The Essential Executor's Handbook: A Quick and Handy Resource for Dealing With Wills, Trusts, Benefits, and Probate (2016)
The Realtor: The Miracle Worker
Almost all of the members of your team perform critical tasks to keep you on track and out of trouble. But a good realtor is essential. While you might be able to muddle through without your accountant or even without your attorney, trying to sell your decedent’s real estate on your own gives a whole new meaning to the word “foolish.” As probably one of the single most valuable assets your decedent owned, you must handle it with care. Sell it for less than it is worth and your beneficiaries will not be happy with you—sometimes unhappy enough to attempt your removal, perhaps unhappy enough to sue you.
However, before we delve into the importance of your realtor, it is important to first mention that you may not even have the authority to sell the real estate. In some states, real estate may pass directly to the decedent’s heirs (i.e., next of kin) at the moment of death. It is often pointed out that we don’t have this result provided the real estate was in trust, had a joint owner, or was specifically given to someone in the will. Nevertheless, the importance of this quirk in the law should never be underestimated. For example, let’s say that your decedent had a living trust but had no known will. Let’s also say that the decedent was a widower with seven children. In some states, the real estate would then be completely out of the executor’s control. Title would be vested in the seven children. As a result, all of the children would have to be involved in the sale (i.e., signing listing agreements, contracts, deeds, and being present at closing). To make matters worse, some title companies, not being certain whether the executor has an interest in the property or not but keen on protecting themselves, would require that all seven children and the executor be involved in the sale. And what if one of the children is a minor? In that case, the court would need to appoint a legal representative for the child (often referred to as a guardian ad litem) and the title company would then require the six adult children and the executor and the guardian ad litem to be involved in the sale. Given half a minute, I can conjure up a dozen more unexpected and infuriating results because of this law but you get the point. Before you list the property for sale, call your lawyer and make certain that you, the executor, have sole power to list it and sell it.
Comfortable with your authority to sell the real estate, your next job is clear. You must find and hire a good realtor. You can use a referral service like Angie’s List, but I strongly recommend a referral from someone you know and trust; someone who has used the realtor themselves. When my parents passed away, I found myself without a realtor I could trust since my parents resided in Pennsylvania and I was a Virginian. But I remembered that my in-laws were also from Pennsylvania and were pleased with the realtor they used. That realtor turned out to be more competent and professional than I could have hoped. She suffered with me through the endless problems associated with homes that appear to have been all but abandoned. But through shear patience and determination, she got the properties sold.
Once you have selected a real estate agent, the agent will take over for you but, in a nutshell, there are five steps in the process of selling real estate: Assessment, Listing, Negotiation, Contract, and Closing. And the Negotiation and Contract steps may have to be repeated more than once. In fact, my Pennsylvania real estate agent and I went through about a dozen rounds of negotiation and contracts with about a dozen different buyers. How does someone sign a contract and then get out of it? Let me count the ways. But more about that later in this chapter.
When you have found an agent, the first thing you will need to do is sign a Listing Agreement. The Listing Agreement usually gives the agent and the agency the exclusive right to sell a specific property for you. A description of the property, usually adorned with flattering photos and a colorful, if somewhat exaggerated, description of its many fine features, then goes onto a national database (known as the Multiple Listing Service) for other real estate agents to review. The hope is that an agent who represents a prospective buyer will take note of your property and make an appointment with your agent to view the home. In addition, your agent will probably publish a similar advertisement in the real estate section of local newspapers, conduct an “open house” for potential buyers who don’t have an agent, and employ a myriad of other advertising techniques to get your property seen.
Prior to actually posting your property on the Multiple Listing Service, your agent will probably want to assess its condition. The agent knows what damage is cosmetic and what damage is a deal breaker. In one of my parent’s homes, it was hard to miss a gaping hole in the ceiling. Looking up at it, I said, “Maybe we could just sell it as is.” Her response was, “yeah . . . no.” I was instructed as to precisely what required fixing and what could be overlooked. And the work had to be completed before she would even consider showing the property to anyone.
