It’s nearly always true that real property has an emotional value that is almost as great as, or even exceeds, the economic value, and this is especially true with inherited real estate. In fact, the emotional/financial equation is often out of balance. Many older homes require work, and heirs may be uncertain as to how to proceed in order to obtain maximum value. At the same time, the heirs often have strong emotional attachments to property that was part of their childhood, even if they live out-of-state and have not seen the house for years or decades.
Intentional planning, both in the will and other documents and when disposing of the property, is often a key to restoring emotional/financial balance and helping the heirs dispose of the property in a manner that is consistent with both their needs and the decedent’s wishes.
Many wills simply divide ownership proportionally and equally among the heirs. While it is relatively easy to make such a division, general language may be setting the stage for conflict among the heirs, which is precisely what the testator (person who makes a will) wants to avoid.
When dealing with inherited real property, some people want to sell it as quickly as possible and thereby obtain emotional closure, others are willing to put off a sale in order to obtain maximum value, and some heirs do not want to sell the property at all. It’s not unusual to find all three attitudes, or some variation of them, in a single family.
With the foregoing in mind, it is often a good idea to put specific language in the will that addresses these issues. For example, the testator could declare that the property is to be sold or retained, but the heirs can determine exactly how these wishes are fulfilled. If nothing else, consider including language that addresses ties. The will can either give a slightly larger share to one heir or direct that impasses be solved through mediation.
Sales Options for Heirs
Market conditions often help dictate the type of resolution in these cases, and right now, there is a seller’s market in South Carolina. In August 2016, inventory went down by six percent to 36,687 units while the median sales price increased two percent to $182,900. In other words, lots of buyers want to enter the market and they cannot be as choosy about the homes they buy. In fact, the average home is only on the market for 91 days before it sells. These are statewide figures and the numbers may vary in different areas, different towns, and even in different neighborhoods in the same town, but whatever the actual number, the news is probably good for sellers.
When many people think of selling property, they automatically think of listing it. In a seller’s market, listing the property is often a good option, especially if economic value is at a premium and the heirs are willing to wait several months. Even if the house needs work, it can still be listed, depending on the type of work to be performed. If there are foundation issues or other structural/code-compliance concerns, they must be addressed. Almost anything else, from worn carpet to older HVAC equipment, can be left for the new owner, repaired and the cost passed on to the buyer, or addressed with a home warranty.
Often, there are either emotional or financial conditions that dictate a faster sale. If the estate has significant debts, real property may need to be liquidated in order to meet these obligations. Or, if the heirs need closure, selling real property often fills this need. In these circumstances, and others like them, an as-is cash sale is often an option. This choice is also often appropriate if the house needs significant work and the heirs do not have the funds, or the desire, to perform it. As a rule of thumb, most investors will pay about 60 percent of the fair market value for an as-is cash sale. While that is significantly less than a listed sale, there are also a number of advantages. In many cases, the sale will close in as little as a month. There is no need to make any repairs, and there is also no need to remove any unwanted items from the property, since the sale is as-is and where-is without any warranty or guarantees whatsoever.
Another possible downside is that investors often want the land but not the house, so if the testator or heirs specifically want the house to be preserved, this outcome may not be possible with an as-is cash sale.
An online or live auction has similar pluses and minuses. Online auction fees, on eBay and other sites, are practically nothing. Live auction fees are normally higher, because live auction houses screen the bidders. The competitive bidding, particularly at live auctions, tends to drive prices above the 60 percent as-is cash sale level, and setting a reserve price helps decrease the risk even further.
Non-Sale Options for Heirs
A favorable real estate sales market typically means that the rental market is good as well, but that is not really the case in South Carolina. The rental vacancy rate is around 10 percent, which is well above the national average. The mean rent ($739) is also well below the national average ($934). Once again, these numbers vary significantly by location.
Even in a down market, renting an inherited home is often a good alternative, especially if the heirs cannot agree on whether to sell or keep the property. It provides a steady monthly income stream, assuming the property remains occupied, and if the tenant is on a month-to-month lease, the heirs can sell the property with very little notice to the tenant.
Keeping the home is nearly always an option as well. Often, a relative is living in the house, perhaps because she took on caregiver responsibilities for the aging owner or because he has a limited income and no place else to go. Sometimes, the heirs can rent out part of the home and allow the relative to live in the other part.
Heirs have a number of financial and legal options when it comes to inherited real property. For a free consultation with an experienced Greenville probate lawyer, contact the Anderson Law Firm. We routinely handle matters in Greenville County and nearby jurisdictions.