The Guide to Selling Inherited Property in Washington D.C.

Have you recently inherited a home in Washington, D.C.? If you’re like the majority of people who are the beneficiaries of inherited property, you’re probably thinking about selling. If so, knowing what to expect can help make the process go much more smoothly.

This comprehensive guide is designed to cover everything you need to know about selling an inherited home in Washington, D.C..

What Is Inherited Property?

Inherited property is basically any asset that gets transferred from a deceased person to their heirs or beneficiaries. This can include anything from bank balances and investments to vehicles and homes. It can also include items of sentimental value, such as personal belongings and keepsakes.

In Washington, D.C., as in most states, the inheritance process involves something known as probate. This is a legal process through which the courts oversee the settlement of the decedent’s estate, which includes settling any outstanding debts and distributing the remaining assets to their rightful new owners.

To make selling inherited property in Washington, D.C. as simple and straightforward as possible, it’s important to understand the legal and financial implications of doing so.

What to Do When You’ve Inherited Property in Washington, D.C.

Initiate the Probate Process

To start the probate process, you’ll need to file a petition with the DC Superior Court, Probate Division. Once this petition is filed and it’s been approved by the court, the personal representative will officially be named. Additionally, a Notice of Appointment, Notice to Creditors, and Notice to Unknown heirs will be published in the local newspaper.

If there are no challenges to the will, the personal representative can officially begin the process of identifying the estate’s assets, paying taxes and debts, and distributing what’s left to the heirs.

Keep in mind that in Washington, D.C., probate typically takes at least one year to conclude. For more complex cases, it can take much longer. Regardless, it’s imperative to remain as organized as possible throughout the process.

Assess the Property

Next, you’ll want to get a jump on assessing the property’s value. This should be done as soon as possible, as not only does a professional property appraisal help to establish the home’s fair market value for sale, but it also determines its basis for tax purposes. (We’ll go into this in greater detail below.)

Prepare the Property for Sale

You’ll also need to start thinking about whether you’d like to sell the property As-Is, or if it might be worth investing in any necessary repairs or renovations. Keep in mind, however, that if you do decide to fix the place up, you will be on the hook for all out-of-pocket expenses associated with that, including keeping up with the mortgage and other household bills until the property is sold.

Because of this, most people who inherit property in Washington, D.C. decide to cut their losses and sell as quickly as possible. Doing this would allow you to limit the amount of time, effort, and money you’d need to invest in getting the property ready for sale.

Legal Aspects of Selling Inherited Property in Washington, D.C.

Transfer of Ownership and Title

In Washington, D.C., the title of the property must officially be transferred into the name of the heirs or beneficiaries before it can be sold. This process is typically handled during probate. 

To obtain title to the property, the beneficiary must record a certified copy of the death certificate, Form FP-7 (Real Property Recordation and Transfer Tax Form), and a quitclaim deed in the Office of the Recorder of Deeds. If you’re unsure of how to complete or file either of these documents, an estate attorney should be able to provide more guidance.

Clear Debts and Liens

It’s not uncommon for an inherited property to come with certain debt or encumbrances, such as a mortgage or property lien. These things must be settled before the property can be sold. If a mortgage exists, contact the lender to request a payoff amount. 

To determine whether the home you’ve inherited has a lien or other legal obligation, you can check with the Recorder of Deeds or use this online liens search tool. 

Disclosure 

In Washington, D.C., sellers are required by law to disclose any and all known issues that could impact the home’s value. This must be done in writing by completing a Seller’s Disclosure Statement. This statement covers the condition of the property's features, structure, and exterior, including:

• Roof
• Chimney
• Insulation
• Windows
• Heating and air conditioning system
• Appliances and fixtures (e.g. oven, dishwasher, pool heater, fans, etc.)
• Drainage
• Damage to the property
• The presence of wood-destroying pests

The statement also requires the seller to disclose the presence of any toxic substances such as asbestos, radon, and formaldehyde, as well as any zoning violations and unrecorded easements. Finally, sellers must disclose whether the property has any significant historical designation or is subject to a historic preservation law.

Financial Impact of Selling Inherited Property in Washington, D.C.

Taxes 

• Property Tax:  Residential properties in Washington, D.C.  are taxed at a rate of $0.85 per $100 of the home’s assessed value. 
• Estate Tax: Washington, D.C. assesses an estate tax based on the total value of the decedent’s estate and the year in which they passed away. You can view the exemption amounts in this chart. Additionally, the federal government may also assess an estate tax, depending on whether the value exceeds the exemption limit. 
• Inheritance Tax: Only a handful of states impose an inheritance tax. Fortunately, Washington, D.C. is not one of them.
• Capital Gains Tax: This tax is assessed on the appreciation in the property’s value from the date of the deceased owner’s death to the date of the sale. Capital gains taxes are due the year in which the property is sold.

Other Expenses

• Repairs/Renovations: If you decide to fix the property before putting it on the market, you will be responsible for any costs associated with those repairs or renovations.
• Ongoing Upkeep: Until the home sells, the heir(s) are responsible for paying all expenses associated with the property, including mortgage, taxes, insurance, utilities, maintenance costs, etc.
• Real Estate Commissions: Real estate agents typically charge their clients a percentage of the sale price as compensation for their work. The amount may vary slightly, and it’s possible to negotiate, but it’s usually around 5-6%. 
• Closing Costs: These costs cover all the administrative activities associated with selling a home, such as legal fees, recording fees, title insurance, etc. Closing costs generally range around 6-9% of the sale price.

