Dealing with an Inherited House?

A lot of times when you inherit a house, you inherit one that you did not ask for.  There is so much more than figuring out whether you want to keep the house and become a landlord, move into the house yourself or sell the house.  Usually the house is also filled with items that our loved one has accumulated throughout the years.  Usually before you get far enough to even think about what to do with these things, in comes the family members.  The sad thing is that its not always pretty and people don't always get along when trying to figure out who gets what.  Even if there is a will, not everything is accounted for in the will to disperse the items appropriately.  This puts more pressure on the person that is left the house and/or estate.  There are steps to take to make sure this process isn't so messy but that is for another post. 

​Often times, you get the house and you don't want the house, but you could use the financial windfall that comes with the selling of real estate.  Now, it comes down to what you can afford.  Do you want to earn the top price for the house or do you want money fast and can take a bit of a discount.  Can you afford to fix up the house so that you can earn top dollar?  What about the time it takes to sell the house?  You will incur costs to do so.  There are a lot of things to consider when trying to sell an inherited house.

Top Dollar vs Fast Sell

When you people look at this, it seems like a no-brainer.  Of course, I want top dollar for anything that I sell.  The problem with real estate is most people don't really know how much is top dollar and what it takes to get that amount.  If you hire an agent, they will do a market analysis and tell you what amount you should list it, and sometimes will tell you how much it will sell for.  Now, I know I am not telling you something that you didn't already know, but agents have an incentive for selling the house for as much as they can.  What see is the high list price and what sellers seldom think about is, how much YOU will actually make on the sell. 

Here is an example that may help you see the difference.  We'll call this Option 1.  Let's say you have a house that you have been told by an agent that you can sell for $300,000.  You can estimate 6% of that just in commissions.  (usually 3% for the buyers agent and 3% for the sellers agent).  That's $18,000 just in agent fees.  You can't forget about closing costs.  I tell my clients to estimate 2-3% for those.  Let's be conservative and use 3% for closing.  That is another $9,000 in closing fees.  Then, there is the repairs and updates to get the house to the specifications that will bring on a buyer at $300,000.  I know all homes are different but in most cases, you can bet on at least one capital expenditure (roof, HVAC, plumbing, etc.).  That can be pricey.  Let's estimate replacing the roof, repainting the interior and exterior, and improving curb appeal.  Your market may be different but we will call it $20,000 just so we have a round number.  Now, if the house is not paid off there is a mortgage that must be paid every month.  Again, so we have a round number we can call it $1,500 per month.  You will want to do your repairs before its on the market, if you have someone lined up and ready to go then maybe 6-8 weeks to complete all of these repairs.  We will calculate two months.  Then the time it sits while your agent shows the house and finds a buyer, a good estimate, depending on your market and house list price, is two months.  Then, the time it takes to close a conventional loan, another 30 days.  That's four months of paying the mortgage, another $6,000.  Don't forget the utilities during this time, let's say $500 for the five months to repair and sell.  Then you will have to pay off the remaining mortgage.  The house has 40% equity so let's say payoff is $180,000.  So here is what we have:

Option 1
​Selling Price                        $300,000
Repairs/Updates                 -$20,000
Agent Fees                           -$18,000
Closing Costs                         -$9,000
*Holding Costs                      -$7,500
*Utilities                                    -$500
Mortgage Payoff               -$180,000
​Net to Seller                        $65,000

These numbers are rough estimates.  Your situation may be different.  Contact us today, to get your free home valuation.
*Holding costs and Utilities will increase every month you hold the house for repair, while it is on the market and before it closes.

Now this, does not take into account that a lot of times, buyers back out.  Meaning you will need to add more time and money for your holding costs.  Also, depending on your market, houses will sell for less than they are listed.  That surely will drop your net from the sale.  This also doesn't take into account all of the time and effort you will spend getting people to come in and do the work (hopefully they do it right the first time).  This entire process at minimum is four months that you have to constantly think about and hope that everything is going well and that at the end of the day that it sells for what you've been told.

Now let's look at an All-Cash, As-is, Sale.  We'll call this Option 2.  The same house is worth $300,000 once it is all repaired and updated.  There is no time wasted on dealing with contractors or D.I.Y. projects.  No hassle with a conventional loan that could fall through or a buyer that could pull out, just to start the process over.  You don't have to worry about the holding costs for a prolonged period of time due to things outside of your control.  Are you going to take home less money?  Sure, as with any service it does cost money.  Does the cash buyer stand to make money off the deal?  Sure, but the cash buyer is taking on all of the risks that I mentioned above.  If repairs are more than expected (often they are both in cost of repair and time to complete), if it takes longer to sell than expected (often it does), then the cash buyer has to eat those costs.  Meanwhile, you are using the money from the sale to catch up on bills, improve your primary residence, or even relax on vacation.  If you have the means, then I will always tell you to go with Option 1.  But, if you don't want to have the headache of dealing with a house that you didn't want in the first place, then Option 2 is a good option for you.  

Option 2 - Seller
Selling Price                    $205,000
Mortgage Payoff           -$180,000
Net to Seller                    $25,000

Buyer Costs*
Selling Price                                               -$205,000
Closing Cost (when buying from you)       -$6,150
Repairs/Updates                                         -$20,000
Utilities                                                               -$500
Agent Fees (selling to end buyer)             -$18,000
Closing Cost (selling to end buyer)             -$9,000
Total Cost                                                 -$258,650

These numbers a rough estimates.  Your situation may be different.  Contact us today, to get your free home valuation.​
*Buyer will have to add to his/her costs for every setback in repairs, utilities, and/or sale.

You have to think of what is best for you and your situation.  You pay an agent fee for the service they deliver.  Their service is to bring as many potential buyers to see your house and hopefully someone will buy it for what you are asking.  You pay a cash buyer for a service as well.  Their service is to take the headache away and put cash in your hands fast.

What is best for you?

On the outset, it is easy to see why some people get offended when I make an offer.  However, once we walk through the numbers and the service that I am providing, my clients almost always understand.  Every situation is different, and once I have a better understanding of your situation, then we can start to solve your problems. 

An honorable Real Estate Investor will always have their client's best interest in mind.  That is what we do.  We will always give you all of your options.  If you want to repair the house and put it on the market, great!  We have an extensive network of quality agents that can help you get top dollar.  However, if you are in need of selling the house fast, then you can work directly with us.  I hope that after you contact us you will leave more informed to make the best decision for you and your situation, even if that means not selling to us.  I want to help you in any way that I can.

If you inherited a house and want to know your options, the Contact Us Today!  We can help walk you through all the confusion of probate, estate sales, and selling your home.