Dear Monty: The best way to sell your inherited share of property
By Richard Montgomery
Reader Question: My father and stepmother have both passed away and left my stepsister and stepbrothers and me and my two sisters equal parts of the house and land. My stepsister was in charge of her mom’s affairs before she passed and she wants to do something with the property but we don’t. What can we do to get our part?
Monty’s Answer: It may be of comfort to know that the situation you describe is typical. If you and your siblings and your step-siblings “get along” for the most part it will be much easier to navigate if there is a harmonious history. The extent to which the two groups discussed the property is unclear. The process will be much faster and less expensive to conclude when both groups agree on the solution.
Consider having the groups agree on an impartial attorney who can quarterback and fulfill all elements of the process including all the necessary documents, satisfactions and other legal items.
Here are the three steps
- Engage two qualified appraisers to render an opinion of fair market value. Each group can choose their appraiser, or an independent third party could engage both appraisers. The average of these two appraisals becomes the market value. It is important that the reviewers are not acquainted with members of either group.
If the two appraisers are more than ten percent apart (which can easily happen) a third appraiser is engaged and the third opinion is factored into the equation. There are several different ways this could happen. For example, the formula could then become the average of three appraisals, or, the two lowest, the two highest, the two closest, etc. It would be a good idea to agree on which formula to utilize before one becomes necessary.
When engaging an appraiser, it is helpful to understand that you are hiring them for their opinion of what the property is worth. The appraiser has no interest in appeasing the group, or the views of individual members. It is not uncommon for property owners to have inflated opinions about the worth of their property. The appraiser is to remain unbiased. Even at the appraiser’s level of knowledge and experience, his work is simply an opinion. Expect the appraisals will be different in their calculations and choices for comparable sales.
- The calculation to determine the value of an ownership interest is straightforward now that we have established the price.
- The group that wants to remain pays the group that will exit the sum of money their interest equates to, in exchange for a deed for each departing partner’s partial interest. Often, the owners that remain do not have the money to buy out the departing owners, so they obtain a mortgage to accomplish raising the cash. At the same time, they may also borrow enough money to complete any renovation/destruction that is a part of the new plan. The deed and the money change hands, and everyone goes on their merry way.
If the parties cannot agree here are the remaining options:
- Sell the property (which is the only way for each sibling and step-sibling to come out of the inheritance equally). The marketplace rather than appraisers settles the disagreement about value. In this scenario, the siblings that wanted to keep property can now invest their portion into another property (possibly one better suited for providing a safe return than the one they inherited), and the siblings that did not want real estate are also satisfied. A 1031 tax-deferred exchange may be available for the shares of the siblings who want to remain. Consider checking this possibility out with a certified public accountant (CPA).
- Agree to mediation using a professional mediator you can find with an Internet search by entering ( mediation services <city property is located><state>). A sample search in my location revealed this in the search results. I suspect there is one near you. Do some comparison-shopping because not all mediation services are the same, and the cost differences between them can vary substantially.
- If you get to this point and have not been able to reach an agreement, then your next step is to seek an attorney to represent you. Here is a link to an article about how to find a good real estate attorney.
Just remember, if you do not go out together, it will be hard to estimate which group made the best bargain in the future.
“Richard Montgomery gives no nonsense real estate advice to readers most pressing questions. He is a real estate industry veteran who has championed industry reform for over a quarter century. Send him questions at DearMonty.com.”