Parent Is Selling Me House, What Is The Best Way to Do So

Gravehaunted on 16/01/2023 - 14:22
Last edited 16/01/2023 - 16:08

My father is selling me a home, he wishes to make this as cheap as possible. Both parties are flexible. What is the best way to go about the sale. It is being sold at arms length. Less than half price. We wish to offset as much interest at once (I have savings post sale) Once I complete my loan I will be assisting my siblings with purchase. I am aware of the generosity and privilege and opportunity my parents have given to me.

Currently in the process of consulting with broker. Anyone with any financial advice that good benefit my situation would be greatly appreciated.

Feel free to ask any questions and include suggestions for what I should add to post if you believe it should be so.

Update(TLDR for comments): I have been taught below by my fellow Ozbargainers. Thank you everyone!

Regarding CGT and that it wont be an implication as I am purchasing a primary residence.
Stamp duty (expected this)
Transferring mortgage in sale
First home buyers grant cant help me due to the market value exceeding 700k
Seek a solicitor for legal ramifications I may be unaware of.
Consult a experienced property lawyer.

Financial

Comments

  • askbargain on 16/01/2023 - 14:24
    +6

    Auction it off and make sure you're the highest bidder

  • iNeed2Pee on 16/01/2023 - 14:26
    +28

    Congratulations on having such a great father.

    • Jimothy Wongingtons on 16/01/2023 - 14:32
      +10

      I gotta remember to apologise to my kids when the time comes :’(

      • Gravehaunted on 16/01/2023 - 14:51

        Father foresaw the market for housing exploding and decided to make things easier by pulling the pin back in 2016.

        • serpserpserp on 18/01/2023 - 13:20
          -5

          Doubt he foresaw anything. House prices had already exploded by then.

  • AustriaBargain on 16/01/2023 - 14:41
    -3

    How many homes do your parents own? If it's more than two then perhaps they have the resources to pay someone to tell them the best way to do this.

    • Gravehaunted on 16/01/2023 - 14:47
      +5

      Hi, only two in aus(family home and this one) Due to reasons money outside of aus is tied up and knowledge wise was unsure who to take this question too. We, (family) were all raised as a poor family, and we are frugal with money. I can afford to do so, just point me in the right direction. Broker didnt have much info, feel they are more sale driven for their obvious reason of money.

      • AustriaBargain on 16/01/2023 - 16:43
        -1

        I'm not rich enough to know something like that. You'd have to ask my landlord.

    • Scantu on 18/01/2023 - 13:50
      +2

      Stop participating in the great Australian jealousy mindset 👍 ahole

  • ESEMCE on 16/01/2023 - 14:43
    +1

    Your siblings are cool with this?
    And are likely to remain so into the future?

    • elgrande on 16/01/2023 - 14:45
      +2

      No and no

    • Gravehaunted on 16/01/2023 - 14:49
      +1

      Yes I am the middle child who didnt pick any expensive hobbies and worked fulltime & studied since being 18. 26 now working fulltime in tech. Spoke with my siblings regarding and they are happy for me to do so.

      • ESEMCE on 16/01/2023 - 16:38
        +9

        Geez, that answer doesn't exactly strike me with a whole lot of confidence regarding the second half of my question.

        They're essentially waving goodbye to $100,000 or more each in potential lost inheritance assuming your parents' assets were to be split evenly on their passing.

        All because you deserved it by not picking "any expensive hobbies" and working "fulltime & studied since being 18" as opposed to their (implied) lazy asses.

        • MagicMushroom on 16/01/2023 - 17:39
          +1

          Obviously OP and their siblings have 250K+ income + several cars as high-yield investments + several bank accounts with 250K saving in it.

        • andresampras on 16/01/2023 - 17:40
          +1

          lol you're a sh*tstirrer

        • dizzle on 16/01/2023 - 18:08
          +17

          They're essentially waving goodbye to $100,000 or more each in potential lost inheritance

          And if the parents spend it all they get nothing.