Documents Required for Selling Inherited Property in Washington, D.C.

Before you can sell inherited property in Washington, D.C., you’ll need to gather all the necessary documentation and prepare all the required paperwork. This includes the following:

• Photo Identification: First, you’ll need a current photo ID to verify your identity.
• Proof of Ownership: This document is typically provided to the heir or beneficiary at the conclusion of the probate process.
• Death Certificate: Several of the parties involved in a home sale, including mortgage lenders and title companies, will require a copy of the death certificate.
• Property Title Records: A clear title is required to sell an inherited home in Washington, D.C. This includes proof that the title has been transferred to your name and evidence that there are no liens or other encumbrances associated with the property.
• Property Tax Records: You will also need to demonstrate that all property taxes have been paid and that there are no municipal or other tax liens on the home. 
• Seller Disclosure: As mentioned above, Washington, D.C. requires sellers to complete and submit a disclosure statement regarding the condition of the property. 

Options for Selling Inherited Property in Washington, D.C.

The three most common options for selling an inherited property in Washington, D.C. include:

For Sale by Owner (FSBO)

Your first option is to sell your home on your own without the assistance of a real estate agent or other third party. Here are some key advantages and drawbacks to keep in mind for this option.

Pros: 

• Net a higher profit by not having to pay real estate commissions (5-6% of the sale price)
• Maintain more control over the selling process

Cons:

• Can be complicated, time-consuming, and confusing
• Lack of industry experience and access to resources could lead to mistakes, delays, or a lower sale price
• Potential tax and legal consequences could arise

Real Estate Agent

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

Pros:

• Real estate market experience and access to more resources
• Experience negotiating with buyers to get the highest sale price
• Documentation and paperwork handled on your behalf ensure tax and legal compliance

Cons:

• Commission and other fees can eat away at your profits
• Lack of control and oversight
• Traditional home sales can take a long time, especially in a buyer’s market

Cash Buyer / Real Estate Investor

The third option is to work with a cash investor who will buy the property in a lump-sum payment. These transactions typically happen much more quickly than traditional sales, but there are a few caveats to consider.

Pros:

• Pay no commissions and, in some cases, no closing costs
• Fast, hassle-free process (sell in as few as 7 days)
• Property can be sold As-Is (no out-of-pocket investment in repairs/renovations)

Cons:

• Sale price might be slightly lower than market rate 
• Not as much room for negotiation
• Potential for fraud if not careful about choosing a reputable cash buyer

Challenges to Selling Inherited Property in Washington, D.C.

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

Multiple Heirs

Under normal circumstances, inheriting a home can be a complicated and sometimes emotional experience. Add in other heirs, each with their own personalities and preferences, and you’ve got an even more complex situation to deal with.

Things can get especially messy when one or more joint owners decide they don’t want to sell.  

In Washington, D.C., it’s not required that all owners must agree in order to sell inherited property. That said, getting the courts involved could add fuel to an already volatile situation. 

If you and your co-beneficiaries are having a difficult time reaching an agreement about the sale of the property, the most amicable option would be to try and work with a mediator or family attorney. Ideally, try to find someone who is experienced in these types of situations.

Title Issues

A property cannot legally be sold in Washington, D.C. unless it has clear title. This means that ownership must have been properly transferred and there are no remaining liens, disputes, or encumbrances associated with the property 

Individuals who inherit property often find themselves having to resolve issues, like paying outstanding debts, negotiating settlements, and dealing with liens and other legal issues. 

If you’re dealing with a particularly complicated situation, it might be worth enlisting the help of an experienced real estate attorney. 

Property in Disrepair

Unfortunately, by the time a home is passed down to its new owner(s), it’s often in need of serious repair. This happens a lot in cases where the decedent was elderly or sick for several years before their death, and simply could no longer keep up with the maintenance of the property.

If the property you’ve inherited needs a lot of work, you could be looking at thousands or maybe even tens of thousands of dollars in repairs just to bring it up to sellable condition. And all of these expenses would have to come out of your pocket. That’s not including the ongoing costs of maintaining the property while you’re fixing it up.

This is one of the main reasons most people who inherit homes in disrepair choose to sell to a cash buyer. While the sale price may be slightly lower than market value, the money you’ll save in not having to invest in repairs should more than make up the difference. Plus, if you sell the home fast, you won’t have to worry about as many maintenance costs.

Some cash buyers (like House Buyers of America) will even purchase the property with all the belongings still inside. This is a particularly attractive option for hoarding situations. The seller can simply collect their payment and walk away from the property, hassle-free.

Avoiding Probate Court in Washington, D.C.

In Washington, D.C., most inherited properties end up going through probate, which takes time and can be expensive. Fortunately, there are a few ways to get around this:

• Living Trust: This type of legal arrangement allows the homeowner to maintain control over the property while they are still alive and then transfer it to the designated heir(s) upon death. Placing assets in a living trust bypasses the probate process and transfers the home directly to the inheritor.
• Joint Ownership with Right of Survivorship (JTWROS): If you co-own the property with someone else, you can set it up as Joint Tenants with Right of Survivorship. With this arrangement the surviving owner automatically inherits the deceased owner’s share of the property upon their death, without having to go through probate.
• Transfer on Death Deed (TOD). 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. 

If you are in the process of planning your estate and are considering one of the above options to help your heirs avoid probate, we strongly advise consulting with an attorney and/or a qualified financial advisor for guidance with your specific situation.