How to Sell a Home to Friends or Family

In some cases, selling a home to friends or family members could seem like a dream come true. After all, you already know each other and feel like you can come to a reasonable decision. Here is what you might face if you take this path, and how to make it as easy as possible.

Analyze Your Relationship

The nature of selling a home to someone you know is that they will find out a lot more about your lifestyle than you may learn about theirs. Even among close friends and nearby relatives, sellers might not want to disclose certain things because they find it unnecessary or even embarrassing. Selling someone a home requires fairly objective honesty, however, so that everyone is satisfied with the purchase. If you are hesitant to perform certain tasks, such as a home inspection or revealing details about your mortgage, it may be better to sell the home to a third party you won’t be seeing after the sale is complete.

Avoid Making Unreasonable Promises

People tend to be much freer about what they promise to friends and family than they would a total stranger. After all, you would not casually tell someone you’ve never met that they could buy your home for tens of thousands of dollars less than fair market value, because that would mean a significant loss of profit for you. It is fine to want to give your friends a good deal on your home, but you must be careful about any promise you make, even if it is just verbal. Having to take back something you said may do more damage to your relationship than not making that offer in the first place.

Request Specific Details

Just like your friends or relatives may not know everything about you, there could be important but hidden details about the person who wants to buy your home. You might be more lenient about requesting a purchase offer in writing because you trust your friends. However, this is a misstep that could leave everyone really unhappy. Avoid making assumptions about the buyer’s expectations or their ability to make good on the offer, if you do not already know the specific details. This helps reduce the likelihood that they may back out on a deal that you were convinced was rock-solid.

Set a Fair Deal for Both Parties

When you sell a home to a stranger, you might be tempted to use every card you have, especially if you feel like you hold most of them. This is not a particularly effective practice even with unfamiliar buyers, because it fosters unnecessary disagreement. As such, you should prepare to strike a balance with your friends to avoid creating resentment after the sale is complete. You might be hoping that they will cut you a break on repairs, or make a higher offer. Think about what you are willing to accept and what you want and need from the sale. Make sure that both sides are getting a fairly equal share of the benefits, and you will have a better long-term deal.

Have a Back-Up Plan

There is always the possibility that the sale will fall through. There might be an unpleasant surprise on the home inspection that you cannot negotiate with your friends or relatives. The buyers could fail to secure funding for the mortgage. In either of these cases, you should have a back-up plan. Following the formalities throughout the process, including:

• ordering a home inspection
• getting a purchase offer in writing
• asking about financing

minimizes the chance that it will fail late in the game. But if all your investment does not pay off, be prepared to list the home another way for other buyers.

Remember the Tax Implications for Selling to Family

When you sell a home to a family member, the Internal Revenue Service (IRS) and other government institutions want to make sure that you are doing everything on the level. Selling the home at a dramatic loss might trigger some scrutiny into the arrangement, especially if it qualifies as a short sale. Be careful about serving as the lender, especially if the buyer wants to claim the interest on their taxes. A noticeably low sale price or interest rate may look like a taxable gift to the IRS, which will treat it as such.

Selling a home to friends might make the process go much quicker and more smoothly, but you have to be careful about it as well. By balancing between holding everything back and giving everything away, you get a better deal and avoid conflict among people who feel like family.