It may seem like the simplest and most natural transaction there is. Keeping a home in the family can be an excellent way to ease the pain of moving on, especially when it going to the next generation. It not only feels good, but it avoids all the expense and hassle of selling a house the conventional way through an agent.
However, real estate sales always have the potential for major unforeseen complications. The process can be clouded by liens, title disputes, and a proper valuation. The best way to make sure that the sale of a home to a family member goes smoothly is to hire a real estate attorney. It might not only help save the house, it could be the best way to keep peace in the family.
A FSBO transaction
When one member of a family sells a house to another, it is usually nothing more than a For Sale By Owner (FSBO) transaction. That means that no agents are involved and the owners are acting as their own agents. It seems simple enough if you look at it from that perspective.
Like all FSBO transactions, however, it is important that every aspect of the property be examined. A proper purchase agreement is still necessary if the buyer is obtaining a mortgage, for example. It is also vital that a proper title search be conducted to be sure that there are no outstanding liens, judgments, open permits or other conditions which could prevent the sale from being properly registered.
Caution on the sale price
When selling to a family member, especially an adult child, it is often tempting to sell the house for a price much lower than it would on the open market. This is one way to pass on a valuable family asset without paying an enormous amount of taxes, as well as a way to make sure that it is handled smoothly.
If the price is set far below "fair market value," though, it may raise a few red flags with the IRS. Anything below the price that the house would bring if it was sold the conventional way could be taxable. Gifts of less than $14,000 in any year are exempt from taxation, however.
A proper assessment is often a good idea even if the sale price has already been agreed to by the family members for just this reason. It helps answer any questions which may come up later regarding the value of the house.
The other intangible benefit of having an attorney for the sale of a home within the family is that it can help everyone through a bad situation if something is discovered. Any bad news regarding title, liens or other problems is best delivered by someone other than a family member, especially if the identified problem can be fixed.
In all cases, when transferring a home from one family member to another it is vitally important that an experienced real estate lawyer prepares the sale. This protects everyone from expensive surprises and delays and guarantees that the process will go as smoothly as possible.