Buying from an Estate

8 September 2017

There are many ways of coming across properties to purchase, which are not always obtained through the most common processes of finding a property online or through Real Estate listings. Sometimes an opportunity may present itself which may allow those who wouldn’t normally find themselves in a strong equity position being able to entertain the idea of owning their own home. One of those pathways is through the purchase of property in an estate sale. The basic definition of an estate sale is the disposal of a deceased persons assets. If you are a descendent of the person who has passed, you may find that you are entitled to a share of the value of the property less any debt that may still be remaining.

If you are the only descendent then the transfer of ownership is a very straight forward process unless there is a large level of debt in place. I recall one occasion, where a person came to see us having lost both parents in a relatively short space of time, with no Insurances to clear the debt or cover funeral expenses. More than that there was a significant amount of borrowing secured by the home which was being left to the daughter, but unfortunately, she was not in a position to be able to take over the debt due to her own income and debt position, and the house had to be sold. Two lessons came out of that situation, which were, firstly, to try and minimise the amount of outstanding household debt when you get to your later years, and two, take out Life insurance if you have any financial liabilities but may want your property to pass down to your descendent’s.

If there is more than one child who is in line to inherit a property, then there may be a few more issues to deal with. It may be that the family have had discussions previously as to what will happen with the family property on the parent’s passing. This could be something as straight forward as one child receiving the property, while another receives other assets, or an arrangement that the property is sold with any proceeds of the sale being split among the beneficiaries of the estate. Quite common though, is that one person may have a vested interest in the property left in the estate, and has expressed a desire to purchase their siblings shares. We’ll use an example of three siblings all entitled to an equal share of a property worth $450,000. In order for one sibling to take over full ownership, they would need to “buy-out” the remaining sibling’s two-thirds shares totalling $300,000. Unless they have that sum sitting available themselves, it is more than likely that they would need to obtain a home loan to pay their siblings what they are entitled to. The beauty of purchasing in this way is that rather than having to find a cash deposit, the person who is buying can use their own one third entitlement as equity towards the purchase. They are in essence putting their $150,000 inheritance towards the purchase of a $450,000 property, providing the bank with 33% equity, and just need to be able to demonstrate an ability to service the loan amount required. We have even seen situations where an estate has asked the beneficiary to obtain a loan to the maximum level they can afford, with gifting from the estate reducing the required purchase price. Whatever the family situation or final required outcome it can be beneficial to discuss any proposed estate purchase with your experienced adviser and the estate’s lawyer as early as possible.

Published In The Whakatane Beacon

This post was written by

John White - who has written 90 posts

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