer. If they have to wait for someone else to buy their property so will you in all likelihood. As a result, you have no say over the completion date of your sale. That means you’re stuck paying the bills and a mortgage for a property you have all but sold for an indeterminate length of time.
- By selling direct, you choose the date to complete and get cash in your account immediately. There is no waiting for someone else, everything is based on you and your needs. If you need to complete the sale within the week, the money will be in your bank account by Friday.It really is that quick and straightforward to sell your inherited property directly.
Don’t force yourself to go through the stress of selling a home at an emotional period in your life. By selling direct, everything’s taken care of for you. There’s no need to worry about renovation work or removing your loved one’s belongings. And because the process is so quick, there’s no need to worry about the mortgage, either.
If this guide has made you think twice about using a realtor to sell your inherited home, or if you just want more information on how we can help, don’t hesitate to pick up the phone and speak to one of our friendly consultants who will be happy to walk you through the process in detail.