The Complete Guide to Selling Inherited Property in Maryland

Have you recently inherited a home in Maryland and are thinking about selling it? The process of selling can be a daunting one under normal circumstances, but when it’s a property you’ve inherited, things become even more complicated.

This comprehensive guide is designed to make selling inherited property in Maryland as simple and straightforward as possible. 

What Is Inherited Property?

The term inherited property encompasses everything that an heir or beneficiary inherits from a deceased loved one. This may include personal items that are only sentimental in value, as well as cash, investments, vehicles, furniture, and real estate.

In Maryland, inheritance typically goes through a legal process known as probate, which ensures that all of the decedent’s debts are settled, and any remaining assets are passed along to the appropriate parties.

Understanding this process can help you know what to expect and how to plan. 

What to Do After Inheriting Property in Maryland

Start the Probate Process

You can initiate the probate process in Maryland by filing a petition with the Register of Wills in the county in which the deceased owner lived. 

Once this formal request is filed, the court will appoint a personal representative and grant them the legal authority to oversee the estate settlement process. This includes identifying and assigning value to assets, notifying beneficiaries and creditors of the decedent’s death, paying all outstanding taxes and debts, and distributing whatever is left to the appropriate parties.

Note: if the personal representative resides outside the state of Maryland, they must complete and submit a Resident Agent form as part of the probate initiation process.

Keep in mind that the probate process can take anywhere from several months to a year or more, depending on a number of factors. In the interim, it’s important to stay as organized as possible. 

Conduct a Property Assessment

Once the probate process has been initiated, the next step is to assess the property and establish its value. In the case of an inherited house, this should be done by an experienced professional as soon as possible. 

A formal property assessment will help to determine the home’s fair market value so you’ll know what it’s worth. It also establishes the tax basis of the property, which will become relevant once it’s sold. (We’ll cover this in more detail below.)

Prepare the Property for Sale

Next, you’ll need to determine whether you want to sell the property in its current condition or invest money and time into making it more marketable. While there’s no time limit on selling inherited property in Maryland, most people choose to sell as quickly as possible, so they don’t have to deal with costly repairs and maintenance expenses. 

If you do decide to fix the place up, understand that you will be on the hook financially until it’s officially sold. This may include a monthly mortgage, property taxes, utility bills, and other upkeep expenses.

Legal Aspects of Selling Inherited Property in Maryland

Transfer of Ownership and Title

In Maryland, a property’s title must be transferred into the name of the heirs or beneficiaries before it can be sold. This process is typically handled during probate. 

Clear Debt and Liens

It’s not unusual for inherited property to come with outstanding debts, such as a mortgage or home equity loan. There may also be liens on the property. These obligations must be handled before the property can be sold. Start by requesting a payoff statement from the mortgage company and check with the local records office to determine if there are any unpaid property taxes or liens. 

Disclosure 

The state of Maryland requires anyone selling residential property complete a Residential Property Disclosure and Disclaimer Statement. Maryland is somewhat unique in that sellers have the option to either provide a disclosure of known defects or a disclaimer as to the condition of the house (but not both). In the latter case, the property would be sold "as is," however, any known latent defects should be mentioned.

Financial Impact of Selling Inherited Property in Maryland

Taxes 

• Property Tax: Like most states, Maryland levies property taxes as a percentage of the home’s appraised value. Rates vary by county, but the average is 0.99%.
• Estate Tax: Maryland imposes a tax on estates over $5 million. The federal government may also assess an estate tax, depending on whether the value of the estate exceeds the exemption limit. 
• Inheritance Tax: Maryland is one of the few states that imposes an inheritance tax. This tax is calculated as a percentage of the value of the estate. The inheritance tax rate varies depending on the relationship of the heir to the decedent, as follows:
  • 0% on transfers to direct or lineal heirs (spouse, child, grandchild, great-grandchild, stepchild, parent, or grandparent)
  • 10% on transfers to collateral heirs (niece, nephew, aunt, uncle, or cousin)
  • 10% on transfers to friends and other individuals not related by blood to the decedent

• Capital Gains Tax: This tax is assessed on the appreciation in value (if any) from the date of the deceased owner’s death through the date of the sale. Capital gains taxes are payable in the year in which the property is sold.

Additional Expenses

• Renovations/Repairs: If you decide to improve property before putting it on the market, you will be responsible for any and all expenses associated with those updates.
• Ongoing Upkeep: The heir(s) are responsible for staying on top of all expenses associated with maintaining the property, including mortgage, taxes, insurance, utilities, etc.
• Real Estate Commissions: Real estate agents typically earn a percentage of the sale price as a commission for the work they do to help sell a property. In Maryland, this rate is usually around 5-6%. 
• Closing Costs: These costs cover all the logistics of selling a home, such as title insurance, attorneys’ fees, recording fees, etc. Closing costs in the state of Maryland generally range from 6-9% of the sale price.