          It annoys me when people talk about the inheritance they deserve. The parents deserve to spend that money how they see fit. If they decide to save it for their grown up kids, fantastic. If they want to spend it on a 2 year around the world trip, fantastic. I could understand it if one sibling spent 20 years looking after a bedridden mother, but haggling over who gets what before the parents have passed? And personally, I keep telling my mum to spend her money while she can enjoy it.

          • ESEMCE on 17/01/2023 - 08:39

            @dizzle:

            The parents deserve to spend that money how they see fit

            Yeah, and in this case, at least at the moment from what we know, they're "choosing" to gift one of their 3 kids likely at least $200k equivalent.
            If the siblings are cool with that then great.
            But families have fallen apart in bitterness over far less.

            It annoys me when people talk about the inheritance they deserve.

            I used the word "deserved" but it was not used in this context at all. So get off your high horse.

            • andresampras on 17/01/2023 - 11:07

              @ESEMCE:

              I used the word "deserved" but it was not used in this context at all. So get off your high horse.

              I doubt dizzle's comment was aimed at you, so there's no need to get angry. In fact I think their comment was intended to bolster yours

          • serpserpserp on 18/01/2023 - 13:24

            @dizzle: I guy I knew at my old work was pretty loaded and had a very good paying job. His parents were even richer. Whenever the topic of his parents came up he'd always reply "I dunno what they are doing, most likely spending my inheritance." Always seemed strange to focus on it so much when he was already so loaded. I mean him and his brother own an apartment complex near a beach in QLD and and all the siblings/family holiday in it in the winter. How much money does one need?

            • Miss B on 26/01/2023 - 18:58

              @serpserpserp: I think this is just a saying/joke. That they're enjoying their money while they're still alive. I didn't hear the tone though, so maybe he sounded bitter.

        • MrTweek on 18/01/2023 - 13:01
          +1

          essentially waving goodbye to $100,000 or more each in potential lost inheritance

          OP is 26. I'm more than 10 years older and still have 2 grandmas. It's more than likely that inheritance is at least 2-3 decades away for them, possibly more.

          • jolee3 on 18/01/2023 - 13:17

            @MrTweek: That's a wild assumption without knowing their ages and health. I had lost all my grandparents by the time I was 18.

            • MrTweek on 19/01/2023 - 12:06
              +2

              @jolee3: it's an assumption, yes, but not necessarily wild. average age to have kids is around 30, life expectancy in Australia is 83 years. So on average people lose their parents when they are around 53. Surely varies a lot, but for most people 26 is an age where they expect their parents to be around for many more years and don't plan on inheriting soon.

              If you lost your grandparents at 18, your parents would most likely have been between 38 and 58 at that time, so that fits into this time frame and would leave OP 12 to 22 years until they inherit.

      • bmxr on 16/01/2023 - 18:22
        +4

        Your siblings are misinformed and this may come back to all of you in the future unless you get some agreement drawn up.

        They should either be;
        - benefitting now from the sale, to the same tune that you are being "gifted" - a straight cash gift equivalent to the difference between the remainder on the mortgage and the fair value of the property.
        - or that the wills of your parents are amended so that the proportion of what they would be entitled to on this property in to the future, is in addition to the otherwise equal split between siblings in the will. e.g. you are entitled to significantly less in the will.

        • serpserpserp on 18/01/2023 - 13:27
          -1

          Snooze you lose siblings.

  • bobbified on 16/01/2023 - 14:43
    +1

    Stamp duty is going to be one of the major considerations. It's calculated based on the higher of the "purchase price" or the "Market Value". So it'll be worth getting a valuation that's as low as possible (but still within reason). Having some 'contacts' here might be helpful.

    • Gravehaunted on 16/01/2023 - 14:45
      +1

      Thank you aware of this. We have gotten a good valuation within reason. Appreciate your msg.

  • JimB on 16/01/2023 - 14:48
    +12

    "It is being sold at arms length. Less than half price."

