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What You Need To Know If You Inherit Real Estate

March 17, 2020

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If you inherit a house, or any other kind of property, you may feel as if you’ve been thrown into the deep end of real estate ownership. Not only must you deal with the loss of a loved one, but you’ll also have to wade through the legal and financial repercussions of inheriting a home. While this isn’t a rare situation, being a real estate beneficiary has a lot of moving parts.

So, if you do find yourself in this position, you’ll need to take some specific steps. We spoke to experts who explained exactly what you’ll need to do if you inherit real estate.

Step 1: Meet with a probate attorney

When you learn that you have inherited a property, you should first meet with a probate attorney to determine who has assumed the various rights and responsibilities associated with the property. Doing so will help you assess the full picture of what you’ve inherited.

“Find out if there’s back taxes, liens, HOA dues, or other liabilities you’ll be assuming,” says Nate Smoyer, director of marketing at Avail. “Find out if there are any specific covenants regarding the property and its future use.”

Step 2: Hire a property inspector

Experts recommend treating inherited property as you would a real estate purchase. Before buying a house, you would have it inspected. You should do the same with a home you inherit.

“This usually costs between $400 [and] $600, but it could save you a lot of headache,” says Smoyer. “Oftentimes, a real estate agent can be a great source for finding a recommended inspector.”

Step 3: Find out what obligations, if any, are attached to the property

Ideally, the inherited property will be paid off, but that may not be the case. Real estate attorney Adam Gutin says that making yourself aware of any obligations on the property—including mortgage payments—is key.

“When a person inherits property, they are naturally going to want to know how much it is worth,” he says.

“However, the other question she should ask promptly is whether there are any ongoing or imminent obligations that need to be performed with respect to the property, such as payment of assessments or property taxes, or landlord-related obligations.”

In many cases, a family member or representative from the estate will have these answers. If they don’t, the person who inherited the property can hire professionals to help, for example, a real estate broker, property manager, or real estate attorney.

“If you inherit real estate that is subject to a mortgage, it really depends on the terms of the loan documents,” Gutin says.

“The first question is whether the death of the borrower triggers a default under the loan documents or a requirement for the loan to be immediately repaid. If the beneficiary wants to keep the property, then they need to consider whether they have the ability to pay off the loan or whether they have the credit to refinance the property.”

Step 4: Decide whether to sell or keep the property.

Once you have all of the information above, you’ll be ready to decide what to do with the inherited property.

“Determine the property’s current market value for both renting it and selling it,” Smoyer says. “Inheriting a property can give you a significant boost in building long-term wealth. It may be tempting to sell off, but consider the long-term cash-flow potentials if you were to rent it out. Talk through your options with a trusted local real estate agent.”

In most cases, experts say, people who inherit real estate ultimately opt to sell.

Terrence Freeman, an attorney with the South Florida firm Nason Yeager, says that’s because many beneficiaries don’t want to take the time and money to maintain the property.

“Most people who inherit property either aren’t local to the property, or don’t have the time, money, know-how, or desire to jump into real estate as a business, or to keep up a vacation home,” he says.

How do you know if you should sell the property or keep it as a rental?

Here are a list of factors to consider when deciding whether to sell or rent an inherited property.

  • Is your property located in a buyer’s market? If so, hold on to the property as a rental until the market improves, Smoyer advises. You might even consider renting the home out for the long run, because rentals can have significant value. You can use free rental calculators to help to determine whether keeping the property makes financial sense.
  • Is there growth potential? Do your research on the surrounding market, Smoyer says. “Does the property have appealing features, and is it in a location desired by renters?”
  • What level of involvement is realistic for you? Property managers have a lot of responsibilities, including maintaining the property and making sure that your tenant is happy. You’ll need to factor that into your decision.
  • “If you hire a manager to oversee the rental, you’ll likely end up paying so much money in management fees that it makes the investment not worth it,” Smoyer says.
  • Do you own any assets? Real estate can be a valuable asset, so keeping it for the long term might be worth it. Plus, if it comes down to it, you have the option to live in it (unlike stocks).
  • How much money can you make off a rental vs. selling? “While selling right away can be tempting, you should consider the long-term value of the property,” Smoyer says. Try to determine how much money you can make off monthly rent payments (minus expenses) over the time you want to keep the property. “Very often, you’ll find that you can make more money over time by renting the property out.”

 

What should you do if you inherited a property with other people?

In some cases, several people inherit a property jointly in a will. If this happens, you’ll have three basic options. First, you can keep the property and own it together. Second, one person can buy the other(s) out and take full ownership. Finally, you can sell it and split the profits.

Usually, experts agree, the third option will prevail.

“Voluntary partnerships are complicated enough,” Bob Kaufman, a real estate attorney at Fischel Kahn, explains. “Partnerships imposed upon people through inheritance are even less likely to succeed.”

