It is possible and legal for an executor to purchase a home from the estate, so long as the deal remains at an arm’s length and the other beneficiaries agree on a plan. —-
If you’ve been named the executor of an estate, you have a crucial job. Essentially, you’re responsible for making sure all of an estate’s assets are accounted for and kept safe, paying any outstanding taxes or debts out of the estate’s funds, and divvying up the remaining assets among any beneficiaries according to the stipulations outlined in the will.
There’s a good chance a house is one of those assets — and perhaps the largest. In most cases, the executor sets about putting the house on the market and selling it so the proceeds can be distributed to any heirs. But what if you’re one of the beneficiaries (or perhaps the only beneficiary) and you’re interested in buying the house instead of selling it? Is it legal for the executor to sell a house to himself or herself?
To help answer this question and prevent any missteps, we spoke with some probate attorneys and a top real estate agent to gather the information you need to make a smart and legally sound decision.
Can the executor purchase a home from the estate?
According to estate planning attorney Adam Ansari, it is legal for an executor to purchase the home instead of selling it, as long as the executor purchases the property for fair market value and all of the beneficiaries agree with the terms of the sale. Sometimes, that requires jumping through a few hoops.
What if the executor is the sole beneficiary?
The simplest scenario is when the executor is the sole beneficiary of the estate. In that case, the executor wouldn’t have to go through the purchase process, since the house was already bequeathed to them — but there would be some steps involved in transferring ownership.
If the decedent set up a transfer-on-death (TOD) deed, that would allow for an easy transfer of the home and any other assets to the executor/beneficiary without having to go through the probate process. In this scenario, the executor wouldn’t actually need to initiate a sale — he or she would just need to file the death certificate with the courts.
If the transfer-on-death deed was not set up before the owner passed away, but the executor is the sole beneficiary, the executor would need to go through probate to change the title to reflect the new ownership.
What if there are multiple beneficiaries?
When multiple beneficiaries are involved, the situation gets a little more complicated.
Matthew Harber, a top real estate agent in Tacoma, Washington, says it could become a problem for the buyer if any other beneficiaries contest the chain of title and claim that they should have benefited from the sale.
“If there are other heirs involved, it comes down to whether it’s an amicable dynamic,” he says.
“Assuming it’s amicable and there are no issues, everyone just has to agree on a price and then all of the beneficiaries will get their portion of the sale.”
If there is contention among the beneficiaries, Harber says you can take one of two main routes:
- Hire an appraiser to determine what the property is worth, and a judge will most likely determine fair distribution, or
- Put the house on the open market to gauge its market value.
For the smoothest possible sale, it’s important to make sure everyone is agreeable to the sale and to draw up a plan before starting the process.
“After the general plan is in place, the assets are liquidated or transferred in accordance with the plan, which is based on the will and law,” explains Rajeh A. Saadeh, a probate attorney who practices in New Jersey. “If there are beneficiaries and the house is being sold, the real estate sale must try to maximize the net proceeds from the sale so the beneficiaries can receive the maximum amount after creditors are paid.”
What needs to happen for an executor to purchase the home?
The two most important steps are to make sure all beneficiaries agree with the executor purchasing the home and to settle on a sale price. If there are any differences in opinion or outright conflict, it usually emerges during this stage.
Attorney Jamie Hargrove, CEO of NetLaw Group, explains that in most cases, the executor should secure a third-party appraisal and then seek the approval of the beneficiaries. If the beneficiaries don’t agree with the appraised value, the executor can seek approval from the probate court. The specific rules surrounding this process vary by state.
But even if the executor orders an appraisal, it might not be an indication of the home’s true value.
“No one really knows what a piece of property is worth until it is actually transferred in an arm’s length transaction between independent, unrelated parties — a willing seller and a willing buyer,” Hargrove explains. “Appraisers make every attempt to find that true value, but in many cases, multiple appraisals can be significantly different.”
Once the executor has submitted a written offer to the court and all beneficiaries have consented to the sale, the remainder of the process is similar to a traditional purchase. The executor will sign the purchase contract, come up with any funding needed to complete the purchase, and go through the closing process, at which point the payment is made and the title is transferred to the executor.
What exactly is an arm’s length transaction?
An arm’s length transaction is a deal made between a buyer and a seller who are both acting independently in their own self-interest with no conflict or collusion. Both parties have access to all of the same information, with no “insider data” to give one of them an advantage. Arm’s length transactions are typically easier to finance, are quicker and more convenient, and don’t present any risk of personal tension or conflict.
In contrast, a non-arm’s length transaction is where the buyer and seller have a relationship that can lead to the price of the property being manipulated to one party’s benefit. When an executor is attempting to purchase a house from an estate with multiple beneficiaries, this isn’t a purely objective arm’s length transaction — but that doesn’t mean it can’t happen.
To complete a non-arm’s length deal smoothly and within legal bounds, it’s a good idea to work with a real estate attorney throughout the entire process to help protect the rights and interests of everyone involved.
The last word: Can an executor purchase a home themselves?
As long as the proper procedures are followed — which means making an offer that reflects fair market value, and then either getting signed consent from any other beneficiaries or obtaining approval from the courts — it is possible and legal for an executor to purchase a home from the estate.
If you’re interested in starting this process, it’s in your best interests to consult with a knowledgeable real estate agent and perhaps a probate attorney who can guide you through the steps and make sure you’re complying with all local laws and regulations.
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