Home sale contingencies come in all shapes and size. Here are some strategies for pushing ahead when they threaten to derail or significantly slow down a transaction…
A Parent Dies And You Inherit The House…Oy Vay? Maybe Not!
Before Maryedith Smith’s father died in 2009, her only experience navigating the real estate world was finding a place to rent in Carmel, Ca. As executor of his will, Smith had to clean out and sell his San Francisco home and a cabin in the nearby mountains — Both a couple of hours from where she lives.
Much of the work fell on Smith, then 36, since the other beneficiary was her older sister, who lives in New York City.
“She’s a little bit more emotionally driven, so I think it was better that I was handling this side of things,” said Smith, a CPA.
After finding a real estate agent with estate sale experience, Smith got up to speed on probate, learned about local building codes and repairs that needed to be made, and even told her father’s friend, who had been staying in the cabin, he’d have to move.
“There were a ton of things that were brand new for me, and it was all very, very overwhelming,” Smith recalled.
Fortunately, the house and cabin sold a few months after they were listed.
Dealing with the death of a parent is challenging, but selling their home can be fraught with land mines, particularly if they die without a will. Family members consumed by grief may be unable to make decisions, leaving homes that may have already languished fall further into disrepair. Siblings may harbor emotional attachments and have unrealistic expectations about what the property should sell for.
The task can be a difficult and long process — or relatively quick and painless. Much depends on the heirs’ ability to ask for help and hiring a professional who knows the local housing market. Experts say the sooner the process begins, the easier it will be. Parents can take steps while they’re alive to help ward off contentious complications.
“It’s always a good idea to discuss these matters while loved ones are still with us,” observed John Graff, a real estate broker with Ashby & Graff Real Estate in Los Angeles. “The conversation may be difficult and awkward, but it is worth it to have the upfront knowledge so that you’re not scrambling while grieving.”
Make sure they have a will. Many parents die without one. A 2018 Caring.com survey found that only 42 percent of U.S. adults had estate-planning documents, such as a will or a living trust.
“When someone dies without a will, it’s a real burden on the family members, and, depending on the state the property is located in, the process to dispose of the home can be quite long,” said Chuck Vosburgh, a Realtor with NextHome Gulf to Bay in St. Petersburg, Fla.
Be prepared to shell out money. Before a home is sold, costs associated with maintaining the property still must be paid to prevent unintended consequences, such as frozen pipes or fines from local jurisdictions for failing to do routine landscaping.
Keep heirs out. The executor should have locks changed as soon as possible. “It can be very difficult and emotionally draining to remove someone from the property” if they’re not willing to go, Vosburgh noted.
Get a reality check about price. Have a real estate agent run a competitive market analysis, and consider an appraisal from a licensed appraiser. To avoid appearances of impropriety, don’t hire a friend or family member, especially if there are multiple heirs, Vosburgh said. “People can get suspicious, and death brings out the worst in people.”
Designate a contact person. The executor should keep all heirs informed. Someone who feels left out may think there’s something hinky with the transaction.
Sell as is or fix up?
The biggest deterrent to selling a parent’s house is usually the emotional attachment of the children. Often, “every little trinket or picture has a memory,” said Zak Feldman, a Los Angeles realtor. He added that as difficult as it may be, it’s “best to clean the home out quickly and prepare the house for sale. The longer the process, the more difficult it becomes.”
Experts say this isn’t a good time for major renovations. Cosmetic fixes can pay off, but more substantial improvements generally do not. Remove furniture and belongings and show the property vacant or staged. Carpets should be cleaned and painting done, as needed. Hire professional cleaners and clean up the yard.
When Janice Mestman’s mother passed away in March, she had to sell her 2,000-square-foot condominium where her mother lived for nearly 35 years on the 14th floor with unobstructed views. Her real estate agent helped Mestman weigh the pros and cons of renovating, but she didn’t want the headache of a big project.
“I was in mourning, so it was not a good time to take on something like that,” recalled Mestman who runs a head hunter company in Beverly Hills, California.
Mestman was nervous about showing the unit, which had only minor updates since it was built in the mid-1980s. She planned to paint and re-carpet, but her agent showed the condo to a couple who bought it before it even hit the market.
“My agent said let them see it the way it is,” Mestman recalled. “He knew what they wanted and they ended up buying, so I never even had to list it.”
