It is possible to sell your home to a family member, but it does get tricky. While the hardest part of selling a home is over – you found a buyer, there are still hurdles you need to jump in order to get to the closing table.
Get an Appraisal
Obtaining an appraisal right off the bat will let you know where you stand. You and the buyer can then come to an agreement on the price and method that you will sell the home. Some sellers go the traditional route and ask the buyer to secure a mortgage for the amount that differs between the asking price and the down payment. Other sellers offer other financing options, which we will discuss below.
No matter the option you choose, the most important factor is that you know how much the home is worth. This gives you a starting point and helps you make the transaction not only fair but also legal.
Figure Out the Financing Options
Once you know the fair market value of the home, you can figure out the financing. Below are a few of the options:
- Owner financing – Rather than sending your family member to a lender, you can be the lender if you can afford it. The buyer will give you a down payment that you agree upon and then make regular payments on the balance owed, just as they would with a bank. You can set the terms including the interest rate to determine when, how, and how much you will get paid. Make sure you include a clause in the agreement that gives you possession of the home again should the family member default.
- Sell the home outright – Make sure if you do sell the home outright to a family member that you don’t offer a price that is less than 25% of its current market value. If you do, the buyer could end up owing gift tax on the difference between the sales price and the value. If you do sell the home lower than its value, keep the difference minimal. If you want to make up the difference to the buyer, you can give a non-taxable gift up to that year’s limit (this year is $13,000).
- File a quitclaim deed – If you don’t want any money to exchange hands initially, you can quitclaim the property over to your family member. This is a transfer, not a sale. Once ownership has transferred, the owner can then take out a home equity loan and pay you the proceeds from the loan.
Get an Attorney
You probably won’t need a real estate agent when you sell your home to a family member, which is good news. But, don’t skip hiring a lawyer. Even though you are selling to someone close to you, that legal counsel is still invaluable.
The lawyer can help with the legal aspects of selling the home, just as he would if you were selling to a complete stranger. In this case, though, he can also make sure that all aspects of the transfer go off seamlessly. You don’t want to find out down the road that you or the buyer owe the IRS gift tax or that you didn’t properly transfer the property. It’s better to be safe than sorry.
Selling a home to a family member isn’t overly complicated, but there are things you need to watch out for that you wouldn’t if you sold to a stranger. Consider your options and then make sure you get the appraisal and hire a lawyer to make sure everything goes as smoothly as possible.