Estate Sale Need-to-Knows

An estate sale sounds like a big deal because it can be. Although they are often held by family members following a loved one's death, they can also be opportunities to downsize your living space and maximize the value of belongings you no longer need.

Anyone considering an estate sale has basically two choices: Hire someone or do it yourself. But selling what is often a lifetime's worth of possessions can be a mammoth undertaking fraught with emotion and potential family complications.

"An estate sale involves everything in your home that you want to be sold—from knickknacks to valuable artwork," says Susan Hirshman, director of wealth management at Schwab Wealth Advisory, Inc. "You have to ask yourself, Do I have the time, temperament, and training to do it myself?"

That's why it might be a good idea to consider enlisting an estate sales professional, also known as an estate liquidator. But when facing the option of holding an estate sale, it's important to know how the process works as well as ways to preserve harmony within your family.

Organizing, pricing, cataloging, and displaying your possessions for sale can be a very time-consuming and emotional process. An estate sales professional in a best-case scenario would help you to get maximum value out of your assets in a structured, safe, and systematic way.  Furthermore, depending on your agreement, many estate sale professionals can coordinate with charities or other organizations to unload any unsold remaining items.

"You might think it's easy to give a sofa away, but it's actually not," Susan says. "Having someone handle this process is priceless—especially when in a time of stress, such as after a loved one's death."

A well-executed estate sale usually requires substantial advance planning and independent parties, says Julie Hall, director of the American Society of Estate Liquidators (ASEL). "These can involve emotionally charged situations, such as sudden death, divorce, or chronic, long-term illness," she says. People who wait too long "may find themselves in a crisis mode, and that's when hasty decisions can be made."

Experts suggest meeting with two to three estate sale professionals within your community. Research them online, check client reviews, and make sure they have insurance to cover liability and are "bonded," which helps ensure you get paid on time. ASEL members are certified under three different designations and must follow a "code of ethics."

"It needs to be a good fit for both parties," ASEL director Julie Hall says. "Use your gut instinct, ensure you have a contract, and make sure your questions and concerns are addressed."

In addition, Susan recommends asking for referrals and talking to professionals in related industries, such as an estate attorney, CPA, financial advisor, or a funeral home director. Good questions to ask include:

• How long have you been in business?
• How many estate sales do you conduct a year?
• What's your marketing plan?
• How do you "price" items and establish fair market value?

Most estate sale professionals work on a contingency basis—that is, their fee is typically a percentage of total sales. Normally that's somewhere between 35% and 40%, which covers market research and promotion, plus clean-up and haul-away services.

With that in mind, it helps to have a sense of how much your sale may generate. Some companies require an estate's inventory to meet a minimum dollar estimate—at least $10,000, in some cases, says Claudia McLaughlin, owner and principal at CMFTO, a Chicago-area company that specializes in estate sales.

An important part of estate sale preparation involves establishing fair market value for each item. That's the price at which an item would change hands between informed, willing parties in an open market. "Estate sale companies research what comparable items have sold for, not the asking price on the internet, which can be significantly higher than an item's actual value," says Julie Hall of ASEL.

An estate sale professional may also have expertise in certain areas, such as art or antiques, to identify considerable value the current owner may not be aware of. In one estate sale case, Julie of ASEL says a client was offering six old painted cabinet plates that turned out to be "exceptionally rare" pieces created by Queen Victoria's favored artist. The plates sold for more than $35,000, she says.

In some cases, a certified personal property appraiser may be brought in to confirm whether an item may have truly significant value—in which case, you may wish to contact an auction house to maximize the item's earning potential. Look for appraisers who are certified through associations such as the International Society of Appraisers (ISA), Appraisers Association of America (AAA), or the American Society of Appraisers (ASA).

Be aware that estate sale proceeds may carry tax implications, depending on the situation. Inherited property, for instance, may be subject to capital gains tax if it sells for more than what the fair market value was at the time of inheritance. If the sale takes place in a reasonable timeframe after a person's passing, generally the property isn't likely to appreciate much, if at all, to have much of an impact on heirs' taxes, Susan says.

"But there can be exceptions," she says. "If the estate includes art that suddenly gains substantially more value if the artist dies, for example."

For those selling their assets while still alive, the majority of household items tend to have a lower fair market value than the original purchase price. Therefore, they can qualify as a personal loss that is not deductible. Collectibles whose value may have appreciated, however, may trigger a capital gain.

"In all cases, it's wise to consider consulting a tax professional before proceeding with an estate sale," Susan says.

Much like other aspects of estate planning and preserving family wealth, proactive, productive family communication is critical, Susan emphasizes.

"You should walk through the home with family members and record a list of what each individual would like to keep, what will be for sale, and what is off the market," Susan says. "Many disagreements can result if everyone is not on the same page."

If you're an estate owner planning for the future, you might prepare your heirs by writing what Susan calls an "I love you" letter to them, detailing why you want to leave certain items to specific family members. "You might say, I want Joe to have this painting because he would always say it reminded him of happy times."

A letter like this should come from the heart, hence its name, as it establishes your intent and helps to diminish potential disputes after you're gone. "These steps are essential so at the end of the day there's no argument over personal possessions," Susan says.