If you are thinking about selling your home and are ready to start the search for a suitable buyer, that person might be closer to home than you first thought.
You might decide that selling to a relative for whatever reason might be the best option, but despite the fact that the idea seems like a no-brainer rather than having to pay and wait to find a buyer, there are a few potential issues that might need to be addressed.
Here is an insight into how to achieve a hassle-free way of selling your home to a family member, including how to settle on the right price, ways to keep the IRS happy, and where cost-cutting is not a good idea with the transaction.
The tricky subject of price
The first major hurdle to overcome when you are considering selling your home to a family member is how to agree on a price that is fair. Compared to a standard real estate transaction where the buyer and seller are in opposite camps and there are no emotional ties to get in the way, it can be a bit more complicated when the buyer is someone in your family.
Sentiment has the ability to get in the way if you let it and it might not feel right to start playing hardball and holding out for the best price, which is something you might do when the buyer is not someone you know.
If you want a quick sale without any hassle, you have the option of using someone like Wren Realty Inc. who make you a cash offer for your home, or you could agree to let someone in your family make an offer.
The smart way to approach selling to a family member would be to agree on a framework for negotiating a fair price. This could involve both agreeing in writing to settle on a price by getting a professional appraisal done as quickly as possible. If the buyer needs to get a mortgage, they will need an inspection and appraisal to stack up anyway, so it is a good way of ensuring that the deal you settle on is a fair price based on the current value and condition of the property.
Below market value
When the family is involved there could conceivably be a scenario where you might want to offer a helping hand and you want the transaction to look more like a gift than a straight property sale.
However, your generous spirit does have some obvious drawbacks if you want to try and sell your home at a price that is below market value.
The IRS are not blind to this sort of transaction and it is quite likely that if you attempt to sell your home to a family member for a figure that is 25% or more below what is currently worth, the buyer can expect the prospect of being hit with a gift tax.
You might want to get some professional guidance when you are looking at the most tax-efficient way of selling your home to a family member, especially if you are planning on letting them buy the property at a knockdown price. In general terms, you should be able to sell your home at a slight loss to take advantage of the maximum allowable tax-free gift allowance at the time of the transaction.
You could also agree to file a quitclaim deed to add the buyer’s name to the title, but that is normally an option you would use when no money is going to be changing hands.
Don’t take a shortcut on the legal aspects of the transaction
If you are going to be selling to a family member there should be no need to have to pay a realtor for their services, which will save money that you could take off the sale price to lower the amount paid for your home.
However, it would not be a good idea to take any shortcuts when it comes to getting the legal help you need for the transaction.
Spending money on a good real estate attorney will normally prove to be a good move, but especially so if you are planning on selling your home to someone in your family. They should be able to suggest the best way to get the deal done and keep on the right side of the IRS.
The idea of selling your home to a family member can definitely work in a variety of different circumstances, you just have to make sure you go about it the right way.
Katherine Tucker shares her knowledge of the real estate industry with homebuyers and home sellers through her articles. Her words are published on property, investment and lifestyle blogs.