The Personal Representative

Dealing with Assets

Real Estate

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The Challenges of Selling Real Estate Property in an Estate

No ready market for real estate exists

 Contrary to popular believe, real estate is really not much of a market.   At least, when compared to other markets, such as the stock market, the investment grade bond market or even the grocery market.    The problem is, that each piece of real estate is unique (un-standardized) and the number of buyer participants is usually small and their needs are unique.    Stocks trade every few seconds and they are considered volatile.   Real estate trades slowly and expensively (high transaction costs) and are perceived to be stable (and predictable) in price.  

Unknown future sale price and net proceed amounts.

 Regardless of real estates investment merits, real estate is a thinly traded market at best.   The market price for real estate assets “has to be discovered” by buyer(s) and a seller (you).   When demand is strong the “price discovery” favors a higher price when demand is slower “price discovery” suggests a lower price, advantage buyer.   But demand for property is buyer specific, which can be a fickle as fashion and change as nearly frequently as the tide.   Keep this in mind, when the inevitable question from beneficiaries comes up, “how much are we going to get from selling mom and dad’s house?   The real answer is you really don’t know…nobody does.   Guessing may only give them expectations that you may fail to meet, hold off in giving price estimates based on your own personal judgments.

Transaction Costs

In addition to an unknown sale price, net proceeds will be depleted by brokerage commissions, pending taxes and on going expense.   The standard brokerage commission rates for residential real estate is 5 to 7%, and 7 to 10% on raw land.    But everything is negotiable.   

Keep in mind that negotiating a lower commission rate may lessen the exposure, attention and purchase support you get from realtors.   For a seller, to achieve a sale at an attractive price it is essential to maximize exposure, demand and transaction support.

For sale by owner offerings may be attempted initially (if the property can be shown by the Personal Representative) for a few weeks in high demand markets.   Under normal conditions, most buyers consider a FSBO as a reason to offer the seller 6 or 7% less in offering price (at least).   In addition, FSBO sales do not have “a friend” in the buyers camp (the realtor) supporting the transaction.   Often FSBO sellers receive lower proceed amounts due to weaker demand, discounted prices, and a greater time drain of capital.  

Length of Time to Sell

Time in most regards, is not a friend of the Personal Representative.   Mortgage payments must be made, insurance kept current, landscaping and housekeeping maintained.   Taxes and expense in essence accumulate daily.   Demand for capital also grows over time whether they be; property tax liabilities, federal and state income tax, as does the pressure from beneficiaries to be paid out.   If there is no cash reserves to pay federal estate taxes an extension may be granted with interest.

A real estate rich cash poor estate will have potentially serious liquidity issues.   In some circumstances, it is conceivable that selling some real estate could take years to liquidate.

Realtors emphasize pricing homes and properties at reasonable upon listing because there usually is considerable interest in the first 60 days of listing thereafter, activity and interest generally slows considerably. Accepting this circumstance, it is also incumbent upon the Personal Rep. to have the home looking most presentable at the time of listing.

Distance

It is common today for families to be dispersed geographically from their parent or relatives residences.   In addition, vacation and investment properties are often in different states. Caring for and visiting far flung properties can be a huge time commitment for the Personal Representative. Preparation and planning is essential, have a “things to do list” and arrange for reliable local assistance in advance.    Utilize your local contacts; your realtor, accountant or attorney should be able to offer you referrals regarding some of the services you may need.  

The Unknowns

Vacant homes and properties, are susceptible to; theft, vandalism, pests, frozen or broken pipes and who knows what else?   The house needs to be as secure as possible.   Check all locks to make sure they are working properly. Leave instructions with your realtor to close drapes curtains and blinds when leaving.   As part of the listing agreement a realtor may be willing to systematically “look after” the property and report to you any issues.   Installing a lock box may be worthwhile as long as, access can be limited and records of entry are maintained.   All valuables and important personal effects should be removed before any public access is allowed.

Decay, improved real estate if left alone, will usually decline in value over time (in varying degrees).

 Homes are not like wine, they do not get better as they age.   A small roof leak can turn into a major disaster if no one is there to notice. Wood rots, pools need service, grass grows, and lawns need irrigation.   Outside areas and furniture may get moldy.   Appliances may be more likely to fail due to lack of use.   Expect that you will have issues in advance and have a referral network available to do required maintenance and repairs.   Keep a vacuum near an entrance closet and ask that your realtor use it after every few visits.

Prospective buyers may feel that an “Estate Sale ” gives them a competitive advantage in negotiations.

This may be the case, but it does not need to be "broadcast" when showing the property to prospective buyers.   Talk to your realtor about keeping your matters confidential.   Also limit your discussions with neighbors regarding your circumstances and the sale of the property. Maintaining a positive attitude is important as others may view your frustrations as an opportunity to suggest a lower price.   In the final analysis, when it comes down to the nifty if you have a weak hand, you should act like it and not bluff.   Just don’t show everybody your cards.

Potential stress of “need to sell property” to raise funds for taxes or make distributions to beneficiaries.

A lower price sale property under normal conditions brings a new batch of prospective buyers. Don’t “hold out” for your price too long. Prices may weaken further in the future.   If you have executed your sale strategy and have a professional realtor and the property still hasn't’t sold, realize there is only so much you can do. Your duty as Personal Representative is to do your best, not to be a miracle worker.

Some estate taxes may be deferred with interest if liquidity is very tight.   Also an alternative may exist to get an equity loan on the property (talk to your attorney for advice and discuss the alternative with beneficiaries).

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