The Pros and Cons of Selling Your House to a Family Member
Family matters
You've decided to sell your house, and a relative has shown interest in purchasing it. While it may appear like a more straightforward method of selling your home, remember that simpler isn't necessarily better. When a family member buys your house, both sides have many benefits. But, it would be a mistake to disregard the negative aspects, especially the potential harm to relationships if things don't work out. Be sure you know the benefits and drawbacks of such an agreement before selling your house to relatives. Also, you must understand why it's crucial to approach this transaction in the same manner as you would if you were selling your home to a stranger. So without further ado, here are the pros and cons of selling your house to a family member.
Is selling your house to a family member legal?
The IRS claims that people only sell homes to family members to avoid paying taxes, at which point the transaction is unlawful. However, you might legally sell the house to your relative using the correct means. Therefore, it's crucial to do the transaction lawfully since there are instances when insisting that the other party maintain their promise on an agreement can end up costing a lot of money in taxes. So, if they detect tax avoidance in such commercial transactions, expect the tax authorities to show a more significant interest your way.
Selling your house to a family member is legal if you don’t try to evade taxes.
The pros and cons of selling property to a relative
Here are some things to consider if you're wondering whether selling to a family member is smart.
Pro: It can take less time
Making your home "show ready" will require effort and money if you want to sell it quickly and for top price. You'll also need to leave your home whenever a realtor takes a potential buyer around and keep the house show-ready and in good shape. Selling your property to a family member is sometimes much quicker, simpler, and more convenient than putting it on the market.
Pro and con: You can help the buyer
If you're selling to a family member, you may consider giving them a deal on the house price to help them out. Thankfully, since the discounted value will differ from the price's market value, this may result in a taxable gain when the time comes for them to sell the house after a few years of living in it. However, selling to a family member for less money might place excessive financial pressure on you if your financial situation is not the finest and you need to move a long distance, for example. In that situation, you can find reliable and affordable movers to help make your move easier at a cheaper cost.
You can help your family member buy your house by lowering the price.
Pro: You can save money
You could also save money on realtor commissions and spend less on home staging or enhancing your house's curb appeal for potential buyers. Additionally, you can bargain the commission if hiring a realtor to assist with your house sale is still wise. Or request a fixed fee for their services. Some people work with a real estate lawyer instead of a realtor. For a sale-by-owner transaction, an attorney can prepare the essential documentation. Therefore, you could save money by doing this, but make sure that whoever is buying your house has their attorneys check all the paperwork, too.
At the same time, saving money on different aspects of the sale could benefit you regarding your move after the sale. As experts at Beltway Movers point out, having some money put aside for the relocation is always a good idea. That way, you can start looking for moving experts early and not be unprepared once you close the deal on the property.
Pro and con: The property stays with the family
Whether they've just lived there for a short while or the house has been in the family for several generations, most individuals have sentimental attachments to the place they call home. Because of this, selling to a family member familiar with the home's history and the family's customs may provide a lot of comfort to many. But, it might not be worth it for the family's welfare to maintain the house among the relatives if the deal is likely to strain connections.
By selling the property to a family member, you ensure it stays with the family.
Con: You might lose money
Even when you know the persons who want to purchase your house, think about what you're giving up on when you offer them a lower price than you would to a stranger. That might not be an issue if you're financially stable. But be careful not to give up too much of your future to help others if you are still financially preparing for your child's education or retirement.
If you decide to list your house, a reputable realtor can assist you in better grasping the current real estate market and what price you could expect.
Con: It might alter your relationship
When a costly or annoying issue emerges with the property, your buyer can become upset with you. That may not happen for years after you sell your house, but it is still possible.
You might take the fall if the friendly neighbors aren't what they seemed to be, the basement floods or pipes start leaking. Also, even though they shouldn't blame you, you might hear about the issues often or feel bad about family members experiencing buyer's remorse.
On the other hand, if your family member rips out your favorite carpet or tiles that you spent days installing and cuts the plants that hold special importance to you, you could become offended.
In conclusion
Selling your house to a family member has many pros and cons. Therefore, you should put them on paper and see which ones weigh more on your scale. If you find more pros than cons, you can close the deal. On the other hand, if there are more cons in play, think twice about selling to a family member. Even if it looks like a good idea now, you might not see things the same way later.
