Selling a house can be hard work. And if your sister, best friend, great aunt or cousin is looking to buy, you may think selling your home to a family member might be the easiest way to finish the deal.
After all, working with someone you know is a lot easier than dealing with a total stranger, right?
Maybe. Maybe not.
Selling to friends and family has its advantages: You get to skip the process of finding a buyer, and they get a cheap and quick deal.
But there are some potential problems you’ll have to consider, so consider these four smart tips when selling a house to someone you know.
1. Get the best deal for both parties
Often when the seller knows the buyer, they’re vulnerable to accepting a lowball offer in order to give their friend or family member a deal. It’s human nature to want to help a friend.
While a bit of a discount is fine, you don’t want to put yourself in a situation where you’re taking a loss on the sale, won’t be able to pay off your mortgage, or won’t have enough to put down toward your next home.
To prevent this, have an appraiser evaluate your home. And if you want to offer a discount, work with an agent to find a number to benefit both you and the buyer.
2. Navigate finances carefully
Since you’re selling to someone you know, you may be tempted to gloss over the financial aspect, assuming they’ll qualify for a mortgage without a problem.
That may not be the wisest choice. If they can’t qualify for a loan, you’ll have to find another buyer—and it will take even longer to sell your home.
Treat your friend or family member like you would any buyer, and ask them to get pre-approved for a mortgage before they make an official offer on your house.
3. Dealing with future problems
Many people buy a home from a friend or family, assuming they have spent enough time in the house to know its condition.
But when problems creep up later, the buyer may feel cheated—and it can cause a lot of damage to the relationship.
To keep your relationship intact, work with the buyer to find a licensed home inspector to survey your house and be as upfront as possible about any potential issues you’re aware of before you finalize the deal.
4. Always disclose the relationship
If you do decide to go through with the deal, make sure the lender knows the situation.
While a lender won’t typically deny a loan application because you and the buyer have a previous relationship, not being upfront can cause serious problems.
The Federal Housing Authority requires applicants to fill out an Identity of Interest Certification form if they have an existing relationship with a seller. Many conventional mortgage applications also ask for this information.
If the buyer doesn’t disclose the relationship, it is enough to constitute mortgage fraud—and the application may be denied.
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