The Guide to Selling Inherited Property in Tennessee

Did you recently inherit a home in Tennessee? If so and you're considering selling, it’s important that you gain an understanding of what the process entails and what you should expect.

The following guide is designed to simplify the process of selling inherited property in Tennessee, helping you navigate each step and make the experience as straightforward as possible.

What Is Inherited Property?

The term ‘inherited property’ refers to anything that is passed from a deceased person to their heirs or beneficiaries. This can include things of value, such as investments and real estate, as well as personal items that would be considered sentimental in nature.

In the state of Tennessee, most inherited property must go through a legal proceeding known as probate. This is a court-supervised process through which the decedent’s assets are identified and assigned a value, any outstanding debts are paid from the estate, and whatever is left over is properly distributed to its new rightful owner(s).  

Before selling an inherited home in Tennessee, let’s take a look at the steps you’ll need to take in order to make the process go as smoothly as possible.

What to Do When You Inherit a Home in Tennessee

Initiate the Probate Process

The first step in selling the home you’ve inherited is to initiate the probate process. This is done by filing a petition with the county in which the decedent resided, along with the death certificate, current will (if one exists), letters of testamentary, and a notice to creditors.

The court will then review the petition and appoint an executor to manage the estate distribution. Again, this process involves inventorying assets, settling debts, and ensuring that whatever is left gets transferred to the appropriate parties. 

In Tennessee, the probate process can take anywhere from six months to a year or longer. It all depends on how complicated the estates and whether there are any disputes. While you wait for probate to run its course, it’s important to remain as organized as possible.

Have the Property Assessed

Once probate has been initiated, the next step is to determine how much the property is worth. This should be handled by a professional real estate appraiser. The results of their report will serve two purposes. First, it will inform you of how much you can sell the home for, and second, it will establish a tax basis, which will come into play later.

Prepare the Property for Sale

Next, you’ll have to determine whether you plan on fixing the property up to make it more marketable, or if it might be easier and more practical to sell it As-Is. Keep in mind that any repairs or renovations would come out of your own pocket, as would all the expenses required to maintain the home until it sells, like insurance and mortgage payments.

Legal Aspects of Selling Inherited Property in Tennessee

Transfer of Ownership

In Tennessee, inherited property cannot be sold until its title has officially been transferred into the name of its new owner. This step is usually handled during the probate process, so if you’ve already gone through probate, you should be all set.

Pay Off Mortgages and Clear Liens

It’s not uncommon for an inherited home to come with outstanding debt, like a mortgage or home equity loan. There may also be liens associated with the property. These obligations must be taken care of before you can sell the home. Contact the mortgage lender to request a payoff amount and reach out to the county clerk to determine whether the property has any obligations that require settlement.

Disclosure

The state of Tennessee 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 Property Condition 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

If the buyer waives the right to the required disclosure, the seller may provide an As-Is, “no representations or warranties” disclaimer statement in lieu of the disclosure form.

Financial Impact of Selling Inherited Property in Tennessee

Taxes

• Property Tax: In Tennessee, the average effective property tax rate is 0.58% of a home’s assessed value, but that rate may vary based on the county where the property is located.
• Transfer Tax: The state of Tennessee charges a tax on the transfer or real estate. At the time of publication, the rate is $0.37 for every $100 of the property sale price. 
• Estate Tax: Tennessee does not charge an estate tax, 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, Tennessee is not one of them.
• Capital Gains Tax: If the property you inherited increases in value between the date of death and the date of sale, you will likely have to pay capital gains taxes.

Other Expenses

• Repairs/Renovations: If you choose to fix up the property in hopes of a higher selling price, the costs associated with those repairs or renovations will be your financial responsibility.
• Ongoing Maintenance: You will also be on the hook for all expenses associated with maintaining the home until it sells. This includes things like mortgage payments, property taxes, utilities, insurance premiums, etc.
• Real Estate Commissions: Most real estate professionals are compensated for their work through a percentage of the sale price, otherwise known as a commission. The average real estate commission in TN is 5-6% of the sale price.
• Closing Costs: Real estate transactions involve administrative expenses, such as title insurance, attorneys’ fees, loan origination fees, etc. These fees are paid out of the closing costs, which average around 8-10% of the sale price.

