January 9, 2023
It's never easy to sell a home, but doing it to a close friend or relative can add an extra layer of difficulty. Selling to a friend might be a win-win situation, depending on the circumstances. It's possible you could forgo the staging and showings if you knew the buyer was reliable. Still, it's risky to mix business with pleasure, so tread carefully. Your relationship might be harmed if you don't take precautions before beginning the real estate purchase. Here are the things you should and should not do before selling a home to a friend or family member.
You must first agree on the procedure before deciding on a price for the house. Because you'll decide if you want to bring in specialists, such as a realtor or appraiser, discuss how the buyer will fund the purchase, and establish a timeframe, you'll prevent misunderstanding and disagreement later on. You must also determine who the decision-maker is for both the buyer and seller. Do that so there is no misunderstanding if other parties attempt to amend the agreement.
You could be tempted to skip hiring a realtor since you're dealing with a buddy buyer. A real estate agent will be a crucial component in the transaction, regardless of who your buyer is. Agents are neutral third parties that can help you work through problems and find solutions. Just as with moving services, you should enlist the help of pros. The agents will also explain the legal and financial procedures to you. Selling a home to a friend or family member isn't advised without the aid of a professional. The complexity of real estate transactions and the high risk of misunderstandings and blunders can make things difficult.
A real estate agent’s knowledge can be invaluable.
A real estate attorney may not be required in every state. However, it's in your best interest to have one in a transaction between people who already know each other. This is the case regardless of whether you hire a real estate professional to help you. You may expect more hands-on assistance from an agent in arranging the transaction and negotiating a price. However, legal counsel is outside the scope of an agent's services.
Some lawyers may offer to handle the entire transaction for you. However, it's safer to engage different lawyers to look out for your interests and those of your buddy. If things go south between you and your pal, you may be relieved you didn't share legal representation.
Notify the lender of the situation if you still want to go through with the deal. Lenders often won't reject loan applications because of personal connections, but neglecting to reveal such a link might have serious ramifications.
Any buyer who already has a relationship with the seller must submit an "Identity of Interest Certification" form to the Federal Housing Administration. Similarly, this data is required by many conventional mortgage applicants. Mortgage fraud occurs if the buyer does not disclose the relationship.
To avoid legal issues, disclosing your relationship with the buyer is best.
Be careful with your financial resources
You may want to ignore the financial aspect of the sale if you're selling a home to a friend or family member. That's assuming they'll have no trouble getting a mortgage. According to experts from rockstarpromovers.com, that's not the wisest move to make. Finding another buyer will take even more time if they don't meet the financing requirements. Like any other buyer, you should insist that your close friend or relative get pre-approved for a mortgage before offering your house.
Perhaps you want to help a loved one by giving them a steep discount on the property, but you don't want to lose money on the deal. A little discount might be a thoughtful and valuable present for a friend.
You should sell your property at a fair price that allows you to cover your closing costs and a down payment on your next home but not so low that you lose money. Not only is this bad for your financial situation, but it also has the potential to make you resent your friend or family member in the long run. There's a risk that undercutting the market price would cause problems for the buyer. Your friend will have to report and pay taxes on any discounts over $15,000 they receive from you.
A little discount is fine, but don’t overdo it.
Checking your friend's or family's financial standing is necessary if they plan to pay cash for your property. Before you take your friend or family member seriously as a buyer, ensure they have been pre-approved for the loan amount they need.
Suppose you and they are both pre-approved for a mortgage. In that case, you won't have to waste time and energy going through the home inspection and appraisal processes just to find out that your friend isn't qualified for a loan (though pre-approval is not a guarantee to lend, and financing can still fall through).
A pre-approval can take anywhere from a few hours to a few days, depending on the complexity of the borrower's financial situation. Even if you know for sure that your buddy will be able to get the financing they need, your friend will still need to do this before touring or making an offer on a stranger's property.
Consider the potential issues when selling a home to a friend or family member. A person who has spent an excessive amount of time in the home may come to believe that they know everything there is to know about it. When problems arise, they may feel duped. If there are any problems with the home, the buyer ought to know about them. Explain how long you've had the appliances and whether or not you anticipate needing repairs soon. It is crucial to keep the buyer's trust by being honest about the state of the home.
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