    ????

    • Gravehaunted on 16/01/2023 - 14:50
      +1

      Arms length is a phrase my broker used which means something on the lines of "it is being sold for less as its being sold to family"

    • dust on 16/01/2023 - 16:48

      Arms length means it's being sold at market price, which this clearly isn't.

      • JimB on 16/01/2023 - 17:03
        +1

        I know that, I was questioning if the OP did too.

  • jjjaar on 16/01/2023 - 14:55

    Is this your first property? Would you ever see yourself renting it out? Just note that if it’s ever not your PPR, when you sell it, you’ll be up for a massive CGT if you’re buying it from them for half of its value.

    • Gravehaunted on 16/01/2023 - 14:59

      Yes my first but the marketvalue prevents it being able to be put on the first home buyers scheme to offset the stamp duty. Considered renting and living in apartment but also just lived in a caravan for the last 6 years and decided to finally give myself this. Thank you jjjaar this is a big step. I have read a bit about this and I will ensure this is the case. Cheers mate.

    • freefall101 on 16/01/2023 - 15:15
      +6

      This will trigger a CGT event based on market value, their parent will be paying the capital gains at market price, then OPs capital base will be that market value. If it's their main residence they won't pay any capital gains when selling in the future (and they'll have to get a valuation if renting it out).

      Basically the cash trading hands means diddly squat for capital gains, stamp duty and everything else. It'll be based on the market value from the valuer.

      • Muzeeb on 16/01/2023 - 15:38

        Ouch

      • dust on 16/01/2023 - 16:48

        Yes exactly.

      • kiitos on 18/01/2023 - 18:41

        But it seems they got a favourable valuation too.

  • johndowy on 16/01/2023 - 15:11
    +1

    You still need to sell the property at the market price so getting a valuation is correct which it seems like you have already done.

    You don't have to transfer any actual money but you will still have to pay stamp duty and your parents will have to pay capital gains.

    A conveyancer or lawyer can handle the documents for you and a broker can help you sort it out as well.

    • Gravehaunted on 16/01/2023 - 15:38

      Selling at the remaining cost on mortgage. Thanks, getting together the cost of ownership for parents over the years using links from above to calculate rough idea of the CGT gain.

      Have a conveyancer ready for the documents. Thanks for the msg cheers.

  • Gunnar on 16/01/2023 - 15:23
    +1

    Have you spoken to a solicitor on this? O'm pretty sure you will still need to do this so that everything is done appropriately.

    It's possible that your parents will be up for capital gains tax not he same too because that is done at Market Value

    • Gravehaunted on 16/01/2023 - 15:42

      Hi Gunnar,

      Thanks for the msg. Did a quick google on solicitor: "such as tax implications. A solicitor is better equipped to handle more complex sales that contain more risk." I think this is defiantly the next step I need to take. Weird one, I know someone with the same screen name, you an engineer by any chance?

      • Gunnar on 16/01/2023 - 17:10

        lol nope that's not me

        Check with a conveyancer on what is required. Tax implications are federal however there may be state-based requirements that you need to fulfil depending on where you are located

  • ihbh on 16/01/2023 - 15:40

    Based on your comments above, this one is your parent's investment property? Selling for less than half price will cheat Govt of potential CGT and stamp duty.

    Computer says no.

    • Gravehaunted on 16/01/2023 - 15:45

      I can neither confirm nor deny… jks buying for remaining mortgage price, regardless will go off evaluation done by real-estate agent. Just trying to gain knowledge and understanding to operate within the laws while making good financial decisions.

      • ihbh on 16/01/2023 - 15:52
        +1

        To be safe, get 3 and take average.

        • Gravehaunted on 16/01/2023 - 15:56

          Thanks for your time ihbh :)

      • larndis on 17/01/2023 - 09:50
        +2

        I think you need an actual property valuation (from a valuer) rather than just an appraisal from a real estate agent. They are not the same.

