3 Things To Consider When You Inherit A House
Whether the house belonged to your deceased parents or Uncle Morty, dealing with inherited real estate can be both emotionally and financially complicated.
For one thing, inherited property often comes with a variety of state and federal taxes that, depending on the circumstances of the property and homeowner, can end up being a major burden on heirs. Second, even if the original homeowners paid off their mortgage, they may have had a reverse mortgage to cover expenses in their final years, which can't be assumed by heirs and must be refinanced if you're looking to rent the property. Finally, inheritance has a nasty way of creating conflict between even the closest of siblings, and a family feud can be "an expensive, time-consuming, hurtful disaster," as Kay Boyd, a senior vice president and wealth consultant at Sovereign Investment Group, told Bankrate.
How can you mitigate these potential pitfalls? MarketWatch's Amy Hoak advises doing a thorough, upfront assessment of the property with a financial advisor before making any moves and to carefully consider these factors:
1. The neighborhood going rate. "In areas with a hot rental market, it may make sense to keep the property and rent it out," Hoak says. Conversely, if the home is in really bad shape, consider marketing it to an investor who's looking to buy a property "as is" and flip it. An appraiser can help you figure out the fair market value of the home at the time of the homeowner's death (or when it was legally signed over to you) to determine whether renting or selling is the best option.
2. Condition of the home. If the previous owner had the house for a long time, it will likely require moderate to extensive repairs to bring it up to current aesthetic and safety standards. "From a financial perspective," Hoak writes, "it's often best to do the minimum amount of repairs required to secure a buyer - and allow them to get financing." David Fairman, a real-estate agent with ERA Solutions Realty, tells Hoak that if a home's major mechanical systems are old, sellers might want to pay for a home warranty instead of replacing them.
Beyond the home's physical condition, Hoak advises heirs to clean out their relative's belongings - as painful as it may be - so potential buyers can see the home "as a blank canvas" instead of someone else's personal space.
3. Cost of a realtor. Finally, consider whether it makes sense to shell out cash for a realtor or if you feel confident selling the home yourself. A typical realtor charges a 6% commission fee, which can seem pretty steep if you think having a real estate agent won't necessarily result in a higher sale price. A Stanford case study did find that realtors help sell homes faster than owners, so it's worth deciding whether the financial cost or speed of the transaction is worth more to you in the long run.
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