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Estate Planning | Probate

Selling Real Estate During Probate

5 min read
Philip Ahn, Attorney

by Philip Ahn, Attorney

Navigating the sale of property within the probate process can be a complex undertaking. Executors or heirs must adhere to legal requirements, including appraisals and court approvals, to ensure a smooth and lawful transaction. Professional guidance from both estate attorneys and real estate agents can be invaluable to execute this challenging procedure.

Important Definitions – 

  • “Property” encompasses all assets held by an estate (that is, the belongings of a deceased person). This article specifically deals with “real estate” property only, which involves homes and land. 
  • A probate or estate lawyer deals with matters relating to wills and probate, not “real estate”. Complex real estate issues should be handled by an attorney with landlord/tenant experience (who may also be a probate or estate lawyer). 
  • A real estate agent, sometimes called a broker or realtor, may have experience selling homes of the deceased but is not a lawyer.

Engaging a Real Estate Agent

The estate’s personal representative – an executor or trustee appointed by the probate court – must follow proper procedures and state laws to sell a house from the deceased person’s estate.

When a property owner passes away, their real property becomes part of the deceased person’s estate and may be subject to estate debts and probate costs. Executors can hire a real estate agent to start the process of selling real estate after a death.

A real estate agent can help navigate the complexities of the probate sale process, ensuring that the property is properly appraised and marketed to potential buyers. This in turn ensures the property is sold in the best interest of the estate and its interested parties while under court oversight.

State law often allows for independent administration, which means an attorney can help negotiate offers from potential buyers without needing court approval at each step. This expedites the selling process and ensures the house is sold under the requisite protocols.

Valuing Real Estate In Probate 

Evaluating real property within a probate estate involves a specific process that starts with filing the death certificate and necessary paperwork with the probate court.

Following court approval of the executor and the proposed sale of the house in probate, the appraised value becomes essential in determining the listing price.

The appraisal consists of a real estate professional assessing the property’s condition, size, location, and comparable sales in the area. The appraiser will consider any unique features or improvements that could affect the value.

One of the primary challenges is finding buyers willing to buy houses within the probate property sale context, which requires a nuanced approach. Sellers must also contend with the intricacies of the probate process, which can involve legal hurdles and documentation requirements.

Overbidding In Probate Sales 

Enhancing the competitive bidding process in probate sales is crucial for ensuring fairness and transparency. Prospective buyers, often family members or joint owners, participate in an overbidding process during open houses to secure the winning bid.

When a house is put up for sale in probate, the executor must follow a specific legal process overseen by the probate court.

During the court hearing, the bidding process allows potential buyers to submit additional bids beyond the accepted offer.

The court appoints a new buyer if survivorship exists, minimizing potential liability and safeguarding the interests of all involved.

This process guarantees that the property’s appraised value is upheld and that appropriate assets are secured for distribution for the estate.

Private vs. Public Property Auctions 

When it comes to the sale of property, individuals have the option to choose between private and public property auctions. In a private auction, the proposed action of selling a house is conducted more discreetly and often involves properties held in living trusts. This method provides independence and allows the seller to maintain a to-do list for the sale.

On the other hand, public property auctions, akin to a traditional home sale, involve a broader market and can include houses in probate. The decision of which method to use ultimately depends on the asset and the seller’s goals for the sale.

Obtaining Probate Court Approval 

Securing court approval is necessary to finalize the sale of a house during the probate process. The executor overseeing the transaction must ensure that the appraised value aligns with the estate’s assets.

During this process, the court provides necessary oversight. Once the court approves the proposed house sale, the winning bidder proceeds with the purchase, covering closing costs with their bank holdings or a cashier’s check. The bidder may be an individual, a joint owner, a company, or an investor seeking probated properties.

After securing court approval for the sale, the executor accounts for service fees and closing costs to be offset from the remaining profits. Any remaining profits are distributed according to state law. 

The need for direct court involvement may vary depending on jurisdiction and circumstances.  Executors or administrators often have the authority to buy houses and oversee the selling process as long as a house is sold in compliance with relevant regulations. Consulting with legal professionals can provide valuable guidance on the specific requirements for selling property in probate.

Tax Implications of Selling an Inherited House During Probate

Selling an inherited house during probate can introduce probate tax issues that require careful consideration. One crucial aspect to assess is the potential impact of capital gains tax when you sell a house you’ve inherited.

Sometimes, you may qualify for a stepped-up basis, which can effectively reduce your taxable gain. However, it’s important to note that the duration between the date of inheritance and the actual sale can play a critical role in determining this tax treatment.

Moreover, any appreciation in the house’s value during this interim period could lead to a higher capital gains tax liability. To navigate these complex tax matters effectively, you can consult with a tax professional or estate attorney to ensure compliance.

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