The Guide to Selling Inherited Property in Pennsylvania

According to Charles Schwab, 70% of people who inherit a home will end up selling it. This can be a great option, but it’s important to understand the ins and outs of the process so there aren’t any surprises. Selling inherited property in Pennsylvania, for instance, comes with a number of important factors, including a special tax. 

This comprehensive guide will help you prepare and plan for a quick, smooth, and uneventful transaction. 

What Is Inherited Property?

Inherited property refers to any asset transferred from a deceased individual to their heirs or beneficiaries. This can include a wide range of items, from personal belongings with sentimental value to cash, investments, furniture, vehicles, and, of course, real estate.

In Pennsylvania, the inheritance process typically involves a legal proceeding known as probate. This is when a court validates the decedent’s will (or lack thereof) and oversees the payment of any outstanding debts and the allocation of assets to the appropriate parties.

To make selling inherited property in Pennsylvania as simple and straightforward as possible, you’ll want to first understand what legal and financial implications you might face.

What to Do When You Inherit Property in Pennsylvania

Start the Probate Process

In Pennsylvania, the probate process is initiated by filing a petition with the Register of Wills in the county where the deceased owner resided. 

Once validated, the court will appoint an executor or administrator. This individual will manage the estate, which includes identifying assets and assigning value, settling any outstanding debts or taxes, and distributing what’s left over to the heirs or beneficiaries.

The probate process can take anywhere from a few months to a year or more. Because of this, it’s important to try and stay as organized as possible, particularly when it comes to paperwork and other documentation, which we will cover in detail below.

Perform a Property Assessment

Once you’ve initiated probate, you’ll need to start inventorying and assigning value to the inherited property. In the case of an inherited home, it’s essential to have a professional appraisal done as soon as possible. This helps to establish the property's fair market value and sets the tax basis, which becomes important when the property is eventually sold. (We’ll go into more detail on this below.)

Prepare the Property for Sale

Next, you’ll need to decide whether to invest in repairs or renovations to the property, or if it’s better to simply sell it As-Is. 

In most cases, people who inherit homes choose to sell them quickly to minimize the time, effort, and money required for upkeep. If you decide to make improvements, remember that you'll be responsible for covering the property's expenses until it sells.

Legal Aspects of Selling Inherited Property in Pennsylvania

Transfer of Ownership

In Pennsylvania, a new deed will need to be prepared, showing the transfer of ownership from the decedent to the heir or beneficiary. The new deed must be signed, notarized, and recorded with the county recorder of deeds where the property is located. You may want to enlist the help of a deed transfer attorney to make sure you cover all your bases.

Clear Property Liens

It’s not uncommon for an inherited home to come with existing debts, especially when someone passes away unexpectedly. There may also be existing liens on the property. These obligations must be satisfied prior to selling. Start by contacting the mortgage lender to request a payoff balance, and check with the local records office to inquire about any liens or unpaid taxes.

Disclosure 

According to Pennsylvania’s disclosure law, sellers must disclose certain details about the property to potential buyers. Specifically, the seller must bring to light all known material defects about the property that are not readily observable and that may impact the home’s value.

Fortunately, the state’s legislature has exempted certain sellers from this obligation. Namely, those who have never lived in the house and therefore wouldn't be familiar with its defects.

If you fall into this category, it’s in your best interest to complete the disclosure form anyway, to the best of your knowledge and ability. We recommend consulting with a real estate attorney to determine your obligations and avoid potential legal pitfalls.

Financial Implications of Selling Inherited Property in Pennsylvania

Taxes 

• Transfer Tax: A transfer tax is assessed whenever real estate changes ownership. In Pennsylvania, the transfer tax is levied at a rate of 1% of the value of the property.
• Property Tax: Like any real estate, inherited property incurs local property tax. Pennsylvania’s property tax rate varies by county, ranging from 0.87% to 2.45%.
• Estate Tax: Pennsylvania does not impose estate taxes. However, the federal government might, depending on whether the value of the decedent’s estate exceeds the exemption limit. 
• Inheritance Tax: Pennsylvania is one of only a handful of 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 a surviving spouse or to a parent from a child aged 21 or younger.
  • 4.5% on transfers to direct descendants and lineal heirs.
  • 12% on transfers between siblings.
  • 15% on transfers to other heirs.
• Capital Gains Tax: This tax is assessed on the increase in property value from the date of death to the date of sale. Capital gains taxes are due the year in which the property is sold.

Other Expenses

• Repairs/Renovations: If you decide to make repairs or renovate the property before selling, you will be responsible for any and all expenses associated with that.
• Ongoing Upkeep: The inheritor is responsible for keeping up with all expenses associated with the property, including mortgage, taxes, utilities, insurance, maintenance costs, etc.
• Real Estate Commissions: Real estate agents are paid a certain percentage of the sale price once the house sells. The amount may vary, and may be negotiated, but typically averages around 5-6%. 
• Closing Costs: These costs cover the administrative tasks involved with selling a home, such as attorneys’ fees, title insurance, recording fees, etc. In Pennsylvania, closing costs generally run anywhere from 6-10% of the sale price.

