Recently we talked about the joys and pitfalls of buying a home with family members. But what about buying a home FROM a family member? Realtor’s Margaret Heidenry warns us that doing so is entering truly treacherous territory. “Because, let’s face it, we’ve all been to family dinners where a seemingly benign issue can instantly turn into a blood feud,” she says. “And when it comes to real estate—usually the largest asset most people have—there’s a lot at stake financially.”
She goes on to say that buying a home from a family member might seem deceptively easy at first glance. “You know where they live, so you may think there’s little risk of getting swindled, and maybe they’ll even cut you a deal. The biggest pitfall, however, is thinking you can skip important steps in the home-buying process because you’re on the same family tree.” So go into this with your eyes wide open.
When two members of the same family agree to a sale but keep it to themselves until the deal is in motion, you’ve got the potential for disaster. Heidenry quotes a Realtor who says, “Two or more people often come to an agreement about a piece of real estate only to have their ideas ruined by someone who wasn’t kept in the loop.” To that he adds that the biggest issue occurs if someone secretly promises a house to a family member and then dies. “Or maybe you want to buy your aunt’s house—but so does your sister. As soon as the idea of a potential inter-family sale crops up, notify every person affected and come to an agreement.”
First, work with a real estate agent. Doing all this without one may seem like a great way to save money, but go it alone, and it’s most likely the fastest route to regret. “An agent can not only represent both sides of the transaction fairly, but also keep an emotional distance,” says Heidenry. If you want to keep it simple, 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.
Then get an appraisal. You think you’ve already figured out the value? Wrong. Sellers often place an unrealistic value on a house they love. And as a buyer, you want a price that’s fair, but how do you figure out what that number is? “By seeking an independent property evaluation before you agree on a sale price will save a lot of headaches and posturing. “While lenders use appraisers to verify that a home can act as collateral for a loan amount, individuals can use independent appraisers, who cost around $300,” says Heidenry.
How much do you REALLY know about the house, apart from your repeated impressions of it at holiday time? Do you already know the condition of the furnace? The roof? The appliances? Inspections take place not only for the purpose of a buyer being protected from a dishonest seller; the fact is most homes have problems that the owners simply aren’t aware of. Even if the house is sold to you at a discount due to family ties, expensive repairs in the thousands could pop up down the line and create hard feelings. Winters advises to prevent any potential problems by hiring an inspector to identify any of the home’s issues so repairs can figure into the sale price.
“Family property transactions are by far the most difficult real estate transactions most Realtors have ever been a part of,” says another agent who says the key to avoiding conflict is to do all of your negotiations upfront. This is where getting the appraisal and inspection done prior to arriving at an accepted offer is crucial.
Lastly, lawyer up. “You may feel a handshake with a relative is all you need to seal every deal, but protect yourself by signing a contract,” says Heidenry. “If there’s an objective lawyer trusted by both sides, save some money by hiring just one lawyer. But if there’s suspicion of the opposing parties, then retaining your own counsel is a good idea.”