How To Sell Your House to Your Kids?
Selling your house to your adult children can be a rewarding and financially advantageous decision, provided it is done with careful consideration of the legal and tax implications. In this video, you’ll learn the steps to ensure a smooth transaction while maximizing tax benefits for both parents and children.
🚨 Important note: Minor children cannot own real estate. This article is about selling property to an adult child (over the age of 18).
The 5 Steps to Sell Your Home To A Family Member:
1. Determine the Sales Price of the Property
When you sell a property to your child, you often save significant costs by avoiding expensive real estate agent commissions. As such, parents will sometimes sell their property to their child slightly under market value or what they would sell their property to a stranger. Determine if you will be selling the property for fair market value or something less. If you sell your property significantly under fair market value, there may be significant tax implications to consider. You can learn more about common tax scenarios when selling a property to your son or daughter.
2. Go Under Contract with your Child
Although it may seem “over the top” because you are selling your property to someone you know, a sales contract is a legal requirement for the sale of all real estate. In addition, the buyer’s title company and mortgage company will require a signed sales agreement in order to begin their work facilitating the sale.
The contract to sell your property to your child will outline important deadlines and responsibilities for all parties. Often, our clients are surprised by the important details in their contract and discover actions and steps they didn’t realize they had to take. The FSBO Lawyer can prepare a custom, easy-to-understand contract to reflect your unique situation of selling your property to a family member. Click here to contact us.
3. Buyer Financing & Inspection
After you go under contract, your child (the buyer) will begin the process of obtaining a mortgage (if they are getting one) and conducting a title search on the property. The process to get a mortgage for a residential property typically takes about 30 days.
Sometimes, parents are willing to “hold the paper” or provide a mortgage to their children directly rather than their child obtaining a mortgage through a broker. This process is called “seller financing.” To learn more about seller financing, check out this article.
4. Ensure Compliance with Local Regulations:
Selling your home to your kids is in many ways no different than selling your property to a stranger. As the seller, you must comply with local regulations and laws around home sales such as obtaining a certificate of occupancy. The FSBO Lawyer, helps guide our clients through the specific requirements or restrictions that may apply to intra-family home sales in their state and town.
5. Legally Transfer Your Property To Your Child
Finally comes closing. At closing, you will sign a deed transferring your property to your son or daughter. You will also sign several other documents such as the settlement statement, documents related to transfer tax, and the buyer’s title insurance. Some sellers choose to pre-sign in advance of closing and others prefer to attend closing in person. The choice is yours. The FSBO Lawyer prepares and reviews all the documents sellers sign at the time of closing.
Conclusion:
Selling your house to your children can be a financially sound decision when approached strategically. Real estate attorneys play a vital role in navigating the legal and tax complexities of such transactions. By understanding the nuances of fair market value, gift tax exemptions, financing options, and trusts, attorneys can help their clients maximize tax benefits while ensuring a smooth and legally sound transfer of property to the next generation.