Sell an Inherited House As-Is in California

Probate, Trusts, and Simplified Procedures — Which Path Applies

How title was held at death usually decides the path. A house in the decedent's name alone, with no trust and no transfer on death deed, usually goes through probate in the Superior Court of the county the law points to. A house held in a living trust passes through trust administration, which has its own notice and timing rules, separate from probate's. A transfer on death deed passes title outside probate.

California also has simplified procedures, named by the Judicial Council for what each covers:

• The affidavit for collection or transfer of personal property. This covers personal property, not the house itself.
• The petition to determine succession to the decedent's primary residence. Under Probate Code section 13151, a successor may file it once 40 days have passed since the death, without letters, if the residence's gross value is within a limit the statute adjusts periodically. The petitioner then gives notice to each named heir and devisee within five business days of filing.
• The affidavit for real property of small value. Probate Code section 13200 allows it no sooner than six months after the death. It must be notarized, it comes with a probate referee's inventory and appraisal, and it is subject to a value limit that depends on the date of death.
• The spousal or domestic partner property petition. This is for property passing to a surviving spouse or domestic partner.

The dollar limits are adjusted over time, and the California Courts publish the current figures. A full probate sale follows Probate Code steps, including notice and, depending on the authority granted, court confirmation. Those steps are described below.

Selling the Property in Its Present Condition — What "As-Is" Means Legally

"As-is" describes the condition the buyer agrees to accept. A house can be sold in its present condition, worn carpet, dated kitchen and all. What the phrase does not do is set aside the seller's legal duties.

The main disclosure form is the Transfer Disclosure Statement (TDS), the seller's written description of the home's condition. Civil Code section 1102 applies that requirement to sales of single-family residential property, generally, and says any waiver of it is void. Civil Code section 1102.2 lists exemptions. One of them covers sales or transfers by a fiduciary in the course of administering a trust, guardianship, conservatorship or decedent's estate. That exemption does not apply where 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. Sales ordered by a probate court are also listed, along with transfers between co-owners and transfers to a spouse or blood relatives.

Other duties remain. Civil Code section 1103 generally applies a separate hazard-disclosure requirement when the property lies in a listed zone, such as a special flood hazard area, a very high fire hazard severity zone, an earthquake fault zone or a seismic hazard zone. Civil Code section 1710.2 says a death on the property more than three years before the buyer's offer need not be disclosed. It does not permit a misrepresentation in answer to a buyer's direct question, and it does not relieve an owner of any obligation to disclose the physical condition of the premises.

Families weighing repairs against selling in present condition can find more on an inherited house that needs repairs.

Stepped-Up Basis and Capital Gains — The Tax Dimension of an Inherited Sale

Basis is the starting value used to measure gain or loss 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 at the date of death. The statute gives three alternatives: the value on an alternate valuation date where that election is made, a special-use value where that election applies, and the decedent's own basis to the extent a particular estate-tax exclusion applies. The IRS explains that the alternate valuation date applies only if the executor files an estate tax return and elects it (IRS, Gifts & inheritances FAQ).

The same IRS page says that selling inherited property for more than its basis produces a taxable gain. It also says the gross proceeds are included in gross income when considering the need to file a return.

That is why the basis question matters so much. When an inherited house sells near its date-of-death value, the gain measured against that basis may be small. Whether it is depends on the sale price compared with that value, and no approach guarantees a particular result.

Many families also hear about a "two-year rule." Federal holding-period rules for inherited property differ from those for property a seller bought, and how they apply turns on the facts.

A CPA, an enrolled agent or a tax attorney reviews basis, gain and holding-period questions for federal and California returns, including how a sale below basis is treated.

Property Tax and Reassessment After Inheritance

Reassessment means the county assessor resets a property's taxable value to current market value when ownership changes. For an heir planning to sell, this matters for the months the estate or the family holds the house, and for anyone thinking of keeping it instead.

For purchases or transfers on or after February 16, 2021, Rev. & Tax. Code section 63.2 excludes certain parent-child and grandparent-grandchild transfers from reassessment, if a claim is filed. The grandparent-grandchild version applies only when all of the grandchild's parents who are the grandparents' children, other than stepparents, are deceased. Several conditions apply:

• The house must be a family home. It has to have been the transferor's principal residence and become the transferee's principal residence within one year of the transfer.
• The new owner must claim an exemption. The transferee files for the homeowners' or disabled veterans' exemption within a year of the transfer.
• A value limit applies. If the home's market value exceeds the prior taxable value plus a dollar amount set in the statute, the excess is added to the taxable value. That amount is adjusted over time, and the county assessor's office publishes the current figure.
• The claim has a deadline. It must be filed within three years of the transfer, before the property is transferred to a third party, or before an eligible transferee stops living there, whichever is earlier. A claim filed within six months of a notice of supplemental or escape assessment also counts as timely.

The exclusion is tied to a family member living in the home, so a house sold to an outside buyer is reassessed in that buyer's hands. The county assessor's office handles reassessment questions and processes exclusion claims.

