Goodspeed: Hire a lawyer when selling to a relative
QUESTION: Are there any tax or other implications if we sell our home to my son and his wife for a price under market value?
ANSWER: You mean a sweet heart deal? You can sell your home to anyone you like for whatever price and terms you want. But be sure to put it all down in writing.
The most important consideration in selling your home to a close relative or friend is to draw up a formal contract. Often these kinds of sales are not treated such as the business transaction they are, leading to significant problems and misunderstandings, hurt feelings and worse. Get it down in writing. Have an attorney draw up the contract that formalizes and details all of the terms and other conditions of the sale.
Another important consideration in this kind of sale is title insurance. Be sure to get it. Because the owner is selling the home to a close relative at a discount, everybody thinks things are fine and title insurance is not needed. That’s a big mistake.
If something does happen, the buyer may not find out about it until years later when he/she goes to sell the home. Do not overlook title insurance just because everybody knows each other. It is a small price to pay for future peace of mind and security.
As far as tax implications go, I don’t foresee any issues, but you should have a lawyer and/or your accountant review the sale and advise you since everybody’s tax situation is different and this is a very large purchase, even if it is a sweet heart deal. One exception is property taxes. They will be assessed at market value, and any discounts you may have earned will not be passed on to the buyer.
If you decide to hold the mortgage for your son - all the more reason to have an attorney draw up the details of the sale and contract since there are certain lending laws that need to be followed. Bottom line: hire an attorney and get it all down in writing.
Linda Goodspeed is a longtime real estate writer and author of “In and out of Darkness.” Email her at: firstname.lastname@example.org.