The Guide to Selling Inherited Property in Arizona

Did you recently inherit a home in Arizona? Are you thinking about selling? If so, you’re not alone. In fact, the majority of people who inherit property choose to sell. There are many valid reasons for doing so, but regardless of the ‘why,’ the most important thing is understanding the ‘how.’

This comprehensive guide is designed to distill the complex process of selling inherited property in Arizona and make the experience as smooth and uneventful as possible. If you’re considering listing an inherited Arizona home for sale soon, you’ll definitely want to read this first!

What Is Inherited Property?

When people hear the term ‘inherited property,’ they tend to think of valuable things, like bank accounts or vehicles. While this is obviously true, it’s important to note that inherited property can also include non-valuable things, like keepsakes and other sentimental belongings.

For the purpose of this guide, however, we will be focusing solely on how to handle a home that has been passed along from a deceased person to their heir or named beneficiary. In the state of Arizona, this process typically involves probate, which is a legal proceeding through which the decedent’s debts are settled, and their assets are distributed.

Before attempting to sell an inherited home in Arizona, you’ll want to get to know the steps you’ll need to take, and what you’ll need to do in order to move forward. Let’s explore this in greater detail below.

What to Do When You Inherit a Home in Arizona

Initiate the Probate Process

The first step in selling the home you’ve inherited is to start the probate process. In the state of Arizona, most probate cases are considered “informal.” What this means is that the estate’s personal representative (a.k.a. the executor) is authorized to probate the estate without court supervision.

As long as the will is not contested and nobody objects to the personal representative’s actions, the court’s only involvement will be to open probate and close the estate when the process is complete.

To initiate probate, a petition must be filed, along with the will (if one exists) and death certificate, with the probate in the county where the decedent resided. The court will then review the petition and appoint the personal representative to manage the estate distribution. 

In Arizona, the probate process can take anywhere from four months to a year or longer, depending on the complexity of the estate, and a number of other factors. During this time, it is imperative that you remain as organized as possible. Trust us on this one!

Have the Property Assessed

The next step once probate has been initiated is to establish the value of the property. This is typically done through a professional real estate appraiser, who will determine how much the home is worth. This information is essential as it will not only inform you on what you can list the property for, but also what your tax basis will be. (We’ll get into the topic of taxes a little later.)

Prepare the Home for Sale

The third important step in the process of selling an inherited home in Arizona is to decide how much time, money, and effort you’re willing to put in to get the property ready for sale. If you decide to fix the place up, understand that you will be on the hook for the costs of any updates, as well as all expenses associated with maintaining the property until it sells. Alternatively, you can choose to sell the home As-Is. (We’ll get into that below as well.)

Legal Aspects of Selling Inherited Property in Arizona

Transfer of Ownership

You cannot sell an inherited home in Arizona until its title has officially been transferred into the name of its new owner. Fortunately, this step is usually handled during the probate process, so if you’ve gone through probate, you’re likely all set.

Pay Off Mortgages and Clear Liens

Inherited houses often come with outstanding debt, such as mortgages or home equity loans. These obligations must be paid before the property can be sold. Likewise, if the property you’ve inherited has a lien on it, which is a legal claim to recover an unpaid debt, you will need to settle that prior to placing the property on the market.

Disclosure

The state of Arizona requires sellers of residential real estate to disclose all known material facts about the property prior to selling. This must be done in writing using a form called the Residential Sellers Property Disclosure Statement. 

A material fact is anything that may adversely affect the value of the home, including but not limited to:

• Structural defects
• Plumbing and electrical problems
• Issues with the septic system
• Flood risk
• Water damage
• Pest infestations
• Environmental hazards
• Legal disputes related to the property
• Deed restrictions

Failure to comply with this requirement could result in serious and costly legal repercussions.

Financial Impact of Selling Inherited Property in Arizona

Taxes

• Property Tax: In Arizona, property owners pay an average of 0.45 percent of a home’s assessed value, but that rate may vary based on the county where the property is located.
• Transfer Tax: Unlike most states, Arizona does not impose a transfer tax.
• Estate Tax: Arizona also does not charge a tax on estates, however, the federal government may, based on whether the value of the estate exceeds the exemption limit.
• Inheritance Tax: Only a handful of states charge an inheritance tax. Fortunately, Arizona is not one of them.
• Capital Gains Tax: If the home you inherited goes up in value between the date of death and the date of sale, you will likely be on the hook for capital gains taxes.

Other Expenses

• Repairs/Renovations: If you decide to do any repairs or renovations to the property, the costs associated with those updates will be your responsibility.
• Ongoing Maintenance: You will also be responsible for all expenses to maintain the home until it sells. This may include mortgage payments, insurance, property taxes, utilities, etc.
• Real Estate Commissions: Most real estate professionals are compensated for their work through a commission, which is usually a set percentage of the sale price. In Arizona, the average real estate commission is 5-6% of the sale price.
• Closing Costs: Real estate transactions involve a lot of administrative expenses, such as title insurance, attorneys’ fees, loan origination fees, etc. These fees are covered by closing costs, which average around 8-10% of the sale price.

