How are you supposed to determine the value of an inherited house?


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Dear Real Estate Adviser,
How do I determine the fair market value of an inherited home at the time of a relative’s death?
— Al

Dear Al,
First, I’m sorry for the loss of your family member. As for the often-sticky estate business at hand, there are a number of ways to come up with a reasonably accurate fair market home value, which you’re no doubt doing for tax purposes. But it is worth noting that such valuations are done for divorce settlements and when a government is taking property through eminent domain.

Best indicator: A sale price

The most defensible value indicator in the eyes of the IRS, provided the home is sold within about a year of your relative’s death, will be its actual sale price, unless it’s sold off at a deeply discounted, below-market sum to a family member or other friendly party. In that case, the IRS probably wouldn’t accept that as fair market value. Besides, a jealous estate beneficiary might step up to complain and force the value issue anyway. Avoid this type of sale because you or the estate could be hit with a tax on the difference.

Or hire an appraiser

To arrive at that fair market value asking price, you can hire a professional certified appraiser who will give the property a once-over, plus look at “comps,” or the prices of comparable sales of like homes in the general vicinity, to help deliver an estimate. Alternatively, you can ask 2 or 3 real estate agents for such comps and request they each walk through the place to give you a more refined estimate. Agents will typically do this for free, hoping this is a forerunner of getting your listing. You should do a little comp research of your own, using the various Web listing services for price comparison to be sure a particular agent isn’t just romancing you with unrealistic expectations.

Better yet, wait

If market conditions make it more logical to hold on to the property for now, or if the disposition is bogged down by probate, your sale may be delayed. In that case, I’d be reluctant to bring in an appraiser until a listing is imminent, because the home’s fair market value might have significantly increased or decreased from the relative’s date of death.

There’s 1 for you, 19 for me

Make sure the sale will not be taxable. That would depend on the heirs’ basis, which in the case of inherited property is the home’s value, including improvements, on the decedent’s death date. However, most sales won’t net enough for you to worry about the sellers’ IRS maximum profit exclusion amount of $250,000 for a single person or $500,000 if married and filing jointly. A qualified accountant or estate attorney, of course, may come in handy if there are any unusual nuances or complications.

But don’t tarry. At this writing, resale markets remain stable to robust in most areas of the country, but that’s always subject to change, as we learned last decade.

Good luck!

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