Do I Buy out Family or Sell? Real Estate Advice

BangkokBreakfast on 31/01/2022 - 19:26

Need advice

  • Purchased a property for $570k with a family member in 2018 off the plan. Settled in 2020.
  • We both hold 50/50 shares as tenants in common.
  • It’s been my PPOR since settlement.
  • Family member is now instigating a sale as they want to ‘cash out’.

To determine a fair sale price, family member and I each organised our own professional valuations and agreed to settle on the median of both figures.

Median figure came to 800k, but realistically I am confident the property would sell for no more than 750k in the current market. A real estate agent has validated this ballpark when asked for their opinion.

Should I continue to buy out my family members share (at what I believe is an inflated valuation) OR do I challenge the valuation by selling and letting the market decide?

Can’t help thinking that I am overpaying, especially considering the family member will not have to pay any agent/listing/sale costs if I buy their share vs sale. I would also have no equity left in the property if I did this.

Poll Options

  • 58
    Buy them out
  • 12
    Sell
Financial

Comments

  • rektrading on 31/01/2022 - 19:33

    Let the market decide.

  • AustriaBargain on 31/01/2022 - 19:35
    +1

    Don't 750k valuations sell for closer to a million at auction? I feel like I've read dozens of headlines like that in the last year, and everyone on OZB complains about agents deliberately under listing values at auction.

    • SBOB on 31/01/2022 - 19:38
      +7

      Over valuation for talking to sellers, under valuation for talking to buyers.

      Simple real estate rules :)

    • BangkokBreakfast on 31/01/2022 - 19:39

      Next door sold for 750k two weeks ago. It’s a cookie cutter neighbourhood. All similar land size and house style.

      • AustriaBargain on 31/01/2022 - 19:40
        +1

        Why not put it up for auction and you bid on it?

        • SBOB on 31/01/2022 - 19:53
          +3

          And pay real estate listing/selling/auction/legal fees for the privilege?

          • AustriaBargain on 31/01/2022 - 19:56

            @SBOB: If it sells for 750k then that's 50k less than the other valuation, saving 25k. And all those fees would be split with the other half as well, OP could end up saving money vs paying out 375k. Of course if it sells for a lot more than 750k then OP would lose out, though they could just not bid when if it gets over that price.

            • SBOB on 31/01/2022 - 20:02
              +1

              @AustriaBargain:

              And all those fees would be split with the other half as well,

              1-2% agent fees, 1-2k in legal fees, 1-2k auctioneer fees.

              A lot of effort to roll the dice if they actually like the house they have
              (Not including stamp duty on another house if they sell and move)

              • AustriaBargain on 31/01/2022 - 20:11

                @SBOB: But OP would only pay half those fees, so 0.5-1% agent fees, 500-1k in legal fees, 500-1k auctioneer fees. That's a heck of a lot less than paying half the difference between the two valuations, which would be 25k. If OP is absolutely certain it wouldn't sell for more than 750k then they will save a lot of money by putting it up for auction and bidding for it themselves. If the other half owner is right and it could sell for over 800k then OP would lose money compared to just splitting the difference. OP seems totally convinced that it will not sell for more than 750k at auction, so the only sensible thing to do is put it up for auction and save himself thousands of dollars (if he's right). OP believes both valuations are inflated so he stands to get an even larger windfall by bidding for it themselves at auction.

  • SBOB on 31/01/2022 - 19:37
    +13

    It’s been my PPOR since settlement

    Paid anything to the family member for 2 years of living in their 50% of the house?

    Negotiate to subtract real estate listing/selling fees from the total(at least 10k), and work out if 20k (half the gap between your price and the median) is worthy fee for 2 years of living there, keeping the house (assuming you like it), and not needing to compete for another house and move.

    20k doesn't get you far in real estate land

  • upended on 31/01/2022 - 19:59
    +14

    To determine a fair sale price, family member and I each organised our own professional valuations and agreed to settle on the median of both figures.

    So you initially agreed to this

    Median figure came to 800k, but realistically I am confident the property would sell for no more than 750k in the current market.

    and now you disagree because the median does not match the price you had in mind?

    • BangkokBreakfast on 31/01/2022 - 20:10
      -3

      It’s more the fact that next door sold for 750k at auction a couple of weeks ago. Being the same floor plan and similar land size, I believe the valuations are inflated. I’m so confident of this I am tempted to let the market make the same point by selling. But is it worth it? That I don’t know…

      • kiitos on 01/02/2022 - 08:32

        It also depends on who is there on the day, enough people with a high enough threshold to compete.

