Sell an Inherited Townhome

When Probate Is Required — and When It Is Not

Probate is the Superior Court process for administering a decedent's estate. A townhome usually needs probate when it was titled in the decedent's name alone and no simplified procedure fits. The Probate Code sets the value thresholds for those procedures and adjusts some of them. The California Courts' self-help resources publish the current figures.

California's simplified procedures each cover something different:

• The affidavit for collection or transfer of personal property. This covers personal property, not a townhome.
• The petition to determine succession to the decedent's primary residence. Under Probate Code section 13151, a successor may ask the court for an order that they have succeeded to real property that was the decedent's primary residence in California. The property's gross value must be within the statute's limit, as adjusted periodically, and 40 days must have passed since the death. The petitioner must deliver notice to each heir and devisee named in the petition within five business days of filing.
• 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. It must attach, among other things, an inventory and appraisal by a probate referee and a certified death certificate.
• The spousal or domestic partner property petition. This applies to property passing to a surviving spouse or registered domestic partner.

Three common ways of holding title generally keep a townhome out of probate. A townhome held in a living trust at death is administered and sold by the successor trustee under the trust's terms. A townhome subject to a transfer on death deed passes to the named beneficiary. A townhome held in joint tenancy passes to the surviving joint tenant.

Selling Through Probate: Independent and Court-Confirmed Sales

A probate sale takes one of two forms, and the court's own order decides which applies. The general rule is in Probate Code section 10308. Except as Probate Code section 10503 provides, every sale of estate real property must be reported to and confirmed by the court before title passes to the buyer. That applies to a private sale or an auction, and even when the will directs or authorizes the sale. If the personal representative does not file the report and petition for confirmation within 30 days after the sale, the purchaser may file them.

The exception covers sales under the Independent Administration of Estates Act, which lets a court grant the personal representative authority to act with less court supervision. 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.

In practice, a personal representative with full authority usually sends a notice of proposed action to interested persons before selling. Whether the townhome sale needs court confirmation depends on two things: whether the court granted full authority to sell real property, and whether anyone objects to that notice. If authority is limited or an objection is made, the sale goes to a confirmation hearing. At that hearing, other buyers may be allowed to bid.

A townhome adds one more document review. The HOA's CC&Rs (the recorded covenants, conditions and restrictions) and bylaws may contain transfer requirements or a right of first refusal. The estate's attorney reviews what those documents require. The buyer's identity does not change any of this: a cash buyer goes through the same notice and confirmation steps as any other buyer.

Stepped-Up Basis and What It Means When You Sell

Basis is the figure from which gain or loss on a sale is measured. For inherited property, 26 U.S.C. § 1014(a) generally sets it at one of four values:

• the property's fair market value at the date of the decedent's death;
• if the estate elects alternate valuation under section 2032, its value at that alternate date;
• if an election is made under section 2032A, the value determined under that section; or
• to the extent the exclusion in section 2031(c) applies, the decedent's own basis.

In plain words, the decedent's original purchase price usually stops mattering. Suppose a parent bought the townhome decades ago and it was worth far more at death. In that case, the heir's starting basis is generally the date-of-death value, so a sale near that value produces little or no gain. If the townhome was worth less at death than the parent paid, the basis is that lower value. This is often called a "step-down."

The rule ties basis to the valuation date. Changes in market value after the death do not move it. A date-of-death appraisal is therefore worth securing early, whatever the family decides about selling.

Whether a particular sale produces taxable gain, and how it is taxed, depends on the price, the selling costs, the seller's holding period and other facts. A CPA, an enrolled agent or a tax attorney reviews those questions for a specific sale.

California Property Tax and Proposition 19

Proposition 19 replaced the old parent-child exclusion from property-tax reassessment for transfers beginning on and after February 16, 2021. Reassessment means resetting the property's taxable value. The governing rule is Rev. & Tax. Code section 63.2. It excludes a transfer of the transferor's principal residence between parents and children from reassessment, in whole or in part. It also covers grandparents and grandchildren when all of the grandchild's parents who are the grandparents' children have died. The exclusion applies only if a claim is filed with the assessor.

The conditions matter for a family deciding whether to sell:

• The home must become the child's principal residence within one year of the transfer.
• The child must file for the homeowners' or disabled veterans' exemption within a year of the transfer.
• If the home's market value exceeds the prior taxable value plus the limit stated in the statute, the excess is added to the new taxable value. The county assessor's office publishes the current figure.
• The claim must be filed within three years after the transfer, before the property is transferred to a third party, or before the eligible child stops occupying the home, whichever is earliest. Alternatively, a claim is treated as timely if it is filed within six months after the mailing of a notice of supplemental or escape assessment issued because of the transfer.

An heir who sells the townhome rather than moving in is generally outside the exclusion. The sale itself is a change in ownership for the buyer. The buyer's property tax is then set from the purchase, which affects the buyer's bill, not the seller's gain calculation.

The county assessor's office handles exclusion claims and reassessment questions.