        • gyrex on 17/01/2023 - 11:56
          +1

          Having been involved in something similar to this in the past, I can confirm that whilst it's not a strict requirement, the ATO does advise that an independent registered property valuer is used in order to mitigate any legal responsibility for both parties.

          https://www.ato.gov.au/individuals/capital-gains-tax/market-…

          If a registered valuer isn't used, both parties are potentially liable for stiff penalties if it's found that the sale isn't conducted at arms length and thus at true market value (as it appears will be the case here based on the OP's responses).

          I might remind the OP that tax evasion is a crime and heavy financial and criminal penalties apply to both parties if the ATO persues prosecution. Also, a sale such as this between family members will likely trigger an alert or event at the ATO and a subsequent investigation. I would advise the OP that both he/she and their parents consult with a competent accountant to ensure what they're attempting to do is within the bounds of the law.

      • gromit on 18/01/2023 - 14:03
        +1

        I would go find a proper professional property valuer not a real estate agent. You could find yourself in deep poo relying on what the RA tells you. The ATO and state tax revenue offices will expect proper valuations.

  • dtc on 16/01/2023 - 15:43
    +5

    There are only 3 rules for this

    1. you have to pay stamp duty at market value. So you said you have an assessment, that will be amount used to calculate stamp duty (payable by you) regardless of how much you actually pay

    2. if the sale of the property triggers capital gains (ie its not a principal place of residence) then capital gains tax (payable by your parents) will be based on market value not sale value regardless of how much you actually pay. I'm assuming this will be your residence so havent gone into cost base issues for you

    3. otherwise….there are no rules. The price can be $1 or $4m. It doesnt matter.

    Obviously the usual home buying issues - shop around for a mortgage, use an offset account if it helps etc

    • Gravehaunted on 16/01/2023 - 15:59
      -2

      Thanks looked into PPR and confirmed this is the case. Thus CGT is something I wont need to worry about. I feel stupid for waiting many peoples time. Will update the post.

      • original15 on 16/01/2023 - 19:43
        +2

        It will be your ppor if you own it but is not the sellers PPOR so are they up for CGT at point of sale, as others have suggested

      • gromit on 18/01/2023 - 14:31

        CGT is for the seller not the buyer. i.e. if your parents have it as a rental they are up for CGT based on market value. It doesn't matter what reason you are buying the property for, CGT is based on the status of the seller so assuming it is an investment house for them then YES CGT is an issue,

  • Seraphin7 on 16/01/2023 - 15:44

    There's a lot of potential pitfalls in this. My strong suggestion is to speak to an experienced property lawyer on this topic. Perhaps more than one. Whatever you end up doing, make sure the lawyer is prepared to provide you with written legal advice on the topic and then have them carry out whatever is in that advice. The few thousand this may cost you could end up being money very well spent.

    • Gravehaunted on 16/01/2023 - 15:58
      +1

      Thank you for the advice. I will take this up. Have a nice day.

  • Stopback on 16/01/2023 - 16:03
    +1

    better for you to rent it from them and then wait for the will.

    • Gravehaunted on 16/01/2023 - 16:08

      Is it actually? Please elaborate. Does the state not take a %?

      • Stopback on 16/01/2023 - 16:26
        +2

        pitfalls are siblings could ask for house

      • AustriaBargain on 16/01/2023 - 16:44
        +3

        Pitfall could be your father changes his mind about giving you the house if you don't seal the deal.

    • freefall101 on 16/01/2023 - 17:43
      +2

      No, this is (generally) worse. By triggering the CGT event now any future growth in value won't be taxable. However if the parents keep owning it and renting it out, it won't be capital gains free for that period of time, the date will be when OP inherits it.

      Let's say it was $600k when purchased, worth $1m now, and assume $1.4m when OPs parents die. Trade it now, there's a capital gain of $400k. When OP sells it there's no additional CGT (assuming it was main residence the whole time). However if OP rents it, when they sell it there will be a capital gain of $800k instead (the difference between the $600k and $1.4m). The tax isn't payable until it's sold, but there's no retroactive change to that tax. The way it's better is if the value of the property goes down.

