Inheriting real estate can be both a blessing and a challenge. While it may add to your assets, the emotional, time and financial challenges can be daunting. Here is a guide to help you maneuver through the sale process efficiently and gain the most from your inheritance.
Step 1: Assess the Market and Minimize Repairs & Renovations
When sprucing up an inherited property, aim for minor cosmetic updates rather than extensive renovations. Consult with a real estate expert who can recommend the most impactful tasks. These professionals are adept at identifying which refurbishments enhance the house’s value and appeal without over-capitalizing.
Expert Insight: “A strategic investment of around $2,000 for basic clean-up and minor cosmetic enhancements can significantly transform the property’s appeal” advises real estate professional Eric Johnson, “maximum total return is usually achieved through basic repairs and clean-up versus the risks associated with major renovations.”
Step 2. High-Impact, Low-Effort Projects
Here are a few relatively simple and cost-effective improvements that can make a significant difference:
- Enhance the curb appeal with meticulous landscaping, fresh mulch, and a vibrant paint job on the front door.
- Replace old carpets and linoleum floors with contemporary vinyl wood flooring for a modern look.
- Clear out-dated decor elements like window valances, faux plants, and furniture covers. Opting for a minimalist approach can make spaces appear larger and more inviting.
- Apply a fresh coat of paint in light, neutral hues in the main living areas to create a clean and welcoming environment.
Step 3. Understand Capital Gains and Related Tax Implications
Upon inheriting a property, you’re exempt from taxes until it’s sold – this is when capital gains taxes come into play. These taxes are calculated on the basis of the property’s value at the time of the original owner’s passing and its value upon sale.
Tax Tips: If the property was valued at $250,000 at the time of inheritance and sells for $275,000 a few years later, capital gains taxes would apply to the $25,000 increase. However, by residing in the home for a predetermined period, you might qualify for additional tax exemptions.
Step 4. Home Sale Tax Exclusions
To benefit from a home sale tax exclusion, which allows a single filer to exclude up to $250,000 (or $500,000 for married couples filing jointly) of the gain, you generally need to have lived in the home as your primary residence for at least two out of the previous five years.
Step 5. Consult Tax Professionals and Attorneys
Since tax obligations can vary greatly, it’s wise to discuss your specific situation with a tax consultant and potentially an attorney, especially if the inherited property is located in a different state with unique tax laws.
Step 6. Declutter and Depersonalize
Before listing your property, take the time to declutter and depersonalize the space. Removing personal belongings and excess furniture can help potential buyers envision themselves in the home, increasing its market appeal.
Step 7. Consider Real Estate Auction vs Traditional Agent Listing
Selling at auction can be very appealing for those seeking a quick, hassle-free sale that brings true market value. It’s very common for inherited homes to be dated and have significant deferred maintenance making accurate appraisals difficult. And increases risk associated with inspections and contingencies.
A property sold at an auction isn’t tied to an appraisal, inspection, or mortgage. There also can’t be any conditions or contingencies from the bidder upon selling.
Auctions are also hassle-free because there’s no negotiating. Real estate auction removes the hassle of negotiating when you sell. No inspections or appraisals are required. And, closings as fast and typically surprise free.
Step 8. Market Effectively
Ensure that however you decide to sell your property, the auctioneer or listing agent utilizes multiple channels to market your inherited property. High-quality photos, virtual tours, and open houses can attract a broader audience and generate more interest.
Step 9. Know What’s Most Important to You
Choosing the right sale method for you, agent listing or real estate auction, depends on what’s most important to you. For most people, this comes down to price, speed of sale and risk tolerance.
If you need to sell your property quickly, real estate auction may be best as you get to determine the exact day your property will sell. With an agent listing, you’ll have to wait for a buyer to make an offer and there’s no guarantee to how long that will take.
If you want to maximize the sale price, either sales method may work for you depending upon market conditions and how unique your property is.
Both methods offer means of managing risk tolerance. Reserves can be set for real estate auctions to ensure that property will only be sold at your minimum acceptable price. And agent listings can advertising lower and lower pricing over time to potentially speed up your sale.
Step 10. Be Prepared For Emotional Challenges
Selling an inherited home can be emotionally taxing. Prepare yourself for the emotional aspects of parting with a family home, and seek support from friends, family, or professionals if needed.
Wrapping Up
Selling an inherited property doesn’t have to be a stressful endeavor. By following these steps and enlisting the help of professionals where needed, you can ensure a smooth and efficient sale process. Remember, every inherited house is unique, and so is your relationship to it. Moving forward thoughtfully and strategically will help you honor that relationship while maximizing your benefits from the sale.