Many circumstances in life can require you to shoulder responsibilities that you weren’t quite ready to undertake. Perhaps one of the most demanding and overwhelming responsibilities occurs when a parent passes away. No matter what the circumstances are, the death of a parent is always difficult. Not only are you dealing with the emotions of their passing, but there are so many facets of their affairs that need to be handled, like selling their home. Selling a house after a parent’s death could be an unnecessarily lengthy process if you don’t know all your options or even where to begin. Depending on the property condition and other factors, you may be able to choose from one of the following options.
1. Sell to an investor
You go to check the mail at your parent’s house, and the mailbox is overflowing with letters and cards from investors. As if by magic, they all seem to know the house is vacant and want to purchase it. There are pros and cons to selling to an investor, and it may or may not be the right for your situation. If you are interested in a fast closing, selling “as is” and cash offers that will most likely be well below market value, then this could be your answer. Working with an investor can be tricky. Many times the person who sends the letter is not the buyer at all, but rather a wholesaler who may not tell you that he or she is not the buyer. In these cases, the “wholesaler” will sign a contract with you and then sell the contract to the real buyer. In these types of purchases, there is added risk involved. If you do decide to sell to an investor, it is best to sell to the actual buyer (one who intends to renovate and then resell or buy and hold as a rental property). Either way, have an attorney review the contract, be certain to get a deposit and make sure to ask for “proof of funds” so you know the buyer can close the deal. It also wouldn’t hurt to ask for references of other sellers that the investor has bought the property from — and always be wary of scam artists.
2. Sell via the auction method
Sometimes the word “auction” carries a stigma that something must be wrong with the property. However, this frequently not the case. Selling at auction can be a great way to sell a property because auctions draw the right buyers together at the same time, in a competitive environment (as opposed to a standard listing that will bring one potential buyer at a time over a longer period). At auction, you know your audience is made up of serious buyers and not just “lookers.” Another upside of the auction is that the bidding gets competitive, which will often drive the price beyond the price you are seeking.
There are several types of auctions and different ways to conduct auctions that we will explain, along with the pros of using that type of auction:
a. Absolute Auction – At an absolute auction, the property will sell the day of the auction, to the highest bidder, regardless of the price.
b. Reserve Auction – A reserve auction is an auction where there is a predetermined price set by the seller as the minimum bid the seller will accept. The reserve price is only known by the seller and auctioneer.
c. Posted Reserve Auction – In a posted reserve auction, there is also a predetermined minimum price, but the seller elects to make the price known before the auction.
There are also various ways auctions can be conducted, with the strategy determined based on the individual situation:
- Live Outcry Auction – A live outcry auction is the most common type of auction and often what first comes to mind when people think about auctions. This is where the auctioneer “calls” the auction in front of the bidders using an “auction chant.” Live Outcry Auctions are not only effective but exciting and a lot of fun to attend.
- Sealed Bid Auction – A sealed bid auction is a type of auction where bids are submitted and accepted until a designated date and time. Sealed bid auctions can be a reserve, posted reserve or absolute. The bids are collected by the auctioneer and kept confidential until the bidding period ends. Then all bids are opened by the auction representative or the seller, and the seller reviews and will determine which offer to take.
Further, there are several creative ways to set the terms for an auction (provided every bidder is afforded the same buying opportunity and terms of sale)
a. The seller could opt for a “Time-Deadline Auction” without a public outcry. With a “Time- Deadline auction,” a cutoff date and time is set where bids will no longer be accepted beyond that date and time. With this option, it is acceptable, or the auctioneer to inform bidders as to where they stand in the bidding, whether their bid is the highest or by how much they have been outbid, using that same transparency as in a Live Outcry Auction. This is helpful in driving the bids up to what buyers are prepared to offer as their highest bid.
b. As expected, online Auctions are becoming very popular as well. Online auctions can be done using “Time-Deadline Auction,” Absolute, Reserve, Posted reserve, or Sealed bid auction.
Now that we have discussed different ways of selling a house using the auction method, if it is right for the particular property and situation, here are the benefits to the seller:
a. The seller has control over when the property will sell. Since setting a date makes the sale date certain, the seller can plan appropriately what they want to do after the sale and specifically when they can do it.
b. The seller also knows what price they will get for the property by setting the price (if it is a reserve auction and priced within reason, of course). The price should be based on a market analysis of the property which must be done to help determine a reasonable reserve price.
c. One of the most favorable pros of selling at auction is that the sale price (the winning bid) is also the net amount the seller will receive. This holds true because there are no associated costs or fees taken out of the selling price. The winning bidder pays all closing costs and a buyer’s premium (instead of the seller paying a broker’s commission and closing costs).
d. An additional and very significant benefit of selling by auction is that there are no contingencies, such as financing or inspection contingencies. Because at auction the property is typically sold “as is-where is” the buyer signs a contract that binds them to the property in its current condition. The contract also specifies a date certain for settlement, typically within 30 days of winning bid, without any clause allowing for cancellation related to financing.
e. Another advantage of selling at auction is that before the auction, bids start to come in. As the bids come in, the market is telling the seller what buyers are likely to pay for the property come auction day.
3. List with an agent
Listing with a real estate agent that you trust, is another way to sell your parent’s house. It is the more traditional route of selling a home and can offer an excellent return if the circumstances are right. For example, if you take something in a standard development where the house is nice and has already been updated, it would be a prime candidate for a traditional listing. If comparable units are selling and everything is up to date, it would make more sense to do a standard listing, than to pursue an auction. Additionally, agents can market to their other clients who are looking for the features of the house you are selling. When listing with an agent, they are contracted with you to work with your best interest in mind, not the buyers.
If you aren’t sure which option is best suited to your situation, check with a company who can counsel you on all of your options. A company like Trusted Estate Partners can provide enough information to help you make an educated decision based solely on the facts.