What Is an Estate Sale and How Does It Work?

If an estate sale sounds like a big deal, it's 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 home and maximize the value of possessions you no longer need.

But organizing, pricing, cataloging, and displaying a lifetime's worth of personal belongings—from knickknacks to valuable items—can be a mammoth undertaking fraught with emotion and potential family complications. You have to ask yourself, Do I have the time, training, and temperament to do it myself?

When considering your options, it's important to know how an estate sale works, what it's like to enlist the help of an estate sale organizer, the fees you may incur, as well as ways to preserve harmony within your family.

An estate sale is a public sale of a person's belongings, often held after a death or major life change like downsizing. Unlike a garage sale or yard sales, it typically includes the entire contents of a home—from furniture and collectibles to everyday items—and aims to sell them at fair market value. An estate sale typically spans one or more days and invites the general public to browse and purchase items at set prices—often on a first-come, first-served basis.

Estate sales can be managed by professionals, also known as estate liquidators, or by the owner, and they're designed to simplify the process of parting with possessions while maximizing their value. But giving away a sofa or a piano sounds easier said than done. Having someone else handle this process is priceless—especially during a time of stress, such as after a loved one's death, when even simple decisions might be difficult to make.

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 a 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."

An important part of estate sale preparation involves establishing the fair market value for each item. "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," Julie says. They may also have expertise in certain areas, such as art or antiques, to identify value the current owner may not be aware of. In one case, Julie says six painted cabinet plates turned out to be exceptionally rare pieces created by Queen Victoria's favored artist—and sold for more than $35,000.

In a best-case scenario, an estate sales professional would help you get maximum value out of your assets in a structured, safe, and systematic way. Depending on your agreement, many estate sale professionals can even coordinate with charities or other organizations to unload any unsold items.

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."

It's also helpful to obtain referrals and talk 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 generally covers market research, promotion, 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 estimate—at least $10,000, in some cases, says Claudia McLaughlin, owner and principal at CMFTO, a Chicago-based home design and organization firm that specializes in estate sales.

In some situations, a certified personal property appraiser may be brought in to confirm whether items may have 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).

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 the fair market value at the time of inheritance.

For sales that take place soon after a person's passing, the property isn't likely to appreciate enough to have much of an impact on heirs' taxes. But there can be exceptions, such as when the estate includes artwork whose value suddenly increases.

If you're selling your own assets for downsizing purposes, you'll find that the fair market value of most household items tends to be lower than the original purchase price. This type of personal loss typically is not tax-deductible. Collectibles with appreciated value, however, may trigger a capital gain.

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

Much like other aspects of estate planning, proactive, productive family communication can be critical.

When preparing for a sale, it's wise to walk through the home with family members and record a list of what each person would like to keep, what will be for sale, and what will remain off the market. Disagreements can often be avoided if everyone is on the same page.

If you're an estate owner planning for the future, you might prepare your heirs by writing a legacy love 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, as it establishes your intent and helps to diminish potential disputes after you're gone. Ultimately, one of the greatest gifts to your beneficiaries can be a lack of conflict over personal possessions.