All in the Family: 5 Tips for Selling Your Home to a Family Member
Putting your home on the market and actually finding a qualified buyer that wants to purchase it often turns into a long, drawn-out process. This is a big reason that many homeowners jump at the chance to sell their home to a family member they trust.
However, selling your home to a family member can be a sticky situation, as well. After all, mixing business with family is sometimes tricky, and if you need the income from your home, it could be opening up a real can of worms if the family buyer defaults.
That doesn’t mean you can’t sell your home to a family member – it just means you need to do it the right way.
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1. Hire a Real Estate Attorney
When individuals look to sell their home to a family member, they are selling to somebody that they know and trust. For that reason, many sellers basically make handshake agreements and don’t take care of all of the necessary paperwork in a timely fashion.
To avoid that, and to keep any potential problems from becoming issues, hiring a real estate attorney when selling your home to a family member is a good idea. A real estate attorney is different than an agent, which you don’t need because you have a buyer – they’re just going to help make sure the paperwork is properly filed.
A qualified real estate agent can also point out potential tax or mortgage problems you or the buyer might have if you go through a certain type of sale.
2. Make an Owner-Financed Sale
An owner-financed sale is basically an agreement that allows the buyer to make monthly payments toward a home directly to the current owner. It’s essentially as if the seller is acting as the bank in this case.
The real benefit of this is that you can set monthly payments, based on where you want them to be. This means the seller can make sure they get enough to live comfortably, while the buyer may be able to pay a little less than what a standard mortgage would offer.
3. Consider a Quitclaim Deed
A quitclaim deed is basically a transfer of property ownership from one person to another. In many cases, the person buying the property takes title of the home for a set amount of money – often the amount of interest the seller has accrued in the property.
It should be noted that a quitclaim deed will not get the new buyer out of any financial obligations or liens placed against the property – as these stay with the property, not the owner. If you’re considering a quitclaim deed to sell your home to a family member quickly because of mortgage issues, talking to a real estate attorney about potential problems before doing so is wise.
4. Don’t Sell Too Low
When selling your home to a family member, it’s easy to knock the price down below market value if you don’t need the money. After all, you want to be more than fair to a family member who desires your property.
However, knocking the price down more than 25-percent below the current market value and transferring the title to a family member may cause you to get stuck with a large gift tax penalty.
If your family member sells the home quickly, they could also be hit with a large capital gains tax if they purchased the home for less than it was worth. This is where a real estate attorney comes in handy. They can help you settle on a fair price, without shooting too low, or going much too high – and an outside party is always helpful when debating money between family members.
5. Get a Conventional Mortgage
If your family member is a qualified home buyer and is still interested in your house, going through the conventional mortgage process isn’t always a bad idea. It can allow you to get the money you need out of your home, while making sure the sale is properly structured by the bank.
Yes, the family member who buys your home will be required to pay interest on the loan, but if you sell at a slightly reduced rate, it might still be worth buying, especially if it’s a family home or property with value, other than its monetary value.
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Putting your home on the market is often a nerve wracking decision, as you never really know how it is going to pan out. Sometimes, selling your home to a family member is the best bet, and it can be a great thing to do for somebody you care about. However, that doesn’t mean you can simply hand over the deed. A proper sale and transfer does require paperwork, and you’ll want to get everything in writing.
Getting things in writing when dealing with family members is especially important if you’re going to be holding the title. That way if a family member defaults on payments or something goes wrong you won’t be out on a limb with no recourse. In the end, the best thing to do is talk everything through at length, to make sure the right decision is being made. You don’t want to make a rash agreement and regret it later. A sour financial agreement ruins lots of things, including relationships, and that is the last thing you want between family members.
Naomi Shaw is a freelance writer in Southern California. She enjoys learning about the real estate market, and writing on topics within this field is something she is very passionate about.