Three Ways to Sell — Listing, FSBO, and a Direct Sale

Families usually compare three ways of selling, each with real tradeoffs.

A listing with a licensed real estate agent exposes the house to the open market. Under Civil Code section 2079, a real estate broker or salesperson owes a prospective buyer of a home with one to four dwelling units a reasonably competent and diligent visual inspection of the property, and disclosure of the facts materially affecting its value or desirability that an investigation would reveal, when the broker has a written contract with the seller to find a buyer or acts in cooperation with that broker. A listing usually brings showings, buyer inspections, negotiation over repairs, commissions and a buyer whose loan must close. The California Department of Real Estate suggests verifying any agent's license before hiring (DRE, Looking for Tips on How to Choose a Real Estate Agent?).

FSBO, or "for sale by owner," means the personal representative, trustee or owners sell without an agent. That can save a commission, but the seller carries the pricing, marketing, paperwork and coordination.

A direct sale to a buyer who pays cash and takes the house as it stands has its own trade. The offer is often lower than the house might bring on the open market, because the buyer is pricing in the repairs, the risk and the cost of reselling. What the seller gets in return is less preparation, fewer showings and less dependence on a buyer's financing.

Whichever buyer signs, the estate's authority, the court's required steps, the notices, the disclosures, the liens and the taxes are the same. No buyer type avoids, skips, shortens or simplifies them.

Families often ask how much they lose by selling as-is. No fixed percentage answers that. The way to see it is to compare written offers and estimated net proceeds: the price less commissions, repairs, carrying costs, loan payoffs and closing costs. A side-by-side look at a cash offer versus a listing walks through that arithmetic.

The Probate Sale Process — Steps, Notices, and Court Confirmation

A probate sale moves in a fixed order: letters first, then the sale, then one of two ways of approving it.

Except as Probate Code section 10503 provides, Probate Code section 10308 requires every sale of estate real property to be reported to and confirmed by the court before title passes, whether the sale is private or by public auction and even if the will directs or authorizes the sale. If the personal representative does not file the report and petition within 30 days after the sale, the buyer may file them, and notice of the hearing goes to the persons the Probate Code designates and to the purchasers.

Under section 10503, when a personal representative sells with independent administration authority, the court-confirmation requirements, including published notice of sale, court approval of commissions, a sale at not less than 90 percent of appraised value and the court's examination of the sale, do not apply to that sale.

In practice, whether a court must confirm depends on two things. It depends on the authority the court granted, and on whether anyone objects to the notice of proposed action, the written notice the personal representative gives heirs and beneficiaries before taking the proposed action. If the court granted full authority and no one objects within the notice period, the sale can generally proceed without a hearing. If the court did not grant that authority, or an interested person objects, the sale goes to a confirmation hearing, where the court may accept higher bids from other buyers under the Probate Code's overbid rules.

Estate property is also valued by a probate referee, an appraiser appointed by the State Controller to value estate assets, in the estate's inventory and appraisal. How long the sale takes depends on the court's calendar, the notice periods and whether a hearing is needed. More on selling during probate in California covers each step.

When Multiple Heirs Own the Property Together

Sharing a house with siblings after a parent's death often means deciding by phone, across time zones, while everyone is still grieving. Legally, once the house is distributed to several heirs, each holds an ownership interest. They are co-owners, and a voluntary sale generally requires all of them to agree.

While the estate or trust is still open, agreement among the siblings is not enough by itself. The personal representative or successor trustee still signs the sale documents, because that is where the legal authority sits.

When co-owners cannot agree, California law provides a partition action, a court proceeding in which a co-owner asks the court to divide the property or order it sold. This page is not written for a family in that kind of dispute. Disagreements among heirs, a trustee or an executor are a different subject, handled by an attorney who litigates trust and probate cases.

What to Gather Before You List or Accept an Offer

Whichever way you sell, the same paperwork usually comes up. Gathering it early tends to make each later step clearer.

The usual categories are these:

• The will, the trust instrument, or both. These show who was named and what powers they hold.
• Letters. Letters testamentary are the court's document confirming an executor's appointment. Letters of administration do the same for an administrator. Under the rule described earlier, letters are what make the appointment effective.
• The inventory and appraisal. This is the probate referee's valuation of estate property.
• The deed. It shows how title was held at death.
• Mortgage and lien payoff statements. These come from each lender or lienholder.
• Property tax records. These come from the county tax collector and assessor.

The title company handling the closing runs a title search and identifies liens, encumbrances and clouds on title that must be resolved before the sale closes.

On a mortgage, federal law generally lets a lender enforce a due-on-sale clause, which allows it to call the loan due when the property is transferred. But 12 U.S.C. § 1701j-3(d) bars a lender from using that clause, for homes with fewer than five units, upon certain transfers. These include a transfer to a relative resulting from the borrower's death, a transfer where the borrower's spouse or children become owners, and some transfers into the borrower's living trust. In a sale to an outside buyer, the loan is typically paid off from the proceeds at closing.

Clearing and selling the contents of the house is a separate task from selling the real property, one that estate-sale companies handle as their own category of work.