Inheriting a House With Siblings
In an ideal world, when siblings inherit a house from their parents, they would be in agreement on what to do with it.
However, the circumstances of inheriting a property is usually fraught with sadness as everyone is still trying to process their emotions about a loved one's passing. Mix in some internal conflicts, and it can be a situation that, at worst, could lead into a lawsuit.
In this article, we'll walk you through the options that you and your siblings have in dealing with your inherited house, as well as give you some tips in order to help you figure out which option would work best for you.
First Things First, Are You and Your Siblings in Mutual Agreement?
When Siblings Agree
When siblings inherit a property after a lengthy probate process, the best case scenario is that everyone is in agreement regarding what to do with it.
This can save everyone a fortune in court and attorney fees. It also keeps your relationship with each other intact, as no one will have to face another in a bitter and emotionally charged courtroom battle.
While everyone may be on the same page about the inherited property right now, it is still very important to get the private arrangement in writing. This prevents conflicts years later down the line if one sibling suddenly changes their mind about the whole thing.
When Siblings Disagree
When one or more siblings prefer one thing, while another sibling wishes for another--that's where things can get a little difficult. To resolve the property disputes among yourselves, you can consider getting a mediator.
However, a mediator can only do so much. And if things get too heated, or in case a sibling is occupying the inherited house and stubbornly refuses to leave, it may leave you with little choice but to take matters to court in a partition suit.
Since there's no way to divide inherited property physically, the court will order an estate sale and divvy up the proceeds among you. This is by far the costliest option: not just financially, but emotionally as well.
In a partition suit, the judge will terminate co ownership and assign a referee, or a neutral third party, who will administer the sale. You and other beneficiaries will be responsible for paying this referee, along with filing fees and lawyer fees. This is on top of the real estate fees such as broker commissions and closing costs.
End result?
You all end up in a lose-lose situation. What makes is worse is that a lawsuit can irrevocably damage your relationship with each other. Therefore, consider this as a last resort.
Options Open to You When Inheriting a House With Siblings
One Sibling Buys Out the Remaining Siblings
Gaining full ownership can be an attractive prospect, but it certainly won't come cheap: you'll have to pay each sibling's share of the home.
To proceed with the buyout, you need to do the following:
- Get an appraisal to establish the fair market value of the property.
- Run a title search to find any liens against the home, such as unpaid taxes or loans. These liabilities will be subtracted from the appraised value of the home. What you're left with is the equity, and unless otherwise specified in the Will, each sibling will have an equal share.
- You can use your own cash to buy out the shares of your other siblings. If you don't have the liquidity, shop around for third party lenders who may be able to finance the buyout. It can be a challenge to obtain traditional financing, as lenders are wary of funding a loan for a property that isn't in your name yet. Alternatively, you can look at institutions that offer inheritance loans.
- Once the deal is complete, you can officially transfer the deed solely into your name.
Turning the house you inherited with other family members into your own primary residence via a buyout can be expensive.
If you're unable to get financing, you can discuss paying in installments until you're able to fully pay off the home. Just be sure to get the agreement in writing to avoid headaches later on.
Rent Out the Inherited House and Split the Income
When inheriting a house with siblings and all of you are not ready to let go just yet, you can opt to lease it out before ultimately selling later on.
Waiting to sell can also be to your advantage, especially if market conditions aren't favorable to sellers. Turning your inherited house into a rental for the meantime gives you a steady cash flow every month, and at the same time you get to ride the possible property appreciation.
The rent can be used to cover monthly payments in case there is still an existing mortgage, taxes, repair and maintenance costs, and anything left over can be divided among yourselves.
If none of your family members are interested in playing landlord but would still like that sweet rental income every month, you can get a property manager.
They collect a certain percentage of rent every month, but in exchange, you won't have to worry about looking for and screening tenants, marketing your property, and addressing issues that come up. You don't want to be woken up late at night because the heater's acting up, do you?
Keep the Home and Live In It
Sometimes the inherited home can hold a lot of sentimental value for you and your siblings. It may be the family home you all grew up in, where you share a lot of happy memories. If it's in reasonably good condition and there is no urgency to sell, you can decide to keep it.
You can share the house with siblings, turning it into a vacation home and taking turns living in it throughout the year.
To take care of utilities, property taxes, maintenance, and other ownership costs of the vacation home, you and your siblings can set up an expense account where you all contribute.
If all of you live out of state, you can also consider hiring a property manager to manage utilities, keep track of maintenance and possible repairs, and overall care of the vacation property.
To formalize your co ownership arrangement with your siblings, let's take a look at the following options for a property with multiple owners to see what works best for you:
Joint Tenancy
In a joint tenancy, each co owner has an equal share of the property. They cannot transfer or sell their stake without permission from other siblings. When a co owner passes away, their share is passed on to their co owners.
Do note that when someone sells their share, the joint tenancy is often converted into a tenancy in common.
Tenancy in Common
This type of co ownership is more flexible.
Each co owner can have equal or unequal shares, and they have the right to sell or transfer their share to someone else. In contrast to a joint tenancy, the sibling's share in the property will be transferred to their surviving heirs upon death instead of being redistributed among other co owners.