      Additionally the parents have to pay tax on the rental income. Unless it's negatively geared, then the situation might be better to rent out. But that's where you talk to an accountant, to understand the taxable income of each party, long term plans and the history of the property (there might be main residence exemptions previously or something).

      • Gravehaunted on 16/01/2023 - 17:56
        +2

        Well written, great example which is scarily relative to me. Terrific reasoning and advice. Thanks for your time.

      • MrHyde on 16/01/2023 - 18:03

        But what if they don't sell it. OP inherits it in their will and it becomes their PPR. I was of the understanding that CGT only applies if they subsequently sell it and at the point of sale, they will need to calculate number of days it was used as a residence and number of days not and then calculate partial exemption based off that.

        • freefall101 on 16/01/2023 - 18:15

          If it's never sold then sure, it will never trigger capital gains.

          It is a consideration, if OP plans on living in it for decades then the gain will stay a fixed dollar amount but the value of that dollar will change. A good dose of hyperinflation and a $400k gain might be payable pretty easily (I have a 100 trillion Zimbabwe dollar note somewhere).

          It is a matter of paying tax now vs paying it later, something to consider depending on what family cash flow is like. All the more reason to talk to an accountant, they can walk through this stuff and look at the specifics of what OP needs.

  • CodeXD on 16/01/2023 - 16:14

    I saw a previous ozb forum post about something similar, and I believe the best advice was for your parents to name you in the will to receive the house.

    • Gravehaunted on 16/01/2023 - 16:38

      Thanks, I'll search for it

      • AustriaBargain on 16/01/2023 - 16:46
        +3

        Wills can be changed and father's can remarry. Think about whether you even want your father to know about this option. I'd lock down this house while it's still on the table.

        • Gravehaunted on 16/01/2023 - 17:58

          Thanks for the advise. Couldn't agree less.

          • AustriaBargain on 16/01/2023 - 18:02
            +1

            @Gravehaunted: Hey it's a doggy dog world, you gotta look out for number one.

            • andresampras on 17/01/2023 - 11:15

              @AustriaBargain: …although there's a possibility he actually wants a good relationship with his parents and siblings, long term

              • AustriaBargain on 17/01/2023 - 22:12
                +2

                @andresampras: Sure, but if OP already owned a house would he be willing to let his father ultimately decide what to do with it, like if his father turned sour on him or remarried with a woman who convinced him to give the house to her? Not clear cut accepting ownership the house from his father/giving his father the power to control a house that OP already owns is algebraically speaking the same thing. Sometimes it's better not to look a gift horse in the mouth and just take what's being offered to you while it's being offered. Relationships can sour, priorities can change, things can happen. Suppose OP rejects the house now and says "you keep it and put it in your will for me" and 20 years from now the father dies but OP finds out that two years earlier the will was secretly changed to give the house to OPs cousin who visited the father weekly while he was sick. Or OPs father joins a cult who convinced him to will everything to the cult. Or who knows what else can happen.

          • andresampras on 17/01/2023 - 11:14
            +1

            @Gravehaunted:

            Couldn't agree less.

            come again?

            • gyrex on 17/01/2023 - 12:00

              @andresampras: For some reason this response has me in stitches ;)

    • gyrex on 17/01/2023 - 12:02
      +1

      A will isn't worth the paper it's written on these days when it comes to any contention of an estate by interested parties through the family law court.

  • bmxr on 16/01/2023 - 18:17

    There is a very relevant example here:

    https://www.ato.gov.au/individuals/capital-gains-tax/propert…

    Example: selling property for less than market value

    Antoine owned a rental property. The lease on the property was about to end.

    Antoine owed $120,000 on the mortgage. He offered to sell the property to his son for the balance owing on the mortgage. His son accepted the offer and purchased the property for $120,000.

