Selling a House to a Family Member A Complete Guide

Are you considering selling your house to a relative? It may seem to be an easy and polite way to transfer property, whether it's for your child, brother, or other member of your family. Even if it appears to be a simple transaction, there are crucial stages and standards to follow, especially if you want to sell the property for less than its fair market value.

In this tutorial, we'll explain everything in layman's terms, including the answer to a typical question: Can I sell my house under market value to a family member?

Can I Sell My House Under Market Value To A Family Member?

Yes, that is possible. Selling your house to a family member for less than its full worthwhile is acceptable. However, there's a few crucial considerations to make before.

The gap between the sale price and the actual value of a property is deemed a gift when it is sold for less than its true value. We refer to this as a "gift of equity." In addition, you may need to record that donation to the IRS, depending on its magnitude. You might have to fill out certain paperwork, but that doesn't imply you'll owe taxes.

What Is a Gift of Equity?

To illustrate, you might sell your house, worth $400,000, to your daughter for $300,000. The other $100,000 counts as a gift over the annual exclusion, the maximum going to $18,000 per person in 2024. If that exceeds the annual limit, then IRS Form 709 will have to be filled out. Great to keep records; you probably won't owe taxes unless you start donating millions of dollars over your lifetime.

How to Sell a House to a Family Member

1. Accept the Procedure
Before agreeing on a price, consider the terms of the purchase. Establish a period of time, decide who will be involved, and define how the buyer will pay. Treat the sale like any other commercial transaction, even when it involves family, to prevent misunderstandings or issues in the road.

2. Employ Experts
Having someone assist you with the paperwork and legal procedures is a good idea, even if you decide not to use a real estate agent. A real estate lawyer can ensure that the price is acceptable, the disclosures are made correctly, and the contract is sound.

3. Assess the House
To determine the home's real market value, obtain an appraisal. This ensures that the sale is reasonable for everyone involved. In order to assist you choose a fair price, your real estate agent can also compare your house to others in the neighbourhood.

4. Decide On A Price.
Aim for a price that is somewhat comparable to the home's actual value. The difference may be deemed a gift if you sell it for substantially less, which could result in tax paperwork. An agent or appraiser may help you in setting the appropriate price and avoiding IRS difficulties.

5. Complete the Purchase
Even while the closing may be easier than a normal transaction, it's still crucial to perform it correctly. The papers can be handled by a lawyer. Remember to communicate appliance documentation, transfer property lines, and terminate utilities. You'll also need to select a form of deed (e.g., warranty or quitclaim).

6. Transfer the Title of the Property
Who owns the house is shown by the title. To move it:

• Get a recent deed copy.
• Add the buyer's name to a new deed.
• In front of a notary, sign it.
• Deliver it and send it to the county office in your area.

There may be minimal fees for notaries, deed copies, and legal assistance. Transfer taxes are also levied by certain governments, though they could not be payable when selling to relatives.

7. Tips for Selling Your Home to a Family Member

Write down everything.
All agreements should be properly written down. For all parties involved, this keeps things structured and avoids confusion.

Obtain an evaluation and inspection
Hire an appraiser and house inspector, even if you're selling to relatives. This protects both parties and ensures that the house is secure and reasonably priced.

Comply with tax laws
It may qualify as a gift if you sell it for less than its market value. To stay out of trouble with the IRS, review the regulations or consult a tax expert.

Avoid Involving Your Emotions
Although family transactions can be emotional, it's crucial to handle them like any other. Remain composed and concentrate on making just decisions.

Be Aware of the Gift of Equity Guidelines
The residence may be given away at a negotiated price or sold for market value. Just keep in mind that big savings can necessitate filing taxes.

Different Approaches to the Sale

Here are some additional options to consider if you're uncertain about selling
under market value:

• Offer Seller Financing: You take on the role of the bank, and your relative progressively reimburses you.
• Lease-to-Own: After a few years of renting the house, they purchase it.
• Add Them to the Title: You share ownership today and want to transfer complete ownership eventually.

What If You Want To Gift The House Instead?

If you just want to give your home to a relative with no money, you can do it. However, the same regulations still apply because it continues to be regarded a gift for tax reasons. If the gift exceeds the annual cap, you will have to record its value.

Can I sell my house under market value to a family member? Yes, but it's essential to take the correct steps. Although it is acceptable to sell below market value, the IRS may deem the difference to be a gift, requiring additional proof or tax forms. It's advisable to get a house evaluation, record the agreement, and think about using a real estate lawyer to make things fair and easy. Treating the sale like any other transaction, even when you're dealing with relatives, will assist in safeguarding your money and relationships in the long term.