If the property requires extensive repairs, it may be better to sell “as is,” or consider one of the quick-sale companies that promise fast and easy transactions with no repairs or cleanup. But don’t presume a big payout.
“You can usually expect to receive about 60 to 70 percent of market value,” Feldman said.
Tax consequences must be considered. Estate, inheritance and income taxes can impact the bottom line, depending on where the property is, where the inheritor lives and how much money is being inherited. Typically there’s a benefit to selling an inherited property soon after receiving rights to it because when a property is inherited after a death, the property value is “stepped up” to fair market value at the time of the owner’s death.
This means you can sell a property bought in 1970 but not pay the taxes on the value gained over those year.
How children handle the sale of a parent’s home is often key to whether they end up staying a family or never speaking to each other again.
“Every parent’s worst nightmare is their kids fighting over their stuff,” observed Patrick Simasko, an elder law attorney at Simasko Law in Mount Clemens, Mich.
Jennifer Okhovat, a Realtor with Compass in Los Angeles, suffered through a drama-filled deal a few years ago when two siblings — a woman in her late 60s and her brother in his 70s — inherited their parent’s West Hollywood Tudor. The house sat empty for five years before they decided to list it.
One was ready to sell and move on, while the other kept saying, “This was our parents’ home,” and would come up with exaggerated prices. Neither wanted to buy each other’s share, either, she added.
After months of discussions, the siblings gave Okhovat the go-ahead to list for $1.2 million. Okhovat said she brought more than a dozen offers, but for every offer, at least one of the two siblings found a reason not to sell it. Even when the offers were above asking price, all cash and non-contingent, the siblings were never in agreement. The property eventually was sold a year later by a listing agent with another brokerage after one of the siblings passed away, Okhovat said.
“I think a lot of it was timing,” Okhovat said.
Her advice? “Do your best to remove the emotion and really try to focus on it as a business transaction. Think of it as selling any other type of property that you might own.”
Carlson said one regret was that she was in such a “go mode” dealing with her father’s real estate that she failed to anticipate the wave of emotion that would hit when it was over.
“Once everything closed and the final checks were disbursed, it was kind of this moment of, ‘Oh my God, I haven’t even processed anything that has just happened over the last year and a half,’ ” Carlson said.
“You obviously have to let some of the emotions in. But I wish in hindsight that I had allowed that to happen a little bit more, so that when everything was finally closed, it wasn’t such a feeling of, “Well what do I do with my time now?’ ”
Dying without a will
When a parent dies without a will, the assets of the parent pass to his or her heirs at law, according to Cristina Pelaez, a real estate attorney with the law firm Rasco Klock in Miami. Who inherits the assets, including any property, if an heir dies before the parent depends upon intestacy statutes, which vary by state.
“This can be very costly and time-consuming for the heirs and will require court [probate] proceedings,” Pelaez wrote in an email, adding that probate can take more than a year.
When a parent dies with a will, the will must still be submitted to a probate court to officially declare who inherits the property. Things can get tricky if family members contest the will. But revocable trusts, also known as “living trusts,” can be set up to help avoid probate. Meanwhile, some states allow a “transfer-on-death” deed to avoid probate, Pelaez said.
Considering the various options requires “frank and open conversations with family during a parent’s lifetime” to ensure a well-thought-out legacy for their families, Pelaez said.
Another way some parents try to head off probate is by signing a “quitclaim deed” before their death that makes the house jointly owned by themselves and their children. The problem is after the parents dies, “the fireworks” often start, Simasko said.
What parents often don’t realize is once they put their children on the home as owners, all of the children and maybe even their spouses, depending what state you live in, have to sign off to sell. “That can be a good thing if you have good kids and they’re all on the same page and everybody wants to sell the house,” Simasko said.
But if one sibling has been living in the basement or another just doesn’t want to sell, they don’t have to sign the deed unless siblings take them to court to force the sale. In Michigan, this typically happens when parents want the cabin on the lake to stay in the family and put the children on the deed. The same could apply to a beach house or ski retreat elsewhere.
Simasko said a better option is for parents to create a revocable trust. This can include directing a sale, allowing a child to continue living in the home for a certain period of time, or “instructing one child who loves the home or cottage so much” to buy it from the trust. Trusts are typically easier to administer after parents pass away and can go a long way to keeping children from fighting, Simasko said.