  • MrHyde on 31/01/2022 - 20:09
    +2

    Also think about what you will do if you sell. You are currently living in it. Would you be able to buy another house somewhere to live in with the money you get from the sale? Could this be an opportunity to move to somewhere else or would it be too much of a hassle to move?

  • p1 ama on 31/01/2022 - 20:28
    +15

    To determine a fair sale price, family member and I each organised our own professional valuations and agreed to settle on the median of both figures.Median figure came to 800k, but realistically I am confident the property would sell for no more than 750k in the current market. A real estate agent has validated this ballpark when asked for their opinion.

    So basically you pulled a dodgy - you agreed to settle on the median of both figures, you are now going back on your word because you do not like what that median figure is.

    The long and short of it is that you're fighting a heck of a lot over $25K. If it's valued at $800K, you pay $400K to the other guy, if $750K, you pay $375K.

    At the end of the day, do you want the best financial solution, or do you want to stick it to the other guy that you're right? If the former, then obviously sweating over $25K is nonsense, if you sell, you're probably going to pay over half of that in agent costs, then conveyancing and all of that, you'll pay stamp duty if you choose to go buy another property, costs of moving and relocating, what exactly do you get from doing that?

    • BangkokBreakfast on 31/01/2022 - 20:39
      +1

      Not going back on my word, just considering the alternative option we both agreed on (should I not be interested in buying them out).

      You do make some really valid points though - especially the fees associated with moving. I was planning on upsizing in about 3 years time as we start a family so was considering speeding that up. However you’ve given me a lot to think about.

      • SlickMick on 01/02/2022 - 11:43
        +1

        Should have made a better agreement. e.g. median of valuations less sale costs.

        Valuing a property isn't an exact science. Since it's family, I'd just pay whatever keeps the peace, if you reckon it's a fair price. Else sell it and you'll find out who was right.

        But I'm surprised that professional valuers came up with such a discrepancy. These were professional valuations, not real estate guides, right?
        The valuations should refer to the property that sold for $750K and mention why yours is worth more or less.

    • bobbified on 31/01/2022 - 21:14
      +12

      Pulling shit like this is how people lose family…. lol.

  • holdenmg on 31/01/2022 - 20:30
    +4

    If the family member is instigating the sale, let them buy you out at their higher valuation.
    Then they can sell it and realize the profit only they think they can achieve. They can pay the Agent fees, prep the property for sale, and suffer the inconvenience of open inspections.

    If they get more than their valuation, they keep it.

    • Mechz on 31/01/2022 - 22:21

      Agreed but they're probably just going to put it up for auction.

  • garetz on 31/01/2022 - 21:23

    If you have no equity left afterwards then its not worth doing, just sell and get some profit from the sale.

  • loropy9 on 31/01/2022 - 21:32
    +8

    OP, if you like the place, keep it.

    No $25K are worth the hustle of looking for a new place, getting outbid forever until you get so frustrated and fed up that one day you'll go out and pay even more for something that may not be worth the price, just to put an end to the Saturday agony. You know the current home in a way you can never now another property you never lived in. This alone is worth the $25K.
    In your case it seems that your family member is keen to cash out. Use this to negotiate the price down a few $K and go on living your hassle free life.

    • BangkokBreakfast on 31/01/2022 - 21:35

      Thanks @loropy9

      Solid advice and great point. Appreciate the comment, puts it in perspective

      • Kangal on 31/01/2022 - 22:04
        +1

        Maybe tell your family member that to get $800k, the house will have to pass a number of potential offers and sit on the market for a while. And on top of that, it will incur fees which will add up quite a bit.

        Tell them they can sell for $750k to you, it will save them all those fees, lots of time, the hassle of getting you moved out so the house can be presentable.

        Be open and assertive that this is fair. If they disagree, tell them straight-away that you are prepared to sell your half to him at that same price/offer. If they say yes, well, it is still a good outcome for you (since the matter will be settled amicably). If they say no, then tell them that you will put this interaction on paper, and will remind him later that he has been unreasonable (and it will negatively affect both of you).

  • JimmyF on 31/01/2022 - 22:33

    Can’t help thinking that I am overpaying, especially considering the family member will not have to pay any agent/listing/sale costs if I buy their share vs sale. I would also have no equity left in the property if I did this.

    Then take this out of their 'share'.

    If you don't want to buy them out at the price you both can agree on, then put it on the market and see what offers you get :)

  • SF3 on 31/01/2022 - 22:42
    +1

    Ah, another financial dealing with family.

    Sounds like it's a pain for you to move as it's your PPOR… but you don't want to feel like your other 50% family is ripping you off.

