Keeping your home in the family
When it’s time to downsize the empty nest, it’s common to want to keep it in the family. There’s no better way to preserve the great memories than to make new ones with the next generation.
While a home sale to a family member might seem simple and a good way to avoid the hassles of selling a house on the market, it has its own challenges. It is always a good idea to make sure that a real estate attorney is present to make sure that everything is done properly to avoid problems later on.
For Sale by Owner
At the heart of it all is a “for sale by owner” (FSBO) transaction. When a house is sold to another member of the family it is a sale like any other in many respects. It has to be processed and recorded the same way.
As is the case with all FSBO sales an attorney is vital to be sure this is done properly. A standard purchase agreement will still need to be drafted if the purchaser is obtaining a mortgage, for example. A title search has to be performed and all open permits need to be closed before the house can be transferred. Everything that applies to a normal sale is still necessary in a legal sense.
A Sale, Not a Gift
One mistake that many families make when transferring a house to the next generation is they set the price too low. That may not seem like a problem, and it is not as long as the sale price can be justified.
The problem arises if the taxing authorities examine the house sale and find that the transfer price was so low that it amounts to a gift, at least in part. All gifts of more than $15,000 by a single person or $30,000 by a married couple are taxable. It is entirely possible that a young couple who buys their parents’ house can wind up having to pay taxes on the difference if the price is far below market value.
Other Considerations
In real estate, you never know exactly what might come up until you ask. A title search may turn up issues that no one anticipated, for example. There may be liens placed against the property that the seller thought were paid off. There could be significant issues found upon the inspections required in all of St Louis homes at the time of sale.
Problems like this can cause bad blood between family members, especially if they wind up making the sale difficult or expensive. But they have to be uncovered in order for the sale to proceed.
In all cases, the sale of a house to a family member such as an adult child needs to have a real estate attorney involved like any other FSBO transaction. Not only will the make sure the process is followed to legally record the sale, they can help avoid problems in the future. And any problems discovered can be helped along by having a professional present to help resolve them.