How to Compare Offers on an Inherited House

Quick Comparison: Listed Sale, FSBO, and Direct Sale

The direct column trades one thing for another. A cash buyer who takes the house as it stands carries the repairs, the risk and the expense of reselling, so the offer is often below what the open market would pay. In exchange, the family prepares less, opens the door less often and relies less on a stranger's loan approval.

Listing with a Licensed Real Estate Agent

A listing usually runs through the same stages: preparing the property, setting a price, marketing, showings, offers, negotiation and escrow, the neutral holding process that closes the sale. Because it reaches the broadest pool of buyers, a listed sale may produce the highest gross price. The commission is a cost taken out of that price, and property taxes, insurance, utilities and upkeep keep running while the house is on the market.

The California Department of Real Estate's Looking for Tips on How to Choose a Real Estate Agent? says to verify an agent's license on DRE's website before hiring, and not to hire an agent without a license.

The person who holds authority to sell signs the listing agreement and the purchase contract. Family agreement alone does not give anyone that authority. Under Probate Code section 8400, a person has no power to administer an estate until appointed personal representative, and that appointment becomes effective when the person is issued letters, the court's document confirming the appointment.

If the estate is in probate, whether a court must confirm the sale depends on the authority the court granted and on whether anyone objects to a notice of proposed action. Where a confirmation hearing applies, the Judicial Council's Report of Sale and Petition for Order Confirming Sale of Real Property asks the petitioner to describe efforts to obtain the highest and best price, giving multiple listings, advertising and open houses as examples. Seller disclosures are covered in the direct-sale section below, because the same rules apply to every path.

Selling Without an Agent (FSBO)

A sale by the owner puts pricing, marketing, showings, negotiation and paperwork in the seller's hands. There is no listing-side commission. The seller takes on the work and judgment a listing agent would otherwise supply. If the buyer has an agent, that agent's pay may still be part of the deal, depending on what the parties agree.

The buyer pool tends to be smaller. Without the broad marketing an agent brings, an owner's sale often reaches fewer buyers. For a family managing a house from another city or another state, showings and inspections can also mean repeated trips or a local helper.

The rules do not change with the method. The disclosure duties, the authority to sell and the probate or trust steps are the same whether an agent is used or not.

A Direct Sale to a Cash Buyer

A direct sale means selling to a buyer who pays cash and takes the house in its present condition, without putting it on the open market. That buyer is pricing in the cost of fixing the house, the chance the work runs over, and the expense of selling it again. As a result, a direct offer often comes in below an open-market sale price. What the family gets back is a sale with less preparation, fewer showings and less reliance on whether a buyer's lender approves the loan. There is no listing commission, but the lower price reflects that discount. The guide to selling a house that needs repairs walks through that tradeoff further.

The type of buyer does not change the estate's authority, the court's steps or the law's duties. A direct or cash sale does not avoid, skip, shorten or simplify probate, a court's confirmation, a required notice, a required disclosure, a lien or a tax.

"As-is" describes the condition the buyer accepts, not the seller's duties. Civil Code section 1102.2 lists sales to which the Civil Code's seller-disclosure article does not apply. The list includes sales under court order, such as sales ordered by a probate court in administering an estate, and sales by a fiduciary in administering a trust or a decedent's estate. The fiduciary exemption does not apply when the trustee is a natural person who is trustee of a revocable trust and is a former owner of the property, or occupied it within the preceding year. The estate's or trust's attorney can say whether an exemption fits the facts and whether any other disclosure duty applies.

Silver Lining Inherited Property can make an offer on an inherited property for a direct as-is sale; a direct offer is often lower than an open-market price, and asking for one carries no obligation to sell. Weighing that offer against a listing is described in the guide to a cash offer versus listing.

How to Calculate Net Proceeds for Each Path

Net proceeds are what the sellers keep. Start with the gross sale price and subtract:

• Agent commissions, if any.
• Repair and preparation costs.
• Carrying costs during the sale period, including property taxes, insurance and utilities.
• Loan payoffs and liens recorded against the property.
• Closing costs, including escrow, title, transfer taxes and recording fees.

Comparing written offers and estimated net proceeds, meaning the price less commissions, repairs, carrying costs, loan payoffs and closing costs, is how a family tells which path fits. A higher gross price does not always produce a higher net. Large preparation costs, months of carrying costs or a commission can narrow the gap. A lower gross price from a direct buyer may land close to a listing's net, or above it, when most of those costs drop away.

Take a hypothetical. One offer comes through a listing after a roof replacement and several months on the market. Another comes from a direct buyer for the house as it stands. Only after each cost line is filled in, using written estimates, can the family see which figure is larger.

For co-heirs, the calculation applies to the whole property first. The net is then divided according to each heir's share.

