Should I Buy a Home from a Family Member?
A common real estate question I get asked in Sun Prairie is whether or not you can buy a home from a family member. The answer, in most cases, is yes. If the home is current on payments (i.e. not a short sale or foreclosure ), a homeowner can sell the property to any party they choose at a negotiated price. Similar to purchasing a car or other asset from family, there are many possible benefits to purchasing from a relative. Some of these include:
Quick close - Most family members have the opportunity to discuss the purchase face-to-face, and can agree on contract details before involving their real estate agent or title company. This can greatly reduce the amount of resources wasted on counter-offers and amendments and allow for a quick close date. It will also save on title and escrow fees due to the reduction of unnecessary paperwork.
Lower sale price - If you're purchasing from family, chances are they will agree to a lower sale price than if they were selling to someone at arms-length. This is a great perk for buyers who are looking to build immediate equity in their new home. Buyers should be aware, however, that they may run into steep capital gain taxes if they choose to resell the home within a two-year time period.
Alternative or owner financing - If the seller owns the home outright, they may be willing to finance the property for the seller, which is very helpful if the buyer does not qualify for traditional financing due to low savings, poor credit or an untraditional employment history.
While the benefits of purchasing from a family member may be easy to understand, the downsides are not always so apparent. The old saying ôdon't mix business and familyö did not become popular without a reason. Below are just a few of the downsides that arise from this common real estate question.
How to Safely Buy a Home from a Family Member
Purchasing from family can cause friction between relatives from the early stages of negotiation until well into home occupancy. Jealousy from other relatives, buyer remorse and resentment are just a few of the issues that may wreak havoc on family relationships. While these are all common downsides of business transactions, it's important to remember when doing business with family that the business relationship often carries over into personal relationships. If you're considering doing business with family, make sure both parties are aware of these potential pitfalls and understand the risks before entering into a purchase agreement.
Now that you have a clear understanding of the benefits and risks of buying a home from a family member, here are a few tips I recommend to my clients in Sun Prairie when buying from a family member:
Ensure mortgages are current If the home is still financed, be sure that the mortgage payments are in good standing. The last thing you want is a lien put on the home when you are trying to purchase it.
Use a REALTOR® Many realtors are experienced in dealing with sales between family members. If this is the first time you are buying from a relative, your realtor will be able to ask and answer the right questions for you to make sure your sale goes smoothly.
Seek legal advice Make sure you have a lawyer look over all of the paperwork, including the offer, any counter offers and your purchase agreement. They will likely catch something you may have missed, and make certain the appropriate verbiage is in your contract to protect your property investment.
Once you've covered all of your bases, including understanding the risks, benefits and best practices for purchasing a home from a family member, you can be well on your way to entering into an agreement that meets both you and your family's needs.