How to Buy a House in Cash From Family Member of a Deceased Owner

When a homeowner dies, someone is going to inherit their house. If the deceased owner left a will, that document should spell out who gets the home. If they died intestate or without a will, then their assets are divided according to their state’s laws of intestate succession, based on marital and blood ties. Depending on the situation, the heirs to the house may want to sell it and split the money, or one heir may want to purchase the home from the other beneficiaries. No matter the case, the individual is buying the house from the family estate. If you can pay for the house in cash, the real estate transaction is much easier than if you must qualify for a mortgage. Since these sales are often complicated, consult a real estate attorney experienced in estate sales.

The person charged with selling the house of a deceased person and otherwise dealing with estate assets and debts is the executor or trustee of the estate. This person is often a family member named in the will or revocable living trust, but the deceased may also have named an attorney, financial professional or bank to perform this task. The executor or trustee is responsible for the upkeep of the property and paying necessary bills from estate assets, such as taxes, insurance and utilities. They are also the parties responsible for arranging any sale of the house, whether to other family members or an outsider. Keep in mind that even though an executor or trustee is often an heir among other heirs, they have the authority to make estate decisions that other heirs do not. However, the role of executor or trustee requires good communication when it comes to all beneficiaries. Otherwise, a dispute between heirs and the executor or trustee could end up in probate court.

It is possible that the will did not give the executor power over real estate. In such situations, the house would pass directly to the beneficiaries, who can then sell it without the executor’s permission.

Say your mother died and left her house and the rest of her estate equally to her three children. That means you already have a one-third interest in the property. If your siblings have no desire to purchase the home, which may mean discussions about who buys whom out, you can buy out their two-thirds interest. The executor should have an appraisal of the house done if the house is located in a state imposing an estate tax. Currently, those states include Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington, as well as the District of Columbia.

While a few other states impose an inheritance tax, that is owed by the beneficiaries, not the estate per se. Under the Tax Cuts and Jobs Act, signed into law by President Donald J. Trump on December 22, 2018, the federal estate tax exemption is $11.2 million per person, so very few estates must file federal estate taxes. If the house is located in a state without an estate tax, a real estate agent can determine the fair market value of the house.

Say the house is worth $300,000. That means you must come up with $200,000 to buy your sibling’s shares. If your mother left other assets, you might arrange to transfer your share of the proceeds to your siblings in return for their shares of the home. For example, if your mother left a bank account worth $600,000, you could use your $200,000 share to buy out your siblings. If the house was the only major asset your mother owned, but you have $200,000 in cash to make the deal, that’s another option.

If there are other debts your mother owed, the estate must pay them. If there’s not enough money from other estate assets to pay the debt, some states require the sale of the deceased’s home. Other states don’t require creditors to force such a sale to recoup monies owed.

The largest debt is often the mortgage. If the house has a mortgage on it when the owner dies, it is treated differently than a mortgage transferred for other reasons. In the latter case, most mortgages contain a due on sale clause, so that the lender can insist on either full payment or a sale. In the case of death, the heirs can take on the loan under the same terms and same payments, including interest rates, as the late homeowner. Heirs can also refinance this loan.

The executor may decide to sell the home and divide the remaining money among the heirs or keep paying the mortgage in the name of the deceased via estate assets. The latter is not usually a good strategy except in the short-term. If you want to purchase the house yourself, discuss the best means to do so with the executor. The executor should also discuss the terms with the estate attorney so that the deal is fair and equitable to all heirs.

If you are not an heir but want to purchase a house from an estate sale, contact the executor regarding the sale, or the beneficiaries if the executor did not have real estate power or if the real estate transfer to heirs was already completed. If the house is already on the market, you must pay a real estate commission. If the executor has not yet put the house up for sale, you might avoid that often considerable fee.

Even though you are buying a house from a family member, that doesn’t mean you can forego the normal processes of purchasing a home. You still need a sales agreement, which includes the cash price, any down payment and contingencies.

Since you are paying cash, you don’t need a home appraisal, because that’s a step the lender requires to ensure they aren’t lending more money than the home is worth. However, if there are questions about the value of a home and the price of the individual buyouts, a home appraisal is a good idea, and it’s usually not more than a few hundred dollars.

Technically, you don’t need title insurance if buying a home in cash, but not ensuring there is a clear title on a house is foolish. If you want to sell the house, a clear title is essential. You also want to ensure there are no liens, other than a mortgage, on the property. A title insurance company will perform that task. For example, you could find out that your mom hadn’t paid a contractor who did some renovations and put a mechanic’s lien on the dwelling. If there’s a lien on the house, it requires payment. Whether you’re purchasing the house from your siblings, or you’re an outside buyer on an estate sale, paying off an unexpected lien will affect the sale price.