Tax Considerations When You Sell an Inherited California Property

Under 26 U.S.C. § 1014(a), the basis of property acquired from a decedent is generally its fair market value at the date of death. The statute gives three alternatives. One is the value at the alternate valuation date when an election under section 2032 is made. Another is the value determined under section 2032A when that election applies. The third is the decedent's own basis, to the extent the exclusion described in section 2031(c) applies. Basis is the starting figure for tax. Capital gain on a sale is the difference between the sale price and that basis, so a stepped-up basis reduces or eliminates gain when the house has not risen much in value since the death. A CPA, an enrolled agent or a tax attorney reviews whether tax is owed and how much.

Property tax runs on its own rules. For a purchase or transfer on or after February 16, 2021, Rev. & Tax. Code section 63.2 excludes from reassessment a transfer of the parent's principal residence between parents and children, or between grandparents and grandchildren when the grandchild's parents who are the grandparents' children have died. The exclusion is subject to several conditions. The home has to become the transferee's principal residence within one year. The transferee has to file for the homeowners' or disabled veterans' exemption within a year. A claim has to be filed with the assessor.

The claim is due 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 is earlier. As an alternative, a claim filed within six months after the mailing of a supplemental or escape assessment notice issued because of the transfer is treated as timely. A sale to a buyer is a transfer to a third party, so the timing matters to a family planning to sell. The exclusion also has a value limit, and the county assessor's office handles claims and can say how that limit applies.

None of these rules changes with the buyer or the method. The basis, the gain and the reassessment questions are the same for a listing, an owner's sale or a cash buyer. Where an heir or property is in another state, that state's law may apply.

When the Sale Involves Probate or a Trust

The legal structure the property passed through decides who can sign, and family agreement does not stand in for it. The California Courts' Guide to property after someone dies explains that in probate, a judge appoints a personal representative, the person responsible for representing the estate. That person collects the property, pays the bills and distributes what remains.

In probate, Probate Code section 10308 generally requires that a sale of real property be reported to and confirmed by the court before title passes. The exception is a sale made under the authority described in Probate Code section 10503. Under Probate Code section 10503, the court-confirmation requirements, such as published notice of sale, court approval of commissions, the appraised-value rule and the court's examination of the sale, do not apply to a sale made with that authority. A notice of proposed action is still given unless it is waived.

Where confirmation does apply, Probate Code section 10309 generally bars confirming a private sale unless three conditions are met:

• The property was appraised within one year before the confirmation hearing.
• The appraisal's valuation date is within one year before the hearing.
• The offer is at least 90 percent of the appraised value.

Under Probate Code section 10311, another buyer can make a written offer at the hearing. That offer must be at least 10 percent more on the first $10,000 of the original bid and 5 percent more on the amount above $10,000. It must come from a responsible person and comply with the law. The court may also decline and order a new sale. These steps apply to any buyer, including a cash buyer. The guide to selling during probate in California covers this in detail.

Other structures work differently:

• Trust. Real property held in a trust is generally sold by the successor trustee under the trust's terms rather than through a probate sale.
• Joint tenancy. The surviving joint tenant takes title by right of survivorship, and the record is updated to reflect the death.
• Transfer on death deed. Under Probate Code section 5652, the deed transfers the owner's interest to the beneficiary at death. Two or more beneficiaries generally take as tenants in common, in equal shares (except that a lapsed or failed beneficiary's share passes to the others in equal shares), generally subject to recorded liens and other limitations.
• Simplified procedures. Each has its own conditions. The petition to determine succession to the decedent's primary residence is available once 40 days have passed since the death, under Probate Code section 13151. The affidavit for real property of small value may be filed no sooner than six months after the death, under Probate Code section 13200. The spousal or domestic partner property petition applies to property passing to a surviving spouse or domestic partner. The dollar limits are adjusted periodically, and the superior court's probate clerk or the estate's attorney can confirm the current figure.

The estate's or trust's attorney reviews authority to sell. Contested matters go to an attorney who litigates trust and probate cases.

When Each Path Usually Fits

Families in different situations weigh the same three paths differently. These are descriptions, not advice, and the choice stays with whoever holds authority to sell and the heirs.

A listed sale tends to fit when the house is in good or rentable condition, heirs have the time and access to prepare it, the estate or trust has clear authority with no contested issues, and gross price matters most.

An owner's sale tends to fit when the seller has real estate experience or knows the local market, a ready buyer already exists, such as a neighbor, a relative or another known party, and the seller is willing to manage the paperwork and negotiation.

A direct sale tends to fit when the house needs significant repairs, heirs live far away or want fewer showings, the estate wants a sale that does not depend on a buyer's financing, or carrying costs weigh on the family. Even then, the direct offer is often below what an open-market sale would bring.

Where co-heirs cannot agree, California's partition statutes give co-owners a court process for dividing or selling property. A contested partition is handled by an attorney who litigates these cases.