Documents Required for Selling Inherited Property in Tennessee

To sell an inherited property in the state of Tennessee, you’ll need the following documentation:

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

Options for Selling Inherited Property in Tennessee

There are several options for selling an inherited home in Tennessee. The three most common are as follows:

For Sale by Owner (FSBO)

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

Pros:

• Maximize profits by avoiding real estate commissions
• Enjoy total control over the selling process

Cons:

• Can be complex and confusing
• Lack of industry experience and access to resources
• Potential for legal or tax issues

Real Estate Agent

Another option is to work with a real estate agent to help sell your inherited proeprty. Like FSBO, this option comes with its own upsides and drawbacks.

Pros:

• Industry experience and access to valuable resources
• Proven negotiation skills can help you get the hightest sale price
• Appropriate documentation to ensure tax and legal compliance

Cons:

• Commissions and other fees can eat away at your profits
• Limited control over the selling process
• Traditional home sales can be a long, time-consuming process

Cash Buyer

The third option is to sell to a real estate investor who will purchase the property for a lump-sum cash payment. Of course, this method has its own set of pros and cons.

Pros:

• No commissions and, in many cases, zero closing costs
• Quick, hassle-free transaction (close in 7 days or less)
• Option to sell the property As-Is, avoiding costly repairs or renovations

Cons:

• Cash offers can be slightly below market value
• Not much room for negotiation
• Potential risk of scams if not careful about choosing a reputable buyer

Challenges to Selling Inherited Property in Tennessee

Selling inherited property in Tennessee may not be as straightforward and simple as you might hope—particularly when faced with one of the following scenarios.

Multiple Heirs

Selling an inherited home can be a complicated process, and it becomes even more challenging when multiple heirs or beneficiaries are involved. Disagreements can arise, especially if one or more co-owners are hesitant to sign probate documents or are unwilling to sell.

Even when everyone agrees to move forward with the sale, deciding on the timing and approach can create additional complications.

If you and your co-heirs are struggling to reach a consensus, mediation could be a valuable solution. Look for a mediator who has experience dealing with inheritance disputes. This can help facilitate amicable discussions and prevent the need for costly and time-consuming court proceedings.

 

Title Issues

In Tennessee, an inherited property cannot be sold unless and until it has a clear title. Unfortunately, many inherited homes come with liens or unpaid taxes, which can create obstacles and delay the sale.

If you’re facing a complicated title issue and aren’t sure what steps to take, a skilled real estate attorney can provide the guidance you need to move forward with confidence.

Property in Disrepair

Inherited homes often suffer from neglect or disrepair by the time they are passed along to a new owner. This could be due to the previous owner’s age, failing health, or overall inability to maintain the property in the months and years leading up to their death.

Bringing such a home back to a condition suitable for sale can be expensive, potentially requiring thousands or even tens of thousands of dollars. As the new owner, not only would you be on the hook for these costs, but you would also be responsible for ongoing expenses like property taxes, insurance, and utilities.

In these situations, selling quickly to a reliable cash buyer may be the most practical and cost-effective option. If the property is in especially poor condition, selling it As-Is to a real estate investor might be your only route, as many banks won’t approve mortgages for homes in severe disrepair.

Working with the right cash investor may even allow you to avoid the hassle of cleaning up the property and removing belongings from the home. This can be a huge relief, particularly in hoarding situations.

Avoiding Probate in Tennessee

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

• Living Trust: A living trust is an estate planning vehicle that allows a homeowner to maintain control of the property during their lifetime and then, upon their passing, automatically transfer ownership to the designated beneficiaries without the need for probate.
• Joint Ownership with Right of Survivorship (JTWROS): Co-owners of a property can establish an arrangement called Joint Tenancy with Right of Survivorship (JTWROS) so that when one owner passes away, their share automatically transfers to the surviving owner, bypassing probate.
• Gift the Property: In Tennessee, a homeowner can gift their property to another person, which essentially transfers ownership of that property outside of probate. It should be noted that there are many complex legal and tax implications associated with this type of transaction, so be sure to consult a real estate attorney.

If you're in the process of planning your estate and want to help your heirs avoid probate, we strongly recommend consulting with an experienced estate attorney and/or a qualified financial advisor to receive personalized guidance for your situation.