Selling a home can be a big deal, and it’s not uncommon for a family member to offer to buy your home. This can be an easy way to sell your home quickly, without having to put it up on the open market. But selling a home to a family member can present its own unique difficulties.
Buying or selling a home is a large transaction with many financial, legal, and tax implications. Because of this, it’s vitally important to bring in professionals to oversee the transaction. After all, the last thing you want is to create tension between you and your relative.
The most important thing to do is put everything in writing. This will ensure that the transaction is completely transparent, with no questions left unanswered. These documents should include obvious details like the sales price, but also minor information like what appliances you’re taking with you, and what will remain with the house.
Once you have put the arrangement into writing, the next step is hiring a qualified realtor to oversee the sale, and help with the necessary paperwork.
It may be tempting to simply transfer the current mortgage to the new owner, but this option can be more trouble than it is worth. It’s highly advised that your family member obtains a new mortgage to pay for the house. This way, a professional lender can determine if your family member is financially capable of paying for the property. If they’re not, you avoid being stuck in the middle over tense and uncomfortable money issues.
Another reason to opt for your family member to secure a new mortgage is that the lender will require an appraisal of the home. This will give both you and your relative a current value of the home, allowing both parties to remain confident about the home’s value, without either side feeling jilted in the deal.
Once you know the market value of the home, you need to be wary about offering too deep of a discount to your relative. There can be tax consequences for selling your home for less than fair market value. It could trigger an audit, or even be classified as a gift by the IRS. If your family member is planning to flip the house for a profit in a few years, they could also face steep capital gains tax penalties.
Finally, you and your family member should hire a title company to transfer ownership of the home. They can also provide title insurance, protecting everyone from any future disputes
Following this advice can help you navigate a complicated sale, and ensure that both parties come out ahead on the other side.