This article explores key valuation methods in accurately valuing real property when dealing with a probate estate.
We’ll deep dive into two best strategies: a timely market snapshot and a detailed professional evaluation. Both are useful for legal compliance and informed decision-making when assessing a property for probate.
Let’s get into the specifics of each solution.
#1 Comparative Market Analysis (CMA)
Real estate agents routinely perform a Comparative Market Analysis to value a house for probate.
In this process, agents look at what similar nearby houses have sold for recently.
They then compare specific property aspects by using their expertise to adjust the sale prices of the comparable properties to reflect the differences with the inherited house.
The result is a current market assessment that gives heirs a range of the property’s worth.
Specific factors agents consider to determine the fair market value of an inherited house include the following:
- Property size: Square footage of the living space and the lot size
- Location: Neighborhood characteristics and desirability and proximity to amenities
- Property features: Number of bedrooms and bathrooms the house has, plus features like a garage or fireplace
- Sales and trends: Sales that are recent, like the past 3 to 6 months, and what’s currently happening in the market
- Property age and condition: How old the property is, and any improvements or disrepair
In situations where the inherited property isn’t in typical market shape — deferred maintenance or hoarding conditions — agents will do a more detailed assessment.
That involves thoroughly documenting the property’s condition, estimating what it would take to make repairs or cleanups, and then adjusting the value of similar properties.
Agents strive to make accurate cost estimates. However, the process naturally involves some subjective judgment. That can lead to variations in the final valuation.
Given this comprehensive assessment, including considerations for condition and repairs, a CMA is a valuable tool for probate valuation and sale preparation, even if the latter isn’t immediately planned.
That sale can be a traditional real estate transaction, or one that involves selling to an investor who buys inherited properties.
A distinct advantage of dealing with an investor is that many of them are licensed realtors themselves or have agents on their team, meaning they can perform their own CMAs.
Then, when you’re selling a house through probate to that same investor, you won’t pay directly or indirectly for the CMA. They’ll use it to determine your offer.
That’s unlike an agent’s CMA, which is part of a process leading to a listing and a commission.
Selling to one of these specialized investors also reaps these benefits:
- Fast sale: These direct buyers offer quick closings, often within days.
- Cash offers: No financing worries or wait. You are paid in cash.
- No fix-ups: It’s ideal if you inherited a house that needs work or decluttering.
- No closing costs: Many investors pay these for you.
- No commission: No listing agent and their commission are involved.
- Simpler transaction: Less paperwork makes for a less complicated sale.
So, if you’re considering a hassle-free sale, get a cash offer from several different local companies by filling out just one online form.
We have a list of real estate investors in our network. They’re all vetted and approved, and they specialize in helping you sell your probate house fast.
You’ll find other selling methods in our comprehensive guide on selling an inherited house. It will empower you with the knowledge to make the best decision for your situation.
#2 Formal Appraisal Report
Simply put, a professional appraisal report is a detailed valuation document prepared by a licensed real estate appraiser.
It provides an unbiased and legally defensible assessment of a property’s worth. So, it’s a trusted standard for how to value a property for probate.
Appraisers generally follow a three-step standardized process to compile this report:
1. Data Gathering
Appraisers usually start by physically inspecting the property. They take precise measurements, photograph the property, and note anything that may take the value up or down. They also gather data on comparable properties that have recently sold in the area and research market trends and public records.
2. Application of Valuation Approach
In using the sales comparison approach, the appraiser adjusts comparable data relative to the inherited house to account for variations in features, location, and market trends. This method follows strict guidelines of the Uniform Standards of Professional Appraisal Practice and is fundamental to how to determine the fair market value of inherited property.
3. Report Preparation
By using their findings, appraisers compile a detailed report. It includes photos, comparable data, and adjustments.
For those receiving an inheritance of real estate, this report provides the necessary valuation for legal and tax obligations related to the property.
This comprehensive report can also be a resource to help facilitate the probate sales process, especially when dealing with special situations.
Examples are when the property needs a lot of repairs, or you’re facing the challenge of having inherited a hoarder house. Either of these scenarios can greatly impact the property’s value.
Since an appraiser has specialized knowledge in evaluating properties with unique challenges, they’re able to give you an informed valuation.
That information puts you in a stronger position when you’re selling an inherited house as is, as potential buyers will heavily weigh the cost of necessary repairs or cleanup.
The appraisal report supports the asking price so you can negotiate with greater confidence.
While not uniformly required in all probate cases, you do need an appraisal for inherited property in some scenarios:
- Court-ordered assessment
Sometimes, the probate court steps in and orders an appraisal. That’s likely if you and your siblings can’t agree on value when selling your parents’ home, or when the court needs a valuation to divide assets fairly.
- State requirement
Some states have probate laws requiring an appraisal. This happens when there is uncertainty about the property’s value or there is a need for an accurate value to settle the estate.
- Large estate
If the value of an estate is more than the maximum amount exempt from federal estate tax, it’s a given that the IRS will require a professional appraisal report.
Even if an estate falls below that threshold, an appraisal report is beneficial for tax purposes.
How so? At the time you inherited a house, its value became your cost basis.
A probate appraisal captures that value, which is the key to calculating capital gains on an inherited house (or a loss) should you eventually sell.
To effectively plan for taxes and explore how to avoid capital gains tax on inheritance when it’s sold, knowing this cost basis is essential.
Keep in mind that you can sell an inherited house at any point. However, without that initial valuation, proving either a gain or loss when reporting the sale of inherited property to the IRS becomes significantly more challenging as time passes.
If the sale price is higher than the value at inheritance, you realize a capital gain.
Conversely, if you sell for less, you might have a capital loss. You can deduct a loss on the sale of an inherited house, depending on tax code limitations and guidelines.
Finally, besides reporting real estate sale proceeds, you should also report money from the sale of personal property. Here is how house contents valuation for probate works.