Documents Required for Selling Inherited Property in Pennsylvania

Before you can proceed with the sale of the property you’ve inherited, you’ll need to gather the necessary documentation. In Pennsylvania, this includes the following:

• Photo Identification: As with any legal transaction, you’ll need to prove your identity.
  Proof of Ownership: You will receive this document as part of the probate process.
  Death Certificate: Many of the parties involved in the sale of a home, such as title companies and mortgage lenders, will require a copy of the decedent’s death certificate.
  Property Title Records: A clear title is required to sell a home in Pennsylvania, inherited or not. This includes documentation showing that the title is now in your name and that there are no liens on the property.
  Property Tax Records: You will also need to show proof that property taxes are up to date and that there are no municipal or other tax encumbrances on the property. 
  Seller Disclosure: As mentioned above, Pennsylvania mandates that all sellers complete and submit a disclosure document attesting to the condition of the property. You may qualify for an exemption, but you should verify this first to be sure.

Options for Selling Inherited Property in Pennsylvania

When it comes to selling an inherited home, there are a few different options. The most common include:

For Sale by Owner (FSBO)

One option is to sell your home on your own. Here are a few specific pros and cons to consider for FSBO:

Pros: 

• Save money by eliminating real estate agent commissions.
• Maintain greater control over the process.

Cons:

• Selling a home on your own can be a complex and time-consuming process.
• Lack of industry experience and access to resources can lead to costly delays.
• There’s always a risk of potential tax or legal issues.

Real Estate Agent

Enlisting the help of a real estate agent is another option for selling inherited property in Pennsylvania. Of course, this option also comes with a few benefits and downsides as well.

Pros:

• Market experience and access to more resources.
• Seasoned negotiators can help you get the best price.
• Accurate paperwork and proper documentation to ensure compliance.

Cons:

• Commission and other associated fees can cut into your profit.
• Lack of control over the process.
• Traditional home sales can take a long time, especially if it’s not a seller’s market.

Cash Buyer / Real Estate Investor

The third option is to work with an established cash buyer. These types of sales are typically handled much faster, but they do have their own advantages and disadvantages to consider.

Pros:

• No real estate commissions and, in some cases, no closing costs.
• Sell quickly, in as little as 7 days.
• As-Is sale, regardless of condition (no investment in repairs/renovations).

Cons:

• Sale price may be slightly below market. 
• Not as much room to negotiate.
• Potential risk of scams if not careful about choosing a reputable investor.

Challenges to Selling Inherited Property in Pennsylvania

Multiple Heirs

Inheriting a home alone can be challenging, but adding multiple people, personalities, and emotions can make it even more complicated. Issues can arise, especially if one or more co-owners decide against selling or refuse to sign probate documents.

In Pennsylvania, not all owners must agree in order to sell inherited property, but if one or more are refusing, you may need to get the courts involved. This is typically handled through what’s known as a partition action. 

Even if all owners do agree to sell, you’ll then face the issues of when, how, and for how much. 

If you’re trying to sell a home with multiple owners and you’re at an impasse as to how to move forward, it may be worth enlisting the help of a mediator who is experienced in these types of situations.

Title Issues

In Pennsylvania, a property cannot legally be sold unless it has clear title. This means ownership must have been transferred and there are no existing liens, disputes, or encumbrances. 

When individuals inherit property from a deceased loved one, they often face challenges such as settling outstanding debts, negotiating with creditors, and handling liens or other legal matters. If you're dealing with a particularly complex situation, a real estate attorney can provide guidance through the process and ensure everything is properly addressed.

Poor Property Condition

Unfortunately, many homes are in poor condition by the time they are inherited. If you’re planning to sell and the home requires extensive repairs, you may face expenses running into tens of thousands of dollars just to bring it up to a marketable condition—and these costs would be out of pocket. 

Additionally, you’ll need to cover ongoing expenses while you work on repairs, which may include a mortgage and other household costs. These can really start to add up.

This is why many people in Pennsylvania opt to sell inherited property to a cash buyer. Although the sale price might be slightly below market value, there’s no need for upfront repair costs. Plus, because these transactions tend to happen quickly, there are fewer ongoing upkeep expenses to worry about.

Some investors will even buy the property with all belongings left inside, making it an especially appealing option in hoarding situations. The seller can walk away with cash in hand, while the buyer handles the entire cleanout process.

Avoiding Probate Court in Pennsylvania

As mentioned, most inherited properties in Pennsylvania go through probate, which can be a long and costly experience. Fortunately, there are a few ways to avoid this:

• Revocable Living Trust: Placing assets in a revocable living trust bypasses the probate process and transfers the property directly to the inheritor.
• Joint Tenants with Right of Survivorship (JTWROS): If you co-own the property, you can set up a legal arrangement known as Joint Tenants with Right of Survivorship, through which the surviving owner would automatically inherit your share of the property upon your death, without having to go through probate.
• Gift the Property: In Pennsylvania, a homeowner can gift their property to someone, which essentially transfers ownership to another person. It should be noted that there are many complex legal and tax implications associated with this type of transaction.

If you are in the process of planning your estate and are considering one of the above avenues to help your heirs avoid probate, we recommend consulting with an experienced estate attorney and/or a qualified financial advisor to cover all your bases.