Sell the Inherited Property and Split the Proceeds
Skip the hassles of figuring out how to manage a property with multiple owners. You can elect to cash in your inherited home then split the profits among yourselves so everyone can walk away happy with cash in your bank accounts.
Immediately selling inherited property frees you up from shelling out upfront on holding costs such as insurance fees, maintenance costs, HOA dues, utilities, and mortgage payments. Additionally, you only have to worry about inheritance taxes if you live in one of the 6 states where inheritance tax is levied. Once all other expenses are deducted from the sale proceeds, the profits can be distributed accordingly.
Do note that when selling recently inherited property, you don't need to pay capital gains tax. This is because the IRS uses a step up in basis when calculating capital gains for inherited property.
This means that even though your parents acquired the home decades ago for, say, $80,000, and it's worth $250,000 now, you won't be taxed for the $170,000 appreciation if you also sell it for $250,000. On the other hand, if you postpone the sale later on and the property appreciated in value to $300,000, you will need to pay capital gains taxes on the $50,000 increase.
Considerations When Deciding What to Do With the Inherited Property
What Is the Condition of the Inherited House?
Arrange an Inspection
If you and your siblings have long moved out from the family home, there may be problems that you do not know about.
After an initial walkthrough, your first order of business should be to arrange for an inspection. The home inspector will then take a look at every nook and cranny of the home for any problem. Afterwards, they will issue an inspection report with their findings.
Possible Repair Costs
Since the home inspection report will already tell you what needs to be fixed, you can ask contractors for a quotation. Afterwards, you can decide whether you'd go through with the repairs or just pass them on to the buyer via repair credits.
On the other hand, if the problems are too extensive and expensive to address, you can consider selling as is to a cash buyer.
What Is Its Current Market Value?
Hire a Professional Real Estate Appraiser
Call for a third party appraisal to determine your home's value. This will also be your basis in setting a competitive listing price if you and your co owners decide to sell later on. You don't want to price yourself out of the competition, or be forced to accept lowball offers just because you set your price too low.
Observe Real Estate Market Conditions
Does demand for real estate in your area vastly outpace the supply?
Take a walk around your neighborhood. Browse your neighborhood listings. Check out how long it takes for houses to sell, and how much they sell for.
If they're selling like hotcakes, then it may be a good time to sell as well. You don't know when the next seller's market will be or how long it might last.
Where Do You Currently Live?
If you and your co owners live out of state, it can be challenging to maintain the inherited property. You can hire a property manager for this purpose, or you might opt for a quick sale.
Does It Hold Sentimental Value?
A deep emotional connection to the home can compel you to keep the home. It is your parent's legacy after all.
Tips and Things to Consider When Inheriting a House With Siblings
Have a Family Meeting
Call for a meeting with your immediate family members. It is important that you are on the same page about your inherited property. Or if not, keep an honest and open communication line with each other. Be willing to listen and understand so that you can work out a compromise.
Don’t Forget About All the Short-Term Property Concerns That Need to Be Addressed
Everyone may be grieving, but you and your siblings, as heirs to your parents, have the responsibility to keep abreast of all property concerns.
Things such as unpaid utility bills, mortgage payments, and taxes must not be forgotten. You must also decide what to do with your parents' personal belongings. Additionally, property maintenance such as lawn care and urgent repairs must be scheduled to make sure the inherited house doesn't sink into disrepair as you work through the grieving process.
It would be a good idea to split the responsibilities with your siblings and assign a point person for each, so all your bases are covered.
Always Put Everything in Writing
While a family member may be agreeable right now, it is no guarantee that they'll always be agreeable in the future. Having everything in black and white reduces the chance for future conflicts when dividing inherited property.
Seek Professional Advice From a Real Estate Lawyer
Inheriting a house with siblings can be overwhelming, and it would be helpful to have someone on your side to help you make the right and informed decisions regarding what to do with the property.
You can book a consultation so they can help you figure out joint ownership options if you're leaning towards keeping it or leasing it out; to setting up a governance board for jointly owned property; or, to help resolve disputes before it makes its way towards the court system.
Run a Title Search
A title search is necessary to discover any cloud on the property's title that would impede the smooth transfer of ownership. Complete and file the necessary paperwork to clear these defects as soon as possible.
Final Thoughts: What to Do When Inheriting a House With Siblings
It is rare for a loved one's Will to outline exactly what is to be done with the property that they are bequeathing to you and your siblings. Having multiple property owners adds a layer of complexity in managing the inheritance--even more so if everyone has different plans for it.
By far, the easiest option is to just sell the house outright and split the proceeds evenly. This frees everyone from spending on maintenance and upkeep, and avoids possible future conflicts. If you and your siblings are ready to sell, House Buyer Network can help connect you with a local buyer for a fair and honest cash offer for your inherited home.
Forget spending on repairs! We buy houses as is, in absolutely any condition! What's more, we can close in as little as 7 days after we make you an offer. Just give us your property address, your email, and your phone number below and we'll call you within 24 hours!
If you have any questions, just call us at (855) 835-2544 and we'd be happy to talk to you!