Once the repairs are complete and the house is on the Multiple Listing Service, your agent will begin fielding the offers. The offers will be forwarded to you for acceptance or rejection, but a good agent will advise you as to whether the offer is reasonable or just “low-balling” (i.e., an unreasonably low offer made in an attempt to convince you that your asking price is way too high). In addition to “low-balling,” buyers and their agent may ask for any number of concessions, ranging from including the appliances to paying the closing costs. Your agent will advise you accordingly. This is the Negotiation phase of the sale.
Negotiation is more art than science. That is to say, you and your agent need to be creative. First of all, the agent will attempt to create an emotional response in the prospective buyers. Although it may seem silly to a hardened business person, making sure that the lawn is cut and trimmed, that the bushes are neatly manicured, and that years of overgrowth have been removed creates what real estate agents call “curb appeal.” In other words, the sale begins from the moment the home comes into view. It is true that some people can look at what amounts to a shed and see a palace. However, most people will just see the shed.
Inside the house, it is not enough that repairs have been made. Real estate agents use a tactic called “staging.” The home becomes a set on a stage. There is furniture. Flowers in the foyer. A bowl of fruit in the kitchen. Sometimes, there is even the aroma of freshly baked cookies. In short, prospective buyers are made to see a home and not a hovel. Again, creating a positive emotional response is critical and a good real estate agent will be a master of it.
Beyond making your decedent’s property appealing at a visceral level, there are some additional tried and true negotiation tactics you need to consider. First, never low-ball the property. You may believe in your heart that the house isn’t worth a quarter and two box tops but you cannot let a prospective buyer know that. Instead, go to a free appraisal site such as Zillow.com and see what they think your property is worth. Such websites base their appraisal on what homes of similar size, age, and amenities have been selling for in your neighborhood. Of course, you could use an actual appraiser but that is going to cost you at least $500. On the other hand, as I mentioned in Chapter 6, the IRS prefers a valuation by a licensed appraiser.
Second, do not take the first offer. Wait and see what else comes through the door. You and your agent may have a pretty good idea of what the property is worth, but some offers may surprise you. In fact, if you get at least two offers, your agent may be able to prompt a bidding war. It is human nature to want something just because somebody else wants it (a phenomenon that has kept the art industry in business for centuries). Just mentioning that another prospective buyer has offered more will usually net you a better offer.
On the other hand, you may be sitting on a property that seems better suited for the slums of Mumbai and no amount of curb appeal or staging is going to change that. At best, it’s a fixer-upper and so it has to be sold that way. In such cases, you can sell the house “as is.” What you get in such cases is far, far below what Zillow just told you the house should be worth. But sometimes you have no choice. Just a heads up: Not everyone understands the concept of “as is.” When I discovered that additional repairs to my parents’ house were going to cost more than the value they would add, my agent offered the house for sale “as is.” One young couple said that they would buy the house “as is” if I fixed it up first.
Once a deal has been stuck, your agent will reduce it to a contract that both you and the buyer will sign. It is imperative that you review the contract carefully. If you don’t feel up to the task, ask your lawyer to review it to ensure: (1) that the contract correctly and thoroughly reflects the deal that was struck, and (2) that there are no unreasonable escape clauses. There is usually one or more reasonable escape clauses for the buyer. The most common of these is a clause that makes the sale contingent on the buyer obtaining financing (i.e., getting a mortgage). Another common escape hatch is making the sale contingent on the approval of the buyer’s home inspector. Again, not an unreasonable request. In the case of my parent’s residence, it was the home inspector clause that allowed at least five prospective buyers to tear up the contract. As it turns out, despite six months of repairs, nobody noticed the mold growing in a crawl space. Rather than further costly delays, and with the agreement of my agent, I sold the house in “as is” condition for $50,000 less than our original asking price. Apparently, a hole in the ceiling is always a deal breaker; mold, not necessarily.
After the contract has been reviewed and signed by both you and the buyer, you proceed to closing. In times past, both parties and their lawyers would show up at a designated location (usually the title company) to sign all of the documents related to the sale, such as the deed, the mortgage, and the promissory note, as well as a plethora of disclosure documents intended to prevent the seller from making false claims and, essentially, pulling a “fast one” on the buyer. These days, however, it is more common to give your agent a limited power of attorney to attend closing in your place, especially if you live 200 miles away like I did. Yet one more service that your agent provides.
