Preparing an Inherited House for Sale

Step 1 — Confirm the Transfer Path: Probate, Trust, or Simplified Procedure

How the owner held title at death decides the path. There are three main routes: full probate, trust administration, and California's simplified procedures.

Simplified procedures. The Judicial Council names several procedures, including these:

• The affidavit for collection or transfer of personal property. This covers personal property, not the house.
• The petition to determine succession to the decedent's primary residence. Under Probate Code section 13151, a successor may file this petition if three conditions are met: the home was the decedent's primary residence in California, its gross value does not exceed the limit set by that section as adjusted periodically, and 40 days have passed since the death. No letters are needed. The petitioner then delivers notice to each named heir and devisee within five business days of filing. The California Courts publish the current adjusted limit.
• The affidavit for real property of small value. Under Probate Code section 13200, this affidavit may be filed no sooner than six months after the death. The value limit is $55,425 for a death before April 1, 2022. For a death on or after that date, the limit is the adjusted amount in effect on the date of death. The affidavit requires several things, including a notarized acknowledgment, an inventory and appraisal by a probate referee, and a statement that funeral expenses, last-illness expenses and unsecured debts have been paid.
• The spousal or domestic partner property petition. This covers property passing to a surviving spouse or domestic partner.

Probate and independent administration. Under Probate Code section 10308, a sale of estate real property is reported to and confirmed by the court before title passes, except as Probate Code section 10503 provides. Section 10503 applies when a personal representative sells with authority under the Independent Administration of Estates Act. Whether that route is open depends on the authority the court granted and on whether anyone objects to the notice of proposed action, which Step 7 describes.

Transfer on death deed. Under Probate Code section 5652, the deed transfers the owner's interest to a beneficiary who survives the owner. Two or more beneficiaries take the house as tenants in common, in equal shares. The house remains subject to recorded liens and similar instruments, and the deed carries no warranty of title.

Whichever path applies, the estate's authority and the court's steps generally do not depend on who buys the house, but some disclosure duties do: Civil Code section 1102.2, for example, exempts transfers from one co-owner to another and transfers to a spouse or to a person in the line of consanguinity of a seller.

Step 2 — Assess the Property's Condition and What Preparation Makes Sense

Preparation is a decision, not a fixed requirement. A house can be sold in its present condition, and how much work makes sense depends on the way the seller plans to sell. The range runs from a deep renovation, to cosmetic updates, to cleaning and clearing only, to selling as-is to a buyer who accepts the house as it stands.

Each choice costs money and time, and both come out of what the family nets at the end. A new roof may raise the price a listed house brings. It also delays the listing and is paid for up front. The tradeoffs of repair work are described in more detail in the guide to selling a house that needs repairs.

A personal representative carries duties to the estate. Under Probate Code section 9650, the personal representative takes all steps reasonably necessary to manage, protect and preserve estate property and pays its taxes. The Judicial Council's DE-147 Duties and Liabilities of Personal Representative also says that a personal representative should not spend estate money without court permission or an attorney's advice. It adds that the representative should keep appropriate insurance in force throughout the administration. A trustee answers to the trust's terms and its beneficiaries. The estate's or the trust's attorney says how these duties bear on a repair decision.

Walking through rooms full of a parent's things is often the hardest part. Emptying the house is a separate job from readying the structure, and estate sale companies handle the contents. Where years of accumulated belongings fill the rooms, the guide to selling an inherited house full of belongings and the guide to selling an inherited hoarder house describe how families approach the contents alongside the sale.

Step 3 — Understand California's Disclosure Rules for Inherited Property

California's disclosure rules for home sales begin at Civil Code section 1102. Under that section, the rules apply to a sale or exchange of single-family residential property, and any waiver of them is void. The section also covers certain options, leases with an option to purchase and real property sales contracts.

Civil Code section 1102.2 lists transfers the article does not cover, including:

• Sales ordered by a probate court in the administration of an estate.
• Sales by a fiduciary while administering a trust, guardianship, conservatorship or decedent's estate. This exemption does not apply when the trustee is a person who is trustee of a revocable trust and either is a former owner of the property or lived in it within the preceding year.
• Transfers from one co-owner to another.
• Transfers to a spouse or to a relative in the transferor's line of descent.

