Have you inherited a house, but the co-heirs have different plans? A payout is often the best solution to avoid conflicts and safeguard the value of the family estate. This guide shows you how to manage the process strategically and fairly.
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The topic briefly and concisely
The payout of a co-heir from an inherited house requires the unanimous consent of all members of the community of heirs.
The basis for a fair payout amount is always a professional market value appraisal to objectively determine the current market value.
The transfer of ownership to a co-heir must necessarily be carried out through a notarised inheritance settlement agreement.
An inherited property is often a forced community with significant potential for conflict for a group of heirs. When one heir wishes to keep the property while the others want to liquidate their share, the question “Inherited house payout, how does it work?” is central. Without a clear process, disputes threaten, which often end in a value-destroying division auction, where properties are often sold for 15-30% below market value. This article provides you with a structured 5-step guide to achieve a fair payout beneficial for all parties and maintain family peace.
Step 1: Understand the legal foundations of the community of heirs
A community of heirs automatically arises when a deceased person leaves behind multiple heirs, as regulated in § 2032 BGB. All heirs become joint owners of the entire estate, known as joint ownership. This means that no decision regarding the property can be made without the unanimous consent of all co-heirs. A simple majority vote is not sufficient for significant administrative acts or for a sale. There is no legal claim that co-heirs must pay off another heir. The payout is always a voluntary agreement requiring the consent of all parties involved. If this agreement fails, often the only option left is to sell to third parties or the risky forced partition sale as a last resort. Therefore, the basis for any negotiation is the shared willingness to find a solution that prepares the next step: the valuation.
Step 2: Determine the fair market value as a basis for the payout
The foundation for a fair payout is the objective determination of the market value of the property. This value represents the price that would be achieved in normal business transactions. A professional appraisal prevents disputes, as it provides a neutral and comprehensible figure. The tax office often uses standard procedures for inheritance tax, which can lead to overvaluation. An independent appraisal can save up to 20% in taxes here. There are three common methods for determining value according to the Real Estate Valuation Regulation (ImmoWertV):
Comparative value method: Ideal for owner-occupied houses and flats, where the sale prices of similar properties in the neighbourhood serve as reference.
Income value method: Applied for rented properties, based on expected future rental income.
Cost value method: Used for unique properties without comparable objects, where construction costs and depreciation determine the value.
An accurate appraisal of your inherited property is essential to define the exact amount of payout claims.
Step 3: Calculate the payout amount fairly and accurately
Once the market value has been established, calculating the payout amount is straightforward. It is based on the inheritance share of each co-heir. For three siblings with equal shares and a property value of €450,000, each heir's share is €150,000. If one sibling wants to take over the house, they must pay each of the other two €150,000. It is important to also consider any potential compulsory share claims. If a statutory heir has been disinherited, they are still entitled to half of their statutory share, which can impact the calculation. All agreements, including the assumption of any debts, should be clearly documented to fairly divide the sales proceeds. With a clear basis for calculation, the process can be legally secured.
Step 4: Record the process in the settlement agreement with a notary
The agreement on the payout must, in the case of real estate, be notarised in an inheritance settlement contract. This document regulates the complete distribution of the estate and ends the community of heirs. Without notarisation, the transfer of ownership in the land register is not possible. The costs for the notary are determined by the Court and Notary Fees Act (GNotKG) and are based on the value of the property. For a property with a transaction value of 500,000 euros, notary fees amount to approximately 1,870 euros net (double fee rate). These costs are considered estate liabilities and are usually paid from the estate assets or shared among the heirs. A proper report and a clear contract are prerequisites for the final step: the tax settlement.
Step 5: Consider tax aspects upon payout
When cashing out an inherited house, two types of taxes are relevant. First, there is inheritance tax, the amount of which depends on the degree of kinship and personal allowances. Spouses enjoy an allowance of €500,000, while for children it is €400,000. Secondly, capital gains tax may apply if the property is sold. The ten-year period begins with the purchase date by the deceased, not the date of inheritance. If the house is sold within this period, the profit is taxable unless the deceased occupied it during the year of sale and the two preceding years. The costs of the settlement contract can reduce the inheritance tax. With an inheritance tax calculator, you can make an initial assessment of the burden. If these tax aspects are not considered, financial planning can become significantly more difficult.
The alternative to an agreement: What risks in a partition auction
If the heirs cannot reach an agreement, any co-heir can apply for a partition auction at the district court. This procedure is a form of compulsory auction and often the worst possible solution. The proceeds are often up to 30% below the actual market value. Moreover, the process is lengthy and costly. The costs for the court, the appraiser, and any lawyers can quickly exceed 5% of the market value, further reducing the proceeds. The heirs lose all control over who acquires the property and at what price. Such a situation highlights why a well-informed decision-making aid for the community of heirs is so essential to avoid loss of assets. The best course of action is almost always an amicable agreement.
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Having an inherited house paid out requires a structured and transparent process. From the legal classification to a neutral valuation and on to the notarial contract and clarification of tax obligations, each step ensures the value of the inheritance. Reaching an agreement not only protects against the financial losses of a partition auction of up to 30% but also preserves family harmony. An objective, data-driven evaluation by experts like Auctoa or an initial analysis with our ImmoGPT provides the necessary trust basis for all parties involved. A proactive and fair approach is the surest way to successfully divide an inherited property.
Additional useful links
Gesetze im Internet provides the exact wording of § 1922 BGB, which governs the universal succession and forms the basis of inheritance law.
Gesetze im Internet provides the Inheritance Tax Act (ErbStG) as the legal foundation for inheritance tax.
Bundesfinanzministerium explains the application of regulations for valuing real estate in the context of inheritance and gift tax.
Bundesfinanzministerium offers detailed information on the valuation of developed properties within the framework of inheritance tax.
Bundesfinanzministerium provides general information on inheritance and gift tax.
Statistisches Bundesamt supplies official data and information on construction prices and property price indices.
FAQ
Do I need to pay tax on the payout from an inherited house?
Yes, taxes may be incurred. Firstly, there is the inheritance tax on the value of your share of the inheritance, minus your personal allowance (e.g. €400,000 for children). Secondly, there could be capital gains tax if the property was owned by the deceased for less than 10 years and was not used personally.
Can I force the payout of my inheritance share?
No, a co-heir has no legal right to be bought out by the others. The buyout is a voluntary agreement. If no agreement can be reached, often the only recourse to dissolve the community is a partition auction, which any co-heir can request.
What is a partition agreement?
An inheritance settlement agreement is a notarial agreement in which all co-heirs arrange the distribution of the entire estate. For real estate, this contract is legally required to transfer ownership in the land register to a new owner (e.g., the paying co-heir).
How long does the process take to pay out an inherited house?
The duration largely depends on the willingness of the heirs to cooperate. If everyone agrees, the process can be completed from valuation to notary appointment in 2 to 4 months. In case of disagreement, it can extend over a year or longer.
What if there are still debts on the house?
The community of heirs inherits not only the assets but also the debts. Existing loans must continue to be serviced by the community. In the event of a payout, the new sole owner usually assumes the remaining debt, which is taken into account when calculating the payout amount.
What alternatives are there to cashing out or selling?
An alternative is the joint rental of the property. The rental income is then distributed among the co-heirs according to the inheritance quotas. However, this requires good cooperation in the management and maintenance of the property.
