The probate process, which is the process of paying a decedent’s debts and tallying up their assets upon their death, can be an intimidating process. Mainly because it is not a process people go through often in a lifetime and it’s full of paperwork and language most are unfamiliar with.
It’s never easy when a loved one dies and the last thing anyone wants to do directly following their death is deal with finances. However, it needs to be dealt with and that’s what the probate process is for.
Typically the largest asset in a decedent’s estate is a home. If the estate has any debts most often the home needs to be sold in order to satisfy those debts. Sometimes heirs agree selling the home is the best option. Other times an heir may want to keep the home and live in it themselves or keep it as a rental property.
Obviously, there is a lot to consider when real estate is inherited. Every situation is unique and requires weighing many variables.
If the heirs decide to sell the home there are usually two options. And depending on the condition of the home one is usually better than the other.
If the home is in good condition and has been updated over the years it is best for the heirs to list the home with a realtor. Doing so will guarantee maximum exposure via the MLS and yield the highest offer.
The other option if the home is in poor condition is finding the highest offer in the situation. This option is best if the home is in poor condition because a realtor does not assist in finding a higher offer in this situation. All-cash investors are constantly looking for these opportunities, know what they are looking for, and how much they can pay for a home. In such a case a realtor’s commissions will directly cut into profits. Heirs will walk away with less because a realtor is not assisting in yielding a higher purchase price. Rather, just add a cost for the seller.
There are typically very high costs associated with selling a property. The largest cost in most transactions is always a realtor’s commission, averaging 5%-6% of the sale price in Connecticut. Next is the conveyance tax of a minimum of 1% of the sale price if not more. Then holding costs of any mortgages that may be on the property, property taxes, insurance premiums, attorney fees, title insurance, so on and so on. At the end of the day, the average cost associated with selling a property is 8%-10% of the closing price.
For a home that is sold in probate, there are further costs associated with closing the estate: funeral costs, appraisal fees, probate attorney fees, accounting fees, filing/court fees, etc. There can also be taxes owed by heirs if the home is sold for more than the appraised value at the time of the decedent’s death. The appraisal establishes what is known as the ‘stepped up’ tax basis for inheritors.
These costs add up quickly and in the probate process time is money, so it is in the best interest of all the heirs that any real estate be dealt with immediately and all costs associated with that real estate are kept to a minimum.
Once an administrator of an estate is named, a purchase and sale contract for real estate owned by the decedent’s estate can be completed. From there all that is left is the judge to sign off on the sale. When working with an all-cash buyer they will typically cover all closing costs and because there are no lenders involved there are no financing delays. This ensures a speedy closing and is the most efficient way to get the highest amount of cash possible from the sale into the hands of the heirs.