If you do decide to keep the property jointly, Gutin recommends putting an agreement in writing to clearly state each person’s respective obligations and rights to the property.

In the end, as in all real estate transactions, deciding what to do with inherited property requires a decent amount of time and careful consideration, in order to make sure that you make the right financial decision.

The post What You Need To Know If You Inherit Real Estate appeared first on Real Estate News & Insights | realtor.com®.

How Much Does Probate Cost? Real Estate Fees and Other Expenses

January 28, 2020

how much does probate cost?

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Probate is the legal process of sorting and distributing someone’s personal property when they die. The last will and testament is taken into account and executed according to the deceased’s wishes. This often includes real estate, as well as other high-ticket items like cars or valuable jewelry.

But what happens when the deceased didn’t bequeath a home to an heir? Typically, this prompts a probate sale in which an estate attorney or family representative must sell the property to liquidate the asset and distribute the money from the sale to the family.

“A probate sale is the sale of a property after the owner’s death when the late owner did not specify an heir to inherit the property,” says David Reischer, a real estate attorney and CEO of LegalAdvice.com. “A property is relinquished to the court, which then appoints the closest living relative as the executor who will sell the house.”

How much does probate cost?

The overall cost of probate will vary depending on the estate’s value.

“Typically the cost will be from 3% to 7% of the estate plus various fees. I’ve seen estate costs from as little as $5,000 to as much as $50,000,” Reischer says.

If you’ve just been appointed executor of a home that’s going through a probate sale, here are the fees you should be aware of.

Attorneys fees

According to Chris McDermott, a broker at McDermott Realty in Jacksonville, FL, the biggest costs in a probate sale are usually the attorneys fees. However, these fees can vary greatly depending on the state in which you live and the cost of the asset going through probate.

According to Nolo, a legal website, the state of Florida, as one example, uses the following fees:

  • Value of estate up to $40,000: $1,500
  • $40,000 to $70,000: $2,250
  • $70,000 to $100,000: $3,000
  • $100,000 to $1 million: $3,000, plus 3% of the value over $100,000
  • $1 million to $3 million: $3,000, plus 2.5% of the value over $1 million
  • $3 million to $5 million: $3,000, plus 2% of the value above $3 million
  • $5 million to $10 million: $3,000, plus 1.5% on the value above $5 million
  • More than $10 million: $3,000, plus 1% of the value above $10 million

Court costs

Court fees are usually set by state law and will vary based on location.

“Typically, court fees range between a couple hundred dollars to a couple thousand dollars,” Reischer says. “A more complicated estate will require more paperwork to be filed and will thus be on the higher end of the range.”

Costs to secure the real estate/insurance premium

One of the first things the executor needs to do is keep all easily movable valuables—such as cash and jewelry—safe until they can be turned over to the people who inherit them.

To do this, they will need to secure the property with new locks or alarm codes, according to Matthew F. Erskine, managing partner of Worcester, MA–based Erskine & Erskine, which handles estate planning and trust administration.

“Also, call the insurance agent and add the estate as a named insured to the policy, both for the property and for any motor vehicles,” says Erskine, who estimates that this process will cost between $500 to $1,000.

Cost to make required repairs

If someone in the family wants to purchase the property, they’d typically buy it from the estate.

“This is less expensive than selling it to a third party,” Erskine says, “since they will be taking the property as is, and there will be no broker’s commission on the transaction.”

However, if no one wants the property, he says it will need to be prepared for sale. The cost to make repairs—both cosmetic or mandatory—could range from $1,000 to $50,000.

There are certain building and zoning code-based upgrades that are triggered by the sale.

“For example, an older house may have 40-amp or 60-amp electrical service, which is a fire hazard when you have a lot of electrical appliances, and will need to be upgraded to 100-amp service—and that may cost several thousand dollars,” adds Erskine.

Other considerations include removing hazardous materials like lead paint or asbestos insulation.

Cost of getting the property appraised

The executor will also be responsible for arranging an appraisal of the property which will determine the minimum price for listing the property. This can cost anywhere from $0 to $5,000.

“When there is a sale to family member, charities as beneficiaries, or the potential for a dispute on the value of the home, getting an appraisal is a must,” says Erskine.

Cost to have property cleaned out

If the house is going to go up for sale, the furniture and other tangible property will need to be removed.

“Often the family will assist with this, but there is always some stuff no one wants, so they’ll need to hire a service to remove the remainder and either buy it, donate it, or dump it,” Erskine says.

He estimates this cost to be between $750 to $1,500. Sometimes more.

“I once had an estate with a two-bedroom ranch where we had five full-size dumpsters worth of trash,” he says.

Carrying costs

It can take a significant amount of time to complete a probate sale.

