17 Mar Selling a home to a family member
Q. I’m getting ready to sell my house, and my sister wants to buy it. It was going to be listed at $425,000. I still want to get as much as I can for it, but I also feel like I should give her a deal. Can you give ideas on some way we can make this work for us both?
A. There’s a lot to consider when you go enter into any kind of financial dealings with a relative. Could be beneficial, but it could also be ugly.
On the positive side, if you sell to your sister, you won’t need the services of a real estate agent. That means you’d save 4 to 6 percent on the agent’s commission.
“You would save that commission if you sell it directly to your sister,” said Jim McCarthy, a certified financial planner with Directional Wealth Management in Rockaway. “You also avoid having to prepare your home for showings, be out of your home for showings, and having a bunch of strangers going through your home for showings.”
He said a quick transaction, which is more likely with a family sale, will probably save you some property taxes and homeowner insurance.
But there are also some real cons to having a family member buy your home.
The first thing to do is make sure your sister can afford to buy the house and qualify for the mortgage.
“Then be prepared to deal with potential issues with your home that come up in the inspection,” McCarthy said. “Consider the potential impact of a major home repair issue arising after the sale.”
Finally, he said, selling without full market exposure always entails a risk of selling for less than market value. That’s because full market exposure is the only way to know what the current demand calls for.
He recommends you follow several steps.
First, contact at least two local real estate agents and request a “broker price opinion,” which is what they think your home is worth. Then you can consider reducing the price you give your sister by what the sales commission would have been, and even by the property taxes and insurance you will save, McCarthy said.
Next, consider purchasing a Home Warranty contract, which McCarthy said could help address potential home inspection issues or those “post-closing major issues.”
You should then you can calculate the New Jersey Real Estate transfer fee here.
And finally, McCarthy said, you should still use a real estate attorney to make sure the sale is done correctly.
If you’re planning to move out-of-state, make sure you understand the exit tax, too.
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This post first appeared in March 2015.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.