What's Fair to the Family

By Edith Lank

March 16, 2014 5 min read

Dear Edith: We are selling my mother-in-law's property. Family members expressed interest but did not respond to phone calls and emails. After four months of cleaning out the home, we went ahead and listed the property for sale. Days later, the family decided they do want to purchase after all.

They disagree with our pricing. They had their own agent through (supposedly). The house is small but very special. It was rebuilt 15 years ago, sits on a lake, shows beautifully, and has stained glass, incredible bathrooms and gorgeous landscaping.

We want to be fair, but our agent says it is worth $75,000 to $100,000 more than the family's agent. What is the fairest way to sell a home to a family member? — via askedith.com

Answer: I can think of at least three ways.

You might try what is sometimes done in a divorce, when one spouse is buying from another. Each party — in your case the estate and the buyers — hires its own licensed appraiser, with the understanding that the sale price will be the average of those two professional estimates.

Then again, unless the relatives are paying all cash, they're going to apply for a mortgage loan. To find out how much it's safe to lend, the bank will send an appraiser to estimate market value. That would be an unbiased figure, and you might want to agree — in writing — that everyone will accept that figure as the final sale price.

A third option is to test the value by leaving the property on the open market, with the relatives having the right to match the highest offer that comes in. That one can get complicated, and involving a lawyer might be a good idea — perhaps the attorney who's settling the estate.

Good News on Reverse Mortgage

Dear Edith: I saw your recent response to the question on heirs purchasing the family home with a reverse mortgage that was higher than the value of the home, and your answer may not be correct.

If it was an FHA HECM-insured reverse mortgage, the heirs can purchase the home for 95 percent of fair market value (determined by an FHA appraisal) regardless of the reverse mortgage balance, and FHA insurance will make the lender whole. I hope you will get back to them. — via askedith.com

Answer: Many thanks for the information. I receive too much mail to keep track of old addresses, but I hope those folks read your note here. I did suggest they talk with the lender, so maybe they've already received the good news.

No Down Payment

Dear Edith: Our name is on the mortgage of our daughter's house, and they want to buy it from us but do not have a down payment. What are their options? — G.

Answer: If they have good income and credit, they can talk with a mortgage broker to explore whether there's any way you could help them qualify for a loan.

Mother Has Life Use

Dear Ms. Lank: My two brothers and I own the house that our mother lived in. It was written that she is primary owner with full use for her life. She has moved into a retirement apartment, and we are preparing to sell the house.

I was wondering about the effect the capital gains tax upon sale would affect us. Should we sign the house back to her to avoid losing the tax advantage when we choose to sell our own houses? Her house is valued much less than ours. — R., via askedith.com

Answer: It sounds as if you need a session with a CPA, for an explanation of capital gains taxes. I don't know of any tax advantage you'd have with the sale of your mother's house. And I don't see how selling it will hurt you or your brothers' ability to use home sellers' tax breaks when you sell your own residences some day.

For your mother's house, your cost basis is its value when she signed it over to you. Part of the proceeds is due to your mother in return for her life interest. Based on her age, the IRS has tables saying how much that would be. If there's profit, you and the brothers will owe capital gains tax on your shares, either long-term or short-term depending on whether you received title more than a year ago.

As for signing it back to your mother before the sale — there are a lot of factors to take into consideration. Is she on Medicaid, for example? Has she been out of the house more than three years? How much profit are we talking about? As you can see, it gets complicated.

I'm ending up where I started — you need a session with a tax professional.

Edith Lank will respond personally to any question sent to www.askedith.com or to 240 Hemingway Drive, Rochester NY 14620

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