“A probate sale can take up to six to 12 months to finalize, depending on the complexity of the situation and the size of the assets,” says Mike Hills, vice president of investment brokerage at Denver-based Atlas Real Estate. That’s why carrying costs like mortgage payments, real estate taxes, and utilities should be taken into account— they’ll all need to be paid during the probate sale.

Other fees

McDermott says you should also expect to pay 5% to 6% of the sale price in real estate broker fees. However, Erskine warns this amount could go as high as 10%. The executor may also receive a fee, which is usually set by the court.

“Also, title fees will cost 1% to 2% to conduct closing and issue title insurance,” McDermott says.

The post How Much Does Probate Cost? Real Estate Fees and Other Expenses appeared first on Real Estate News & Insights | realtor.com®.

Keeping the Heirloom House

October 11, 2019

Julie Bidwell for The Wall Street Journal

Jeremy Wolff, a photographer based in upstate New York, is part owner of a six-bedroom beach house near Hyannis on Cape Cod in Massachusetts that has been in his family since the 1940s. His co-owners? Nearly 30 relatives, including eight cousins and their families, who book their visits on a family website.

“There’s sometimes some tension—like, ‘You always get the upstairs front bedroom’—little squabbly things like that,” Mr. Wolff said.

The joy of having an heirloom vacation home in the family sometimes comes with a side order of angst: costly upkeep, perpetual repairs and ancient yet enduring sibling rivalries. A legacy lake house or mountain lodge may be shared by scads of siblings and cousins, who have to figure out how to divvy up prime vacation weeks and holidays, to say nothing of property taxes and maintenance responsibilities. Basic decisions—like reupholstering Grandma’s sofa—are anything but basic when a dozen or more relatives have to sign off.

“The process of the family deciding and agreeing on replacing the fabric literally took five years,” said Mr. Wolff.

Elisha Cooper, an author whose children’s book “River” was just published, owns one-sixth of a 2,000-square-foot, four-bedroom cottage with a wraparound porch on Black Point in East Lyme, Conn. that his great-grandfather built in 1913.

“It’s basically a porch with a cottage attached,” said Mr. Cooper, 48, who lives with his wife and two daughters in New York City. The house, which was placed in a family trust in the mid-1990s, is shared by three branches of his extended family, in New York, Massachusetts and London. “I split my branch’s share with my brother,” said Mr. Cooper, adding, “at some point, we’re each going to own a toilet.”

The living room of the cottage is lined with pictures, family mementos and books.

Julie Bidwell for The Wall Street Journal

The uninsulated cottage occupies a prime 1.3-acre spot on a grassy hill overlooking the salt marsh and ocean. In 2016, the town assessor appraised its value as $945,000. Mr. Cooper’s share of taxes and insurance comes to several thousand dollars a year. This year, it is his turn as manager of the Black Point property, which involves overseeing its maintenance and the schedule: each branch gets 42 prime spring, summer and fall days, to be meted out among its individual members (the home is boarded up for the winter). Major holidays are divvied up, “so if somebody takes Labor Day, someone else is going to take July 4th,” Mr. Cooper said.

There are pitfalls to sharing an heirloom home that happens to be full of heirlooms. “My cat got obsessed with this old wooden model boat and knocked it off the piano—that was a family drama,” Mr. Cooper recalled. “I had to spend $3,000 to re-rig and fix the boat because it was an antique.” Some of his relatives prefer a more low-tech approach to home repairs: “There’s a broken chair and it’s just left with some tape on it—or twine, done in a nice bow.”

Family summits take place on Memorial and Labor Day weekends.

“We all gather—my aunt flies in from London—and we sit on the porch and we talk. These are big decisions, like ‘Do we cut the field?’ and ‘How is that going to affect the monarch butterfly migration?’” Mr. Cooper said. “We never argue, that’s because we are New Englanders. We silently and very politely disagree.”

The blue plates in the dining room were once loaded as ballast in clipper ships full of tea from China by one of Mr. Cooper’s seafaring ancestors.

Julie Bidwell for The Wall Street Journal

Some farsighted matriarchs and patriarchs endow trusts so that legacy properties will stay in the family with minimal discord or generational financial strain. Gerry and Del Carrier, who own a 5,000-square-foot mountain ski home in New Hampshire’s White Mountains, created a trust in 2013 so that their five children, nine grandchildren and three great-grandchildren can enjoy the house “in perpetuity,” in Mr. Carrier’s words.

“We estimated taxes, we estimated the maintenance—we are leaving them with very adequate financing so that it will not be a burden,” said Mr. Carrier, 84, a retired dentist who owns a second home in Vero Beach, Fla.

The great room of Gerry and Del Carrier’s ski home in New Hampshire’s White Mountains.

