Options For Selling Inherited Real Estate In Florida
Family members or close friends commonly enact a will leaving their property holdings to their next of kin. Or people who meant a lot to them. Inheriting a home is quite common. Yet the property is often unwanted. Leaving a recipient holding what is often an unaffordable property. This could be due to upkeep, property taxes, and any homeowners or property owner’s association fees. There are a few options for selling inherited real estate in Florida.
Option: Selling to an Investor
There are many real estate investors very interested in buying properties out of probate. Some investors specialize in this market and manage marketing campaigns targeting heirs. The most common way to reach heirs is by getting their addresses through public record probate filings used to send direct mail pitches to buy their inherited homes. The conventional wisdom behind this investor business model is that heirs are motivated sellers looking for a quick, cash deal.
In some cases, heirs are quite motivated to sell their inherited properties. They may not be able to afford to pay the holding costs for the property, including mortgage payments, property taxes, homeowner’s association dues, landscaping and other expenses. A probate case will likely need to be filed in court and that brings legal fees and court costs. Though the stereotype of the broke, desperate heir sometimes proves true, there are many other situations in which heirs find themselves. For some families, an investor deal may be the best option. There are, however, different types of deals as well as investors. Not everyone is a good fit for each other.
Heirs shouldn’t be stereotyped and aren’t all cut from the same cloth. The same holds true for investors. Some investors are knowledgeable and experienced and others don’t have a clue what they’re doing and trying to figure things out along the way (“fake it till you make it”). Investors are all over the knowledge/competence scale.
The Benefits of Selling To An Investor
In many aspects of life, including business, we do a cost-benefit analysis. When there are decisions to be made, we weigh the pros and cons to make the best call overall in a given situation. In all forms of problem-solving and decision-making, we make compromises and give up something here to get something there. All of this holds true when, how and to whom you sell your inherited property.
If you want top dollar for your inherited property, are not in a rush to sell and otherwise not very motivated or pressured to sell, an investor deal may not be the best fit for you. Unlike families or individuals seeking a home in which to live, investors are in the business of buying. There’s an old saying that goes, “you make money when you buy, not when you sell.” This line of thinking makes investors seek the lowest purchase price they can get. If you buy low enough, you’re more likely to make a good profit down the line.
Market Value of Your Property
What you’re not likely to get from an investor is the full fair market value of the property. if you want top dollar, your best option will likely be to list the home with a licensed realtor. This is the “retail” world for real estate. Unless it’s an exceptionally hot seller’s market or there are other factors creating a bidding war and quick sale, you’ll likely pay a price in pursuit of the best price.
The most likely potential buyers when you list with a realtor will be families looking for their next home. Most of these prospective buyers will apply for a mortgage through a bank. They bring emotion and sometimes, drama, into the buying process. Most residential buyers will sign a purchase contract with a “financing contingency” clause. This restriction on their legal duty to complete the purchase allows them to get out of the deal (along with a refund of their good-faith deposit money) if they fail to qualify for a mortgage to buy your property. They often also run into problems trying to time the sale of their current home together with the purchase of yours.
Smart and experienced investors trying to convince you to sell to them will walk you through these factors and point out the issues if you suggest that you may just list with a realtor instead of selling to them. Most consumers who don’t regularly buy and sell properties have unrealistic expectations regarding how much they will pocket from a sale. They tend to overlook closing costs and other expenses that take away from the bottom line seller proceeds.
Many of these costs are those you would pay regardless of the identity of the buyer. Investors, however, will often sweeten the deal by offering to pay many, if not all, of the closing costs. The takeaway here is, the gap between how much you’ll net from an investor’s offer and the hopeful retail price may not be as great as it appears when you consider the benefits of a quicker closing, reduction of holding costs and the investor buyer’s payment of your closing costs. You can also avoid the stress and inconvenience that often come with working with retail owner-occupant buyers, including the emotional factor and issues with their mortgage lenders.
Also, if the property needs repairs, selling to an investor may be easier. Owner-occupant buyers will usually want the seller to repair defects that come up during the property inspection or give price concessions for those defects. Investors often pursue “ugly” houses and simply factor repairs into their purchase offers without any demand for the seller to fix anything.
Option: Selling Through A Real Estate Agent
For some heirs, selling the home with a realtor may be the best option. There are pros and cons to going down this traditional path. Let’s review the factors that should determine if this is the best choice.
Realtors list properties for sale on the Multiple Listing Service (“MLS”). Though sometimes investors buy homes through the MLS, it usually doesn’t work well for them. The MLS is considered “retail” real estate. For investors to make money, they need to buy at a price below retail. If you work with an agent, the most likely buyer will be someone who wants to move into the home.
Owner-occupants are usually families. There tends to be some emotion in the home-buying process for families. There’s often the stress that comes with a family trying to time the sale of one home to close just before the purchase of the next one. Many things can go wrong in the course of preparing to close on a home, including issues relating to funding, appraisals, repairs, liens and other matters that may complicate the deal. These issues cause frustrations and delays. In some cases, deals fall apart and the seller has to start over again to find a new buyer.
Retail buyers usually finance their purchases with bank mortgages. Mortgage lending is one of the most tightly-regulated industries in the country. Lenders have to follow many regulations and guidelines in working up a mortgage loan. They often cause delays and closings frequently need to be postponed due to lender issues.
For these reasons, if you’re in a rush to sell the home, working with a realtor may not be the best way. Also, if the house is not move-in ready and needs repairs, retail buyers are more likely to cause problems by requesting the seller to fix things or give price concessions. By contrast, investors tend to accept “as-is” conditions and factor the costs of repairs into their offers at the beginning.
Another issue with realtors is their commissions. Commission agreements are always negotiable, but the industry norm is 6% of the sales price, paid by the seller. This commission is usually divided between the agents representing the seller and buyer. When the listing agent advertises the home on the MLS, they’ll disclose the commission amount the seller will pay the buyer’s agent. If that commission is too low, it will be very difficult to motivate buyers’ agents to steer their clients to see the home. Although buyers’ agents should be working for the greater good of their clients, in the real world, it doesn’t always work that way.
In recent years, we’ve seen online platforms emerge to help homeowners sell their properties without using a realtor in the traditional way. Among others, they include Open Door, Offer Pad and Zillow. Each platform operates differently, but they all seek to remove the need for the “middle-man” real estate agent to sell a home. The benefits may include a quicker, more hassle-free deal and eliminating the agent commissions. It may be worthwhile for any home-seller to check out these internet opportunities when deciding how to sell a home. Be aware, however that a good, experienced realtor can help the seller in many ways and it’s a good idea to interview realtors and listen to the benefits they offer.