    It always feels okay at the beginning when you have financial dealings with family, until the people involve start having their own ideas…

  • TheMindsetTraveller on 31/01/2022 - 22:43
    +6

    Another perspective:

    You paid $285k ($570k purchase price) and theoretically need now pay $400k to your family member (assuming you use the median valuation). The total cost you have outlaid is now $685k, to acquire a property that you feel is only worth $750k. Your net gain is $65k.

    OR

    List the house for sale/auction, it sells for $750k minus agents fees, marketing, auctioneer or whatever is applicable. Net proceeds $720k. You split that up, each person gets $360k today. Deduct your $285k, less stamp duty paid, less solicitors fees etc and your net gain is $60k. Now you move or upsize and pay further costs.

    • BangkokBreakfast on 31/01/2022 - 22:47

      Good perspective.. thanks for that. Always more than one way to peel an orange.

  • rektrading on 31/01/2022 - 23:02

    This is the second post this month where one family member is backstabbing another family member over money.

    Who needs 💩 tenants when the family can do a 👍 🔪. The 😄 of real estate investing.

    • holdenmg on 31/01/2022 - 23:09
      +2

      The OP's date of joining OzB precedes the date of the purchase of the Property.

      If OP didn't ask for advice back then, I think someone should sell Popcorn to the masses while the discussion ensues.

  • morse on 31/01/2022 - 23:15
    +1

    Do you like living there? If so I’d lean towards staying and paying them out, if not then sell.

  • this is us on 31/01/2022 - 23:20
    +1

    Sell the family member.

  • Traveller107 on 31/01/2022 - 23:44
    +3

    OP did you both get a valuation or an appraisal?

    There is a big difference between both.
    If you got a valuation from a certified valuer then saying the 800k valued property won't sell for over 750k wouldn't be quite right. Mainly because valuers are usually conservative with their figures. Only certified values can do valuations, real estate agents can not.

    If you got real estate agents to help you then that would be an appraisal (not a valuation) and usually appraisals are quite optimistic so it's rather fair to say a property appraised at 800k would sell for 750k.

    Regardless you should get out of this shared property scenario asap. If it's a unit then sell up and walk away with your cash to reinvest elsewhere. If it's a house then buy out your relative and keep it.
    Cheers

  • leelemon on 01/02/2022 - 01:19
    +1

    I bought a house with my partner just over a year ago for the same price when the market dipped -
    Houses with the same sqm and a similar layout are now selling for $800k+ a street away from us. The market is pretty stupid crazy.

    Maybe talk to them about your concerns about the price if it is really bothering you ~ business is business, and if you start the conversation from a kind and honest place, hopefully they will reciprocate that back.

  • omcb on 01/02/2022 - 02:33

    OP will lose both the house and the family member on account of being a snake

  • MechEng on 01/02/2022 - 09:52
    +2

    Why don't you put all the number in paper and make an offer to your family member.
    i suggest something along these lines:
    Median of evaluations: $800 K
    Advertising and Marketing fees: $10K I don't know the numbers so I am just exemplifying
    Real Estate commission on $800K sale: $40K
    Tax, and other costs: $5K
    Convenyancing costs: $5K
    Total left after sale: $740
    My offer: $750
    And may be you can take care of all the convenyancing costs.

  • Boshait on 01/02/2022 - 14:43

    What do the property valuation sites say? at the moment they would likely undervalue because they are backwards looking.

  • anthony t on 01/02/2022 - 14:57

    Have you paid the other 1/2 owner rent during your tenancy? I can't see an answer to this. If not, you owe it. Factor it into your offer to them or read below.
    If your 'valuation' is from an REA, it's crap. Get in a valuer and pay them a fee, split evenly. A valuer will still give you a 'price range' but you could agree you'd pay the middle of this, or both sell if you don't want to pay this. It sounds like you'd rather stay in the property for about 3 more years. If you can afford it, buy the other half. Your life will be much easier, and you'll make back this fairly minor difference you perceive in no time anyway. Has either one of you had financial advice? If not, get it - together or separately. Unless, for example, you bought it in a Trust, you are also probably due to pay SD on what you pay them (depends which state etc. the property is in). They could be up for CGT as well, unless you haven't paid rent in a standard way, so this could be part of the overall deal. You need an accountant to work in all the elements independently for both your benefits. Ignore the 'place next door'. It's selling price is completely meaningless in this context.
    I am not a financial advisor, but have bought and sold very often over the past 40 years.

  • Essem on 01/02/2022 - 20:19

    OP will have to pay stamp duty on the 50% value buying out his tenant in common, There will also be Conveyancing fees on both sides, and assuming OP needs to borrow to finance the purchase, the lender will require a legal contract.

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