Rachel Sieben for The Wall Street Journal

Mr. and Mrs. Carrier, who is 83, acquired the half-acre lot with views of Mount Washington for $1,500 in 1968, building a modest three-bedroom home where they brought their children every weekend. In 2005, they embarked on a $750,000 remodel and expansion, adding a wraparound porch, a dining room spacious enough for 25, a large bunkroom for the grandchildren and a bedroom suite for each of their children—a critical element for maintaining family harmony. There are seven bedrooms in all. At the time they established the trust, the house was appraised at $1.2 million, Mr. Carrier said.

His children and grandchildren use the house throughout the year, coming for the fall foliage, skiing in the winter, hiking and kayaking in the summer. The entire clan gathers there every Christmas.

“For as long as I can remember, every Friday night my father piled his five children into a station wagon to go to a retreat where we could just bind together as a family,” said Michelle Carrier-Trial, 59, a lawyer based in southeastern Massachusetts. She and her younger brother are the home’s two trustees: ultimately, each of the siblings will own an equal share in the house. “After my parents are gone, we hope to keep it the same way for our children,” she said.

The Carriers created a trust for the home in 2013, so their five children, nine grandchildren and three great-grandchildren can enjoy it for years to come.

Rachel Sieben for The Wall Street Journal

Sometimes, however, a beloved home can become an albatross for the current generation. As a child, Schuyler Grant spent every summer at her grandparents’ seaside vacation home—just down the beach from her great-aunt Katharine Hepburn—in the Connecticut borough of Fenwick, an enclave of grand Victorian-era cottages on Long Island Sound. Built in 1868, the six-bedroom shingled house has a deep porch, its own pebbly beach and four generations of Grant and Hepburn family history.

“Every time I would come through the door, I was bathed in this smell of the house—it was like a portal to this whole other world of tennis lessons and duck belts,” said Ms. Grant, who lives with her husband and three daughters in Los Angeles. “It was extremely buttoned up—I used to have to dress for drinks every night in Laura Ashley smocks.”

Schuyler Grant’s cottage on Long Island Sound in Fenwick, Conn., built in 1868, has been in her family for three generations.

Julie Bidwell for The Wall Street Journal

Ms. Grant, 49, founder of Kula Yoga Project, in New York, and her husband Jeff Krasno, 48, founder of Commune, an online learning platform, bought the 5,400-square-foot Fenwick home in 2009 from her aunt, the actress Katharine Houghton, for $1.8 million, public records show. Their family shares the house with Mr. Krasno’s father and stepmother, Richard and Carin Krasno, who contribute toward the costs of maintaining the property and who visit every August and September from their home in Coral Gables, Fla.

“Everybody has to be their highest self—it can get really difficult,” Ms. Grant said of the dynamics. Plus: “There’s always one leak in the house that they haven’t been able to fix in 160 years, so it comes with a certain amount of buckets.”

The family spends nearly $50,000 annually in property taxes, including a Fenwick borough tax. Standard maintenance and upkeep adds another $27,000 every year. That doesn’t include the cost of reshingling the house or replacing its rattling, circa-1970s windows; the latter cost about $100,000. Ms. Grant, who offsets these expenses by renting out the house for part of the summer, reluctantly put it on the market for $3.375 million last year.

“The expense is so great, the emotional and financial upkeep is so massive, that if you are not really there then it’s so hard to justify,” said Ms. Grant. “Our dream is that we find this awesome family that wants to buy the house, but they are a little cash-strapped and have to rent it back to us in August.”

Ms. Grant with her husband, Jeff Krasno, and three daughters on the porch of the Fenwick cottage, which is listed for sale for $3.375 million.

Julie Bidwell for The Wall Street Journal

Tips for Keeping Grandma’s House in the Family

1. Make sure your descendants actually want the house. “It’s common sense: the heirs don’t always have the same values,” said Jonathan Miller, president of Miller Samuel Real Estate Appraisers and Consultants. He advises clients “to really survey their family and have a talk about it—the children should be an active part of the planning.”

2. To head off family feuds, spats over remodeling, prime holidays, or a push to sell, transfer ownership of the house to a limited liability company, with a user agreement that sets out terms and conditions. Or create a trust for the property with its own bylaws. That way, Grandma can make sure that everyone plays by her rules for the cottage long after she’s gone.

3. That roof is going to spring a leak sooner or later. Create a dedicated fund for maintenance, taxes and other costs, supported by annual contributions from family members. Note: If you break a lamp or a doorknob comes off in your hand, fix it yourself or prepare for frost at the Labor Day clambake.

4. Have an exit strategy. Any long-term plan should factor in the possibility that descendants may need to sell. Outline provisions for doing so. “Personal situations are going to change,” said Mr. Miller. “Many of these owners are between a rock and a hard place, trapped between nostalgia and hard economic reality.”

5. Remember: It’s just a house. “It’s really more about the family itself than the real estate,” Mr. Miller said. “Those Thanksgiving meals and family get-togethers were special because of the occupants of the house—not the house itself.”

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