    Antoine obtained a market valuation from a professional valuer. The market valuation showed the value of the property at the time of transfer was $450,000.

    When Antoine calculates his capital gain or loss, the $450,000 market value is his capital proceeds

    • bmxr on 16/01/2023 - 20:43

      Sorry, have seen that you have clarified in later comments that it is your fathers PPOR and not subject to CGT.

  • MeesusEff on 16/01/2023 - 19:40
    +1

    Hey we are doing this now. Parents bought a 2nd house opposite mine thinking they were going to move in, then decided not to. I could have waited for them to 'inherit it' but I felt this weight hanging over me so they are transferring it to me (I pay them $200k for the balance of their other mortgage). The bank evaluates the property value so no "selling it for half price", I'll have to pay the stamp duty and they'll pay the CGT for the house difference in value from when they bought. Hope that's 100% correct as the lawyer still hasn't gotten back to me yet lol

    • gyrex on 17/01/2023 - 12:04
      +1

      Banks use registered property valuers and the general flow of the process you've outlined is correct.

  • 2esc on 17/01/2023 - 09:21
    +6

    Families can behave unexpectedly when it comes to money or little personal possessions be aware of that and expect it.

    My uncle worth 15 plus million was grabbing everything after death of my grandfather and they were trivial things but it hurt my father big time to see his sibling behave like this.

    My mother after seeing this has downsized dramatically now to decrease possible confict. Yet my brother in law has a bizarre perception that my sister and he deserves a bigger split? All us kids help out our mum. So be aware conflict may also come not from your siblings but their partners or future partners.

    Speak to an accountant about possible tax implications and find a solicitor who also does conveyancing.

  • tsunamisurfer on 17/01/2023 - 12:23

    This is easy, just go to any settlement agent and ask them to do the buy / sell side.

    Ask them the implications on the heavy discount.

    No need for anyone else.

    It is great when families can help each other out for home ownership.

  • Hol on 17/01/2023 - 20:35
    +2

    Are your parents pensioners or expect to receive a pension in the next five years.
    If they are difference between selling price and market value would be treated as a gift and could effect pension.

    • Gravehaunted on 18/01/2023 - 15:37

      Hey Hol, yes. No kidding thanks for the msg. I'll look into this

      • Hol on 18/01/2023 - 16:25
        +2

        Yep, get you both ways, I sold my house to my son,at market value and lost my pension over the assets test. If I had sold under market value the difference if over $10000 would be treated as a gift and can effect the pension for 5 years, even though no money changed hands

        • Gravehaunted on 20/01/2023 - 13:24

          Hiya Hol,

          Is it strictly just 5 years? Or based on the amount sold under market value? Thanks for your comment.

  • miwahni on 17/01/2023 - 21:30
    +3

    Not sure how good your relationship is with your siblings, but I would recommend your father getting independent legal and / or financial advice as to the effects of gifting equity, and retaining a copy of the advice given. That way when the (almost) inevitable fights arise over the property at your parents' (hopefully long off) deaths, you have evidence that they knew what they were doing at the time and you didn't coerce them.
    I hate being this cynical but I've heard of terrible fights erupting over situations like this.

  • Hydrool on 18/01/2023 - 13:19

    Why not just sell it at market value and then give you the money to help purchase whatever you like rather than this whole ‘selling at half price’ business

  • Typical16-bitEnjoyer on 18/01/2023 - 14:00

    Speak to a lawyer.

    If your father were to sadly pass away or become bankrupt in the near future, the property could be subject to clawback. Particularly a concern when you mention it's being sold at half market price…

  • drprox on 18/01/2023 - 14:33
    +3

    Lol this part made me chuckle
    "It is being sold at arms length. Less than half price."

    • gyrex on 18/01/2023 - 17:30

      This bloke's obviously not the full quid. He also said that he "couldn't agree less".

      • Gravehaunted on 19/01/2023 - 11:19

        I tend to not proof read many things I say…. Bit quick to assume just off a few comments.

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