It’s not like deciding who brings the hors-d'oeuvres for Thanksgiving dinner. Buying a home from a family member can be more like a huge discussion about what constitutes a real word in a game of Scrabble. Who really wants to concede that 20-point word as being real?
When it comes to real estate there's a lot at stake financially as well as personally, so it’s best to have a strategy that can make sense to all involved. Of course, it’s family, right? You know where they live, so what are the chances of your being hoodwinked or having something come back and bite you in the living room? Overlooking or being unconcerned with some of the most basic parts of any real estate transaction is what can screw things up, causing family rifts that may take time to (or never) heal. Don’t ever think you can skip important steps in the home-buying process because you share the same family tree.
First, meet with the involved family members and make sure no one is left in the dark. It’s a sticky wicket when some family members meet and talk deals without other vital players being there. Everyone must be in the loop that has any stake in the property. Many families prefer to leave spouses (in-laws) out of this as outside influences, but it’s your call. What? Someone told you the house would be yours someday without telling anyone else? What about the sibling or cousin who assumed the same thing? As soon as the idea of a potential interfamily sale crops up, at a minimum notify every person affected.
One of the best ways to help dissipate tensions is to have an outside party working with you to point out the obvious in a real estate transaction — including what may be included in the sale. Find a real estate agent who specializes in helping families solve these sticky family issues with common sense wisdom about the market surrounding the property. It may seem like an easy way to go ave money to forgo having an agent involved, but it can also be the fastest way to go Mach 1 into the danger zone. An agent can not only represent both sides of the transaction fairly but also keep an emotional distance.
According to a realtor.com article, some real estate brokerages can act simply as a transaction broker, which means less commission dollars. Each side may have to pay only a 1% fee if it's simply a matter of acting as a guide and preparing paperwork.
What’s that home really worth? Family members often place an unrealistic value on a house they love, grew up in, or spent Christmas mornings in. By having the property professionally appraised before agreeing on a sales price, everyone will know what the house would sell for on the open market. Here’s the clincher, however: just because the appraiser placed a higher-than-expected value on it, it doesn’t mean family members can’t agree on a lower price that still seems fair but preserves relationships — something that will never have a price tag attached to it.
Don’t forget about getting the house inspected. If Grandpa bought the place in 1955 and fancied himself a handyman, cutting a lot of corners doing the work himself instead of hiring professionals, someone down the road will have to pay to make it right. A 30-year-old furnace is a 30-year-old furnace. And just because Dad replaced the kitchen wiring with copper doesn’t mean now-prohibited knob-and-tube wiring everywhere else won’t have to be ripped out and replaced. Virtually every home has issues. That family discount that sounded so good to you can quickly fade when expensive repairs pop up and create hard feelings. An inspector can help you prevent potential problems, identifying what is in need of repair, helping you use his or her report as a point of negotiation with other family members.
According to those in the know, then, the key to all this is to get both items we just mentioned done AHEAD of the family meeting. Go in armed with both the appraisal as well as the inspection. If you are not paying cash for the house, a bank won’t lend on a home with some arbitrary value placed on it by family members anyway, so get it done to avoid this hassle. Always best to start out with realistic expectations using cold, hard facts to back up your offer.
And don’t forget to sign a contract, spelling out everything you all agreed to. That means the antique breakfront and chandelier in the dining room can’t be claimed by cousin Agatha. Or that your brother and his family can no longer use the garage for storing his antique motorcycles. You may need an attorney to help you spell out the details of the purchase, so there are no misunderstandings, but coming up with a detailed list for your agent to put all of this in the purchase agreement can also help.
Experts also encourage the customary real estate contingency that specifies that if you can’t procure financing, the deal is dead. A handshake and a beer with family members will not protect you from paying a price for a home or property that does not appraise or you can’t qualify to buy.
There are no guarantees that what may seem to have gone well in a purchase from other family members may not have unpleasant ramifications down the road. Those who cherished the old world charm the house once contained may resent you for ripping up parts of the house and making it an open concept or replacing a rickety antique stair railing with something more sturdy and updated. So it’s best to prepare yourself for the future in a purchase of this kind. In the end, however, it may all be worth it.Source: Realtor.com, TBWS
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