If you are really, really lucky, your decedent’s home will be immaculate and in spectacular condition. If not, you will probably want to bring in a contractor for repairs before your agent shows the house to a single prospective buyer.
Finding a good contractor is not quite as easy as finding a good real estate agent. Mention that you have a house in need of repairs to any friend or acquaintance and you will quickly be handed phone number for brothers, boyfriends, in-laws, cousins, neighbors, and/or all of their respective spouses. Unless, you have first-hand knowledge of the person’s work, you should just smile, say “thank you,” and then, as soon as you’re alone, throw the numbers away—mainly because you don’t know the motivation for the referral. You just might be having this contractor thrust upon you because he hasn’t worked in six months and not because he does great work. Instead, go to a review website such as Angie’s List. I have used such websites on numerous occasions and rarely have I been disappointed.
Once you have found a contractor, ask for an estimate (i.e., a detailed projection of what each repair will cost) and then discuss the terms of payment. Most real estate repair work is paid in increments that are tied to the progress that has been made. For example, when the floor has been refinished, the contractor is paid for the cost of refinishing the floor as set forth in the estimate. When the hole in the ceiling has been repaired, the contractor is paid for that part of the overall estimate, and so forth and so on. Most contractors have their own contracts that explain these incremental payments. If not, ask your lawyer to draft one for you.
The contract should also spell out the time needed to complete each repair and should include the phrase, “Time is of the essence.” “Time is of the essence” is your escape clause if the work is dragging on past the promised completion dates. Your job is to administer the estate in a timely manner and that includes liquidating assets such as homes as quickly as possible.
It is also important that your contractor be bonded and insured. Bonded means that you are protected if the contractor doesn’t do his job. In other words, if the contractor doesn’t complete the job, does a poor job, doesn’t pay his subcontractors, or fails to get the necessary permits, it’s not your problem and you are made whole. Insured is similar to your homeowner’s insurance. If the contractor burns down your house, you’re covered.
Once the work is underway, you need to monitor the contractor’s progress. This can be time-consuming and frustrating but it needs to be done. When my parents passed away, and I was faced with massive repairs to their homes, I hired a contractor in Philadelphia on the strength of a friend’s referral. He was skilled and did great work but neither my friend nor the contractor happened to mention that he was also a full-time high school teacher. Jobs that should have taken weeks stretched into months. Since I live in Virginia and the homes were in Pennsylvania, I was forced to use my weekends to drive to Philadelphia (3 ½ hours each way) and check on the progress. Had I not been there to oversee and nag, I am fairly certain that the repairs would still be a work in progress to this day, five years later.
However, there is an alternative to contractors. If you are a very fortunate executor, your decedent’s home will be located in a desirable neighborhood—one where the value of the lot far exceeds that of a 1950’s era, one-level, barracks-style, post-war, wreck of a rambler starter home that has suffered from substandard construction these past six decades. These are known as “tear-downs.” And your real estate agent advertises it as such. In the Washington, D.C., suburb of Vienna, Virginia, it seems like almost every home sold is a tear-down. Houses that are so old and in such disrepair that they make a mobile home look like a Malibu beach house are routinely sold for top dollar and then razed to the ground. What replaces them are mini-mansions that come within inches of the property line on all sides. But, like I said, a very desirable neighborhood. So, if you find yourself with a “tear-down,” consider yourself blessed.
A good real estate agent is an enormous asset. But before your agent can help you liquidate the property, check with your lawyer to ensure that you, as executor, have the sole power to sell it. After that, have your agent assess the condition of the property. If repairs are needed, use an independent referral site to find a good contractor. Once repairs are completed, your agent will list the property and begin fielding offers. Always negotiate from a position of strength and give the impression that your decedent’s real estate is a genuine find for anyone looking to buy. Once you have an offer, have your lawyer review the contract for unreasonable escape clauses and, if the contract is reasonable, sign it. Then proceed to closing.
Things to Do
1. Consult your lawyer to assess your authority to sell.
2. Interview and select your realtor.
3. Select a good contractor as needed.
4. Have your appraiser value the repaired property.
5. Have your lawyer review the sales contract.