Documents Required for Selling Inherited Property in Arizona

To sell an inherited property in Arizona, you’ll need the following documentation:

• Photo Identification: A current, valid license or other form of photo ID will be required throughout the selling process.
• Proof of Inheritance: These documents are usually provided to the heir or beneficiary at the end of the probate process.
• Death Certificate: Many of the parties involved with the sale of an inherited home will request a certified copy of the death certificate.
• Property Title Records: You’ll need to show that the title of the home is clear and that it has legally been transferred into your name.
• Property Tax Records: You may also be required to prove that there are no outstanding taxes associated with the property.

Options for Selling Inherited Property in Arizona

When it comes to selling inherited property in Arizona, you have several options. The three most common include:

For Sale by Owner (FSBO)

First, you can sell the property on your own without the assistance of a real estate agent. While this approach has its benefits, it also comes with a few challenges.

Pros:

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

Cons:

• Can be complicated and confusing
• Limited experience and lack of access to industry resources
• Potential legal or tax ramifications

Real Estate Agent

Another option is to work with a local real estate agent. Like FSBO, this option comes with its own upsides and drawbacks.

Pros:

• Industry expertise and access to helpful resources
• Skilled at negotiation to secure the best sale price
• Appropriate documentation to ensure legal and tax compliance

Cons:

• Commissions and fees cut into your profits
• Less control over the selling process
• Traditional home sales can be a long, time-consuming process

Real Estate Investor/Cash Buyer

The third option is to sell to a real estate investor who will buy the property with a lump-sum cash payment. This method has its own set of pros and cons.

Pros:

• No commissions and, in many cases, zero closing costs
• Fast and headache-free transaction (close in seven days or less)
• Ability to sell the property As-Is, avoiding costly repairs or renovations

Cons:

• Cash offers are often slightly lower than market value
• Limited room for negotiation
• Potential risk of scams if not careful about choosing a reputable buyer

Challenges to Selling Inherited Property in Arizona

Unfortunately, selling inherited property in Arizona isn’t always as straightforward and simple as one might hope—especially when faced with one of the following scenarios.

Multiple Heirs

The process of selling an inherited home can be complicated in and of itself, but when you add other heirs or beneficiaries into the mix, things can get really messy. This is especially the case when one or more co-owners refuse to sign probate or decide they don’t want to sell.

Even if everyone is on the same page about selling, decisions about when and how to do so can further complicate things.

If you and your co-heirs are having a hard time reaching a compromise and want to avoid court (which we strongly recommend), working with a mediator who is experienced in inheritance disputes may be something worth exploring.

Title Issues

As mentioned above, inherited property cannot be legally sold in Arizona unless it has a clear title. Many inherited homes have existing liens or unpaid taxes associated with them, which can complicate and delay the transfer process.

If you're dealing with a particularly challenging situation and are unsure how to proceed, a knowledgeable real estate attorney could help you navigate the process.

Property in Disrepair

Inherited homes often fall into disrepair by the time they are passed to a new owner. This can happen for a variety of reasons, such as the previous owner’s age or inability to maintain the property just prior to their death.

Restoring a home like this to a sellable condition can be costly, requiring an investment of thousands—or even tens of thousands—of dollars. As the new owner, you would be responsible for these expenses, along with ongoing costs to maintain the home, like property taxes, insurance, and utilities.

In cases such as this, selling quickly to a reputable cash buyer may be the most practical and cost-effective solution. If the home is in extremely bad shape, selling it As-Is to a real estate investor might actually be your only option, since many banks won’t approve mortgages for properties that are severely deteriorated.

Selling to a cash investor allows you to bypass the stress of repairs and cleanup. Some cash buyers even handle clearing out belongings left behind, which can be especially beneficial in hoarding situations.

Avoiding Probate in Arizona

As referenced earlier, in the state of Arizona, most inheritances are required to go through probate. This can be a time-consuming and expensive process. Fortunately, there are a few ways to avoid this:

• Living Trust: A living trust allows the homeowner, known as the trustee, to maintain control of the property during their lifetime. Upon their passing, ownership is automatically transferred to the designated beneficiaries without the need for probate.
• Joint Ownership with Right of Survivorship (JTWROS): Co-owners of a property can establish a Joint Tenancy with Right of Survivorship (JTWROS), ensuring that when one owner passes away, their share automatically transfers to the surviving owner, bypassing probate.
• Transfer on Death Deed (TODD). A Transfer on Death Deed, also known as a beneficiary deed, enables a homeowner to pass ownership of their property directly to a designated beneficiary upon their death, avoiding the probate process.

If you're in the process of planning your estate and want to help your heirs avoid probate, consider seeking advice from an experienced estate attorney or a qualified financial advisor for personalized guidance.