HOA Rules and Townhome-Specific Considerations

A townhome usually belongs to a common interest development run by a homeowners association. That brings documents a single-family sale does not have. Civil Code section 4525 requires the owner of a separate interest to give a prospective buyer a list of documents as soon as practicable before title transfers. The list includes:

• the governing documents;
• the most recent budget and financial documents the association distributed;
• a written statement of current regular and special assessments and any unpaid amounts, fines or penalties;
• any approved assessment changes not yet due;
• any rental prohibition;
• the latest inspection report; and
• board minutes from the previous 12 months, if the buyer requests them.

The association also typically charges a transfer fee, and some CC&Rs contain a right of first refusal. The estate's attorney or a licensed real estate agent reviews the specific documents for a given complex.

California's transfer disclosure statement rules are subject to exemptions listed in Civil Code section 1102.2. The exemptions relevant to an inherited townhome include:

• sales ordered by a probate court in the administration of an estate;
• sales by a fiduciary in the course of administering a trust or a decedent's estate; and
• transfers from one co-owner to another.

The fiduciary exemption has its own condition. It does not apply when the trustee is a natural person serving as trustee of a revocable trust and is a former owner of the property, or lived in it within the preceding year. The exemption covers only that article of the Civil Code. The estate's attorney confirms which disclosures the seller owes.

Carrying costs continue until the sale closes. Under Civil Code section 5650, an assessment is a debt of the owner at the time it is levied. It becomes delinquent 15 days after it is due, unless the declaration allows longer. Once an assessment is delinquent, the association may recover reasonable collection costs, including reasonable attorney's fees. It may also charge a late charge of up to 10 percent of the delinquent assessment or ten dollars, whichever is greater, unless the declaration sets a smaller charge. Interest of up to 12 percent a year may run starting 30 days after the assessment is due, unless the declaration sets a lower rate. Unpaid dues and special assessments come out of the proceeds at closing.

Three Ways to Sell an Inherited Townhome

Every way of selling starts from the same authority and the same legal steps. The differences are in price, time and effort.

A listing with a licensed real estate agent puts the townhome in front of the broadest pool of buyers at open-market pricing. Commissions and seller-paid closing costs come out of the proceeds. The unit's condition, photographs and the HOA package all become part of how it is marketed.

A sale by owner means the seller handles pricing, marketing, showings, negotiation and paperwork, including gathering the HOA documents. There is no listing commission. The seller takes on that work and may still pay a buyer's agent.

A direct sale to a buyer who pays cash means the buyer takes the townhome as it is and accepts its present condition. That buyer also carries the cost of repairs, the risk of what turns up later and the expense of reselling. That is why a direct offer is often lower than what the same unit might bring on the open market. What the seller gains in return is less preparation, fewer showings and less reliance on a buyer's loan approval. A direct buyer does not change the estate's need for authority, any probate notice or court confirmation, the disclosures owed, the HOA's transfer requirements, liens or taxes.

Families usually tell which way fits by comparing written offers side by side, each converted to estimated net proceeds. Net proceeds are the price less commissions, repairs, carrying costs, loan payoffs and closing costs. The steps for selling inherited property are the same whichever buyer is chosen.

Co-Heirs, Siblings, and Shared Ownership

When two or more people inherit a townhome together, each holds an undivided interest in the whole property. Each is a co-owner, usually as a tenant in common unless the instrument says otherwise. For a transfer on death deed with more than one beneficiary, Probate Code section 5652 states this directly: the beneficiaries take as tenants in common, in equal shares.

This differs from a probate estate or a trust, where the personal representative or successor trustee holds the authority to sell. Once title has passed to co-owners, a voluntary sale of the whole townhome generally needs every co-owner to sign. One sibling cannot list the entire unit and sell it over another's objection.

Where co-owners cannot agree, California law provides a partition action. This is a court proceeding in which a co-owner asks the court to divide the property or order it sold. A townhome usually cannot be physically divided. A dispute of that kind, or any suspected misconduct by a trustee or executor, is a contested matter handled by an attorney who litigates trust and probate cases.

Delay has a cost that every co-owner shares. HOA dues, property taxes, insurance and any mortgage payment continue each month while the family deliberates, and each payment reduces what is eventually divided. Families with an heir out of state should note that another state's law may apply to that heir's own affairs.

Steps from Death to Closing

The sequence below is the usual order. The time each step takes varies with the court, the HOA and the family.

1. Confirm how title was held. The possibilities are a trust, joint tenancy, a transfer on death deed, a probate estate or a tenancy in common. That fact sets the path.
2. Identify who holds authority to sell. This will be the successor trustee, the surviving joint tenant, the transfer on death beneficiary or the court-appointed personal representative.
3. Open the estate or begin trust administration. Probate is opened in the Superior Court of the proper county, and authority begins only when letters issue. A successor trustee begins administration under the trust.
4. Obtain a date-of-death valuation. An appraisal or broker price opinion supports basis, the probate inventory and the comparison of offers.
5. Review the HOA documents. Look for transfer requirements, fees, any right of first refusal and the balance owed.
6. Determine disclosure obligations. The estate's attorney confirms whether an exemption applies.
7. Compare written offers. Set each offer against its estimated net proceeds.
8. Accept an offer and close. Satisfy any notice of proposed action or court confirmation, then close escrow with the HOA payoff and any loan payoff.

The documents needed to sell gather along the way. The steps are the same in substance for any inherited property, from a townhome to a duplex or multifamily property. None of them becomes shorter because of who the buyer is.