Documents Required for Selling Inherited Property in Maryland

Selling inherited property in Maryland involves a decent amount of paperwork. This documentation includes, but may not be limited to:

• Photo Identification: An up-to-date photo ID will be required throughout the selling process to verify your identity as the heir and property seller.
• Proof of Ownership: This document is usually provided to the heir or beneficiary at the conclusion of probate. 
• Death Certificate: Most third parties involved in a home sale, including mortgage lenders and title companies, will require a copy of the death certificate.
• Property Title Records: You cannot sell an inherited home in Maryland without clear title. This includes evidence that the title has been transferred to your name, and that there are no liens or other obligations associated with the property.
• Property Tax Records: You will also need to show proof that all property taxes have been paid and that there are no tax or other municipal liens on the property. 
• Seller Disclosure: As mentioned above, the state of Maryland requires sellers to complete and submit a disclosure/disclaimer report. 

Options for Selling Inherited Property in Maryland

You have a few different options for selling inherited property in Maryland. The most common include:

For Sale by Owner (FSBO)

Your first option is to sell the property yourself, without a real estate agent. Here are a few advantages and disadvantages associated with choosing this path.

Pros: 

• Save money by avoiding real estate commissions
• Maintain greater control over the process

Cons:

• Selling a house on your own be a complicated and lengthy process
• Lack of real estate experience and access to industry resources could cause delays
• Unexpected tax and legal issues could potentially arise

Real Estate Agent

Another option is to hire a real estate agent. Of course, this option also comes with a few caveats as well.

Pros:

• Industry knowledge and access to more resources
• Experience negotiating with buyers to get the highest sale price
• Documentation and paperwork to ensure tax and legal compliance

Cons:

• Commission and other fees can be costly
• Lack of control over the process
• Traditional home sales can take a while, especially in a buyer’s market

Cash Buyer / Real Estate Investor

The third option is to work with an investor who will pay cash for the property. Here are a few pros and cons to consider for this option.

Pros:

• No real estate commissions and, in some cases, zero closing costs
• Quick, hassle-free transaction (sell in as few as 7 days)
• Property can be sold As-Is (no investment in repairs or renovations)

Cons:

• Final sale price might be slightly below market 
• Not as much room to negotiate
• Risky if not careful about choosing a reputable cash buyer

Challenges to Selling Inherited Property in Texas

Here are a few common problems that arise with inherited property so you’ll know what to expect and can prepare for them in advance.

Multiple Heirs

Inheriting a property can be complicated in and of itself. Add in additional beneficiaries, along with their own preferences and personalities, and the process can become even more challenging. 

Things can get especially messy when one owner doesn’t want to sell or refuses to sign probate.

In Maryland, not all owners must agree in order to sell, but if one or more are refusing, you may need to get what’s known as Orphans' Court involved. This is basically Maryland’s version of probate court.

If you and your co-owners can’t agree on how to move forward, a mediator who is experienced in these types of disputes may be your best option for reaching an amicable outcome. Getting the courts involved can add fuel to an already emotional fire.

Title Issues

In Maryland, a home cannot legally be sold unless it has clear title. This means ownership must be properly transferred and there are no liens, disputes, or other obligations associated with the property. 

Beneficiaries who inherit property often find themselves in the situation of having to resolve outstanding issues, like paying debts, negotiating settlements, and dealing with liens and other legal concerns. 

If you’re struggling with a particularly complex situation, it may be worth enlisting the help of an experienced real estate attorney. 

Property in Disrepair

Unfortunately, by the time a property is passed on to its rightful heirs or beneficiaries, it’s already in poor condition. When this occurs, it’s typically easier for the person inheriting the home to cut their losses and simply sell the property As-Is. Otherwise, they could be facing a significant investment of time and money. 

In some cases, a home is in such serious disrepair that banks and mortgage lenders may not approve a loan. In these instances, the only option is to sell it to a real estate investor who is willing to purchase the property for cash.

Some cash buyers (like House Buyers of America) will even allow the seller to walk away from the property without even cleaning out its contents. This is an especially attractive option for hoarding situations. 

Avoiding Probate Court in Maryland

Most inherited properties in Maryland are required to go through probate, which can be costly and time-consuming. Fortunately, there are a few ways to get around this:

• Living Trust: When property is held in trust, the homeowner maintains control while they are still alive and then it gets transferred directly to the inheritor upon death. Placing assets in a living trust bypasses the probate process.
• Joint Ownership with Right of Survivorship (JTWROS): For property that is co-owned, a Joint Tenants with Right of Survivorship can be set up. With this legal arrangement, the surviving owner automatically inherits the deceased owner’s share of the property upon their death, without going through probate.
• Transfer on Death Deed (TODD). A Transfer on Death Deed allows the homeowner to directly transfer ownership of the property upon their death without it having to pass through probate. 

Each of these options must be set up prior to the property owner’s death. If you are in the process of planning your estate and would like to use one of the above strategies to help your heirs avoid probate, we recommend consulting with an attorney and/or a qualified financial advisor for specific support and guidance.