So the answer depends on who is selling. An executor selling estate property, a successor trustee who never lived in the house, and an heir who now owns the house outright under a transfer on death deed may stand in different positions. "As-is" describes the condition a buyer accepts. It does not remove a disclosure duty the law imposes. The estate's attorney, or the real estate licensee on the sale, says which disclosures apply.

A buyer's lender may also have its own requirements for the property, separate from what the seller owes the buyer.

Step 4 — Address Property Tax Reassessment and the Parent-Child Exclusion

Inheriting a California house can lead the county assessor to reassess it at current market value. A family that is selling still meets this question, because tax bills keep arriving while the house is on the market.

For a transfer on or after February 16, 2021, Rev. & Tax. Code section 63.2 excludes some parent-to-child transfers from reassessment. It also covers some grandparent-to-grandchild transfers, but only when all of the grandchild's parents who are the grandparents' children have died. The exclusion requires three things:

• The home was the transferor's principal residence.
• It becomes the transferee's principal residence within one year of the transfer.
• The transferee files for the homeowners' or disabled veterans' exemption within a year.

The section uses a value formula that limits how much of a higher-value home the exclusion covers. The county assessor's office provides the current figure.

Timing matters to a seller. Under the same section, a claim is generally filed within three years after the transfer, or before the property is transferred to a third party, or before an eligible transferee stops living there, whichever comes first. A claim is also timely if it is filed within six months after the mailing of a notice of supplemental or escape assessment. A sale to an outside buyer is a transfer to a third party.

Separately, DE-147 says a personal representative files a change of ownership statement with the county recorder or assessor at the time the inventory and appraisal is filed. The county assessor's office handles reassessment questions and exclusion claims.

Step 5 — Understand the Stepped-Up Basis and Capital Gains on a Sale

Basis is the starting figure used to measure taxable gain when property is sold. Under 26 U.S.C. § 1014(a), the basis of property acquired from a decedent is generally its fair market value on the date of death. The section allows three alternatives:

• The value on an alternate valuation date, if that election is made under section 2032.
• A value determined under section 2032A, if that election is made.
• The decedent's own basis, to the extent the exclusion in section 2031(c) applies.

For a surviving spouse, the same section treats the survivor's half of qualifying community property as passing from the decedent.

That is why a date-of-death valuation matters so much in a sale file. The gain or loss on a sale is generally measured against that basis, and the facts of the sale shape the result. The facts include selling costs and which alternative applies. California's Franchise Tax Board publishes how state income tax treats inherited property.

A CPA, an enrolled agent or a tax attorney reviews the basis and any capital gains question for a specific sale.

Step 6 — Know the Selling Options and How to Compare Them

Three broad ways to sell exist, and each trades one thing for another.

A listing with a licensed real estate agent. The house is marketed to the open market, which can produce competing buyers and a market-tested price. In exchange, the family pays a commission and usually spends more on preparation, showings and holding costs while buyers arrange loans. The Department of Real Estate's tips on choosing a real estate agent say to verify a license on the DRE's website before hiring an agent.

A sale by the owner without an agent. This saves a listing commission. It places the pricing, marketing, paperwork and negotiation on a family that may be grieving and far away.

A direct sale to a buyer who pays cash and takes the house as it is. The price is usually below what the open market might bring, because this buyer pays for the repairs, absorbs the unknowns and carries the cost of reselling. The family gives up that difference in return for less work before the sale, fewer people walking through the house, and a deal that does not hinge on a buyer's mortgage approval.

None of these routes avoids or shortens probate, a court's confirmation, a required notice, a disclosure duty, a lien or a tax. The estate's attorney and an escrow officer handle those steps the same way whichever buyer is chosen. Families usually tell which way fits by comparing written offers side by side on estimated net proceeds: the price, less commissions, repairs, carrying costs, loan payoffs and closing costs. A side-by-side view appears in the comparison of a cash offer versus a listing.

Two other points shape the choice. Where heirs co-own the house, each owner signs the sale, as the section on multiple owners below explains.

