Selling a house to a family member can be beneficial for both parties. As the seller, you don’t have to worry about staging your residence or going back and forth between outside buyers. The buyer in the transaction, meanwhile, likely knows all about the house and any necessary repairs.
Of course, there’s also financial flexibility if you choose to go through this process with a loved one. Maybe you’re at a point in your life where you don’t have to get top-dollar for your home. Perhaps you would rather see the new owners as people you trust and who you know will cherish the house just like you did.
Here are a few things to keep in mind before starting this endeavor.
Hire an experienced team
Many people in this situation think they can complete the sale on their own. However, it’s still in your best interest to hire the right team. There are almost always issues that arise during a real estate transaction, and you must have knowledgeable professionals at your side.
At American Home Agents, we suggest finding a seller’s agent for yourself and a buyer’s agent for your family member. The last thing you want is to navigate the deal without agents and risk letting a minor disagreement ruin a relationship. There’s also the chance that the real estate experts you choose will work for a flat fee instead of a commission.
The other professional worth bringing aboard is a lawyer. They can serve as a helpful resource if you and your family member run into a potential legal dilemma. Not to mention, an attorney can identify any liens on the property or zoning concerns.
Opt for an appraisal
You may not feel the need to obtain an appraisal since you’re selling to a family member. But wouldn’t it make sense to contact an appraiser to determine the market value of your residence? Once you have this figure, you can begin thinking about pricing, even if you are willing to accept a slightly lower offer.
Now, let’s say you and your buyer agree to a price right away. Unless the two parties arrange for an all-cash transaction, the buyer will have to get a mortgage. And lenders usually require an appraisal to confirm the home’s value aligns with the loan amount.
Schedule an inspection
Ask any real estate agent, and they’ll tell you all about the significance of a home inspection during the selling process. Whether you’re planning on selling your home to a relative or stranger, it’s imperative to hire a trusted inspector. This person will look around the property and note issues with plumbing, electrical, HVAC, and other systems.
What happens if the inspection leads to bad news? In this case, you would need to sit down and weigh your options. Do you have the funds to spend thousands of dollars on renovations? Or would it be a better alternative to reduce your asking price altogether?
Tax implications of selling a house below market value
Most of us would jump at the opportunity to help a loved one achieve their homeownership goals. Unfortunately, there are repercussions for selling a house below market value. Make it a priority to understand these implications and consult a tax professional with any questions.
A quick online search shows countless results for selling one’s house for a dollar. But the Internal Revenue Service doesn’t care about your incredible generosity. They see this kind of move as an attempt to avoid the federal estate tax.
As explained in an article from The Balance, you can decide when you pay Uncle Sam. Some folks choose to pay Uncle Sam on the transfer immediately. Other sellers end up paying the estate tax down the road.
Don’t be afraid to talk to your family member about the tax consequences you may be facing as a result of the transaction. HomeLight suggests that you should abide by the true market value if you don’t feel comfortable gifting your property. Additionally, double-check your compliance with federal tax laws if you still gift the house.
Is it a good idea?
Yes! Selling a house to a family member eliminates stress for both of you. But you must take the proper approach with the transaction and follow all tax laws.
At American Home Agents, we’re here to guide you through your home selling journey. Our agents have decades of experience, and they treat every client like family.
Ready to sell your house in Denver? Give us a call at (303) 695-5900.