Thinking of Selling Your House to a Family Member?

Thinking of selling your house to a family member?

It can be a great way to keep the house in the family. Maybe your kids grew up there, or a niece or nephew has always loved the place. But it's not always the best financial (or relational) decision. There are a few things you need to think about before you shake on it at Sunday dinner.

1) What is your house actually worth?

Be sure you know the market value of your house before you set a price. You might decide to give your family member a big discount, and that's totally your call! But it's still important to know what you're giving up by going this route.

An appraisal is a good idea. If your family member is getting a loan, the bank will require one anyway.

2) Can they really afford it?

Be realistic about whether your family member can actually buy the house. If they can't, it might end up wasting a lot of time (and causing some hurt feelings). Have them get pre-approved for a loan before you get too far along.

3) How will you get paid?

There are a few ways to do it:

• They get a regular mortgage. You get paid in full at closing. This is the cleanest.
• A gift of equity. You sell it to them for less than it's worth, and the difference counts as a gift toward their down payment. Lenders allow this between family members, but there's specific paperwork for it.
• Owner financing or a contract for deed. You act as the bank and they pay you over time. Contracts for deed are common in Minnesota, but they come with their own rules. And if they stop paying, you're the one who has to deal with it... with a family member. Think hard about that one.

4) Watch out for taxes

If you sell the house for less than it's worth, the IRS may see the difference as a gift. Usually that just means filing a gift tax return, not actually paying tax, but you'll want to talk with a tax professional first. There can also be capital gains to think about, especially if it isn't your main home.

5) Medical Assistance

This is a big one for older homeowners. If you might ever need Medical Assistance (Minnesota's Medicaid) to help pay for long-term care, selling your house to a family member for less than it's worth can cause problems. Minnesota looks back at transfers made within the 5 years before you apply. A below-market sale can count against you and delay your coverage.

If this could apply to you or your parents, please talk with an elder law attorney before you do anything.

6) Do it the right way

Even when it's family, treat it like a real sale:

• Put everything in writing with a proper purchase agreement.
• Close at a title company, so the title gets checked and the deed gets recorded the right way.
• If you're selling a parent's house, make sure the right person is signing (your parent, or the agent under a power of attorney).
• Have an attorney look things over, especially if you're doing owner financing.

7) What are the emotional implications?

Selling to family can get emotional. What if they change the house in ways you don't like? What if other siblings feel it isn't fair that one of them got a deal? What if money gets tight and they fall behind?

Be honest with yourself about how comfortable you are with this. Talk it through with everyone who might be affected. If there are any nagging doubts, it may be best to sell to someone else.

Want to know your other options?

Even if you're planning to sell to family, it doesn't hurt to know what your house is worth on the open market and what you'd get from a quick cash sale. That way, everyone's making the decision with real numbers.

At Trademark Properties, we buy houses as-is all over the Twin Cities. You pick the closing date and we pay the closing costs. And if selling to family turns out to be the right move, we'll be happy for you!

Hope that helps! Give us a call at Call us or fill out the form. There's never any obligation.