An existing mortgage also matters. Under 12 U.S.C. § 1701j-3(d), for residential property with fewer than five units, a lender may not call the loan due because of certain transfers, including a transfer to a relative resulting from the borrower's death. That protects the inheritance. It does not remove the need to pay off the loan when the house is sold to a buyer.

Step 7 — Manage the Sale Process: Timelines, Notices, and Closing

Once a buyer is chosen, the route to closing depends on the authority the seller holds.

Independent administration. Under Probate Code section 10503, the court-confirmation requirements, such as published notice of sale, court approval of agents' and brokers' commissions, sale at not less than 90 percent of appraised value and the court's examination of the sale, do not apply to a sale made with that authority. Under that authority, a sale is generally preceded by a notice of proposed action. This notice tells the people entitled to receive it what the personal representative intends to do, and an objection can bring the sale before the court. The estate's attorney prepares it and says who receives it and how long it runs. More detail appears in the guide to selling during probate.

Court confirmation. When confirmation applies, Probate Code section 10308 has the sale reported to the court and confirmed before title passes. If the personal representative does not file the report and petition within 30 days after the sale, the buyer may file them. Notice of the hearing goes to the persons the law designates and to the buyers named in the petition. At the hearing, other buyers may be allowed to bid higher under rules the estate's attorney explains.

A trust sale. A successor trustee sells under the trust instrument and California trust law. A title company generally asks for evidence of the trustee's authority. The trust's attorney says whether any court step applies.

Property taxes, insurance, utilities and any homeowners association dues continue until closing. Any mortgage or lien is paid off or otherwise cleared through escrow, and the estate's attorney and the escrow officer handle the payoff with the lender.

Selling an Inherited House with Multiple Owners

When siblings inherit a house together, each usually holds an undivided interest. That means each owns a share of the whole house, not a particular room or half of the lot. A transfer on death deed with several beneficiaries, for example, leaves them as tenants in common in equal shares under Probate Code section 5652.

A voluntary sale of the whole house generally needs every co-owner with an interest to sign. When owners cannot agree, California's partition law allows a co-owner to ask a court to divide the property or order it sold. A contested partition is a court case handled by an attorney who litigates trust and probate cases.

Families in this position are often managing feelings as much as property. One sibling may want to keep the house and another may need the money. Whether one heir can sell only their own share depends on how title is held and what the governing document says. While a house is still in a probate estate or a trust, the personal representative or trustee holds the authority to sell it, not each heir separately.

Typical Timeline: What to Expect from Start to Close

No single schedule fits every inherited house. The length depends on several factors:

• The transfer path, whether trust, probate, simplified procedure or transfer on death deed.
• The house's condition and how much preparation is chosen.
• The way of selling.
• Whether anyone objects or disputes arise.

The phases usually run in this order. First, authority and title are confirmed. Next, the property is secured and prepared. Then it is listed, marketed or negotiated with a buyer. Last, escrow closes with any notice or court step completed.

Some fixed points come from the law itself. Letters must issue before a personal representative can act. The primary-residence petition waits 40 days after the death, and the small-value affidavit waits six months. DE-147 says the inventory and appraisal is filed within four months after letters are first issued.

A full probate generally has more steps than a trust administration or a simplified procedure, so it usually takes longer. Throughout every phase, carrying costs keep accruing and reduce the family's net.

When the Process Gets More Complicated

A dispute or suspected misconduct. A contested will or trust, or concern about how someone is handling the estate, is a separate legal matter. It is handled by an attorney who litigates trust and probate cases.

Liens, mortgages or title defects. These are resolved at or before closing through escrow, as Step 7 describes.

Heirs in another state. California law governs the California house. An heir's home state may have its own law for matters touching that heir.

Property in another state. That state's law governs that property.

An heir living in the house. Under Probate Code section 9650, a personal representative may leave real property with the person presumptively entitled to it. That stops when the representative judges possession necessary for administration, and the occupant surrenders the property on request. The occupant's position also depends on the will or trust, and the estate's attorney advises on it. In a county such as San Diego, local court practice can add steps, as described in the guide to selling inherited property in San Diego County.