Getting a home improvement project to pay off is notoriously tricky. There's no guarantee you'll recoup the money you pour into a bathroom remodel or an outdoor kitchen. Plus, the COVID-19 pandemic
How To Sell A House To A Family Member
Dated: December 12 2017
If you're wondering how to sell a house to a family member, first, a bit of congratulations are in order. You've found a buyer! The most strenuous part of the home-selling process is already over. So now what? How do you actually sell a piece of real estate to a member of your family?
To hire—or not hire—a real estate agent
It can be tempting to bypass the regular process of hiring a real estate agent to broker the deal. And indeed, this is one of the very few home sale circumstances when it could be an acceptable plan, says Aaron Hendon, a Realtor® with Christine & Company in Seattle.
"Virtually the only time I can recommend people sell a home on their own without agent representation on both sides is when selling to a family member or friend," Hendon says. "If a price that is agreeable to both side can be worked out, and the condition of the house is acceptable to buyer as is, then paying a real estate agent’s commission might not make a lot of sense," he says.
Then again, even seemingly simple and straightforward real estate transactions can get contentious, especially when the buyer is a family member. Sometimes hiring an agent to help you through the negotiation process can actually make things easier, and keep the family happier.
"I've helped deals between friends or family members to help keep the peace and make sure tricky situations that could cause permanent relational damage are avoided," says Deb Tomaro, a broker/associate with Re/Max Acclaimed Properties in Bloomington, IN.
Although agents usually work on a commission basis, if you and your family member have already agreed on the price, you may be able to find one who will work for a flat fee to help you through the process. After all, the agent doesn't need to spend time marketing the property—you already have a buyer!
Hire an appraiser
Even if you've agreed upon a selling price, you'll need to have the home appraised if your family member is seeking a mortgage.
You may have already landed on a price, but if your family member is seeking a mortgage, you'll still have to have the home appraised. Lenders typically require appraisals to ensure the value of the home is high enough to match the value of the mortgage.
Michele Lerner, author of "Homebuying: Tough Times, First Time, Any Time," recommends getting the appraisal done before signing any paperwork, just in case you find out you're undervaluing your home.
Hire a lawyer
Another person the experts say you must hire is a real estate attorney to help guide you through the process as you sell real estate to a family member.
"Having some sort of legal oversight, for the largest single transaction either side is ever going to make, seems to be more than reasonable," Hendon says.
A lawyer can provide clarity if any legal issues arise during the sale of the home. A lawyer can also perform a title search to see if there are any liens on the property or if zoning prohibits your family member from making any future improvements on the house.
Do you have to pay gift tax if you sell a house to a family member?
You may want to give a family member a break on the price of the house, but Lerner warns against being too generous.
"There are tax consequences if you're selling a house to a family member at less than fair market value," she says. Why? Because rules are put into place specifically to keep people from avoiding the federal estate tax by giving away their assets.
So that sweet deal you cut your family member is actually seen by the Internal Revenue Service as a gift, and any discount in price will be subject to a federal gift tax. In other words, if you sell your home to a family member for less than the fair market value, it's a gift.
The IRS allows anyone to give up to $14,000 per year to any number of people without having to pay gift taxes. So if your home's value is $14,000 or below, you won't have to pay the taxman. Anything over that amount means you'll have to buck up come tax day.
For Mark Ross, founder of Ross NW Real Estate and professional real estate broker, real estate has always been the career of choice. During his 25+ years in the industry, Mark has gained experience in....
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