Buying Mother out of home - Posted by G.Peters

Posted by Tim Fierro (Tacoma, WA) on February 23, 2002 at 22:46:03:

Just a thought here, but if your friend wants to get the most out of the equity; determine some common deductions from that equity. If the low market value is $375k and they ended up taking 10% less in a bad market; that would bring them down to $337.5k. And if they used an agent who wanted full percentages even at this higher level, say full 6%, then $22.5k for this. Depending on how the market works there, that would be a high profit to the agent as our locals would not gouge a seller this way. But if they did, then now have a total down to; $315k. Assuming about 3% total closing costs of $9k; you have a net dollar coming back to the seller of $306k. The mortgages were $204k and that would leave net profit at about $102k, or $51k each in equity.

Now if this could be explained above, why not get a refinancing of the home to get the extra $51k and pay off the mother; then the mother can keep the cash, or give it to the kids. But it would then be cash.

As I think about it, $17k would actually go to the friend who bought it with his mother so he would only need to refinance to get the $34k needed for the other to brothers.

While first glances look like $70k to $100k equity, there will be expenses to sell and shouldn’t that burden be held on both parties in the ownership? Check local agent fees to determine what the going rate would be. I would do it for $15k, but I do know agents that would try to soak $22k out of it. There are selling fees, tax stamp/excise tax, and escrow fees; you need to account for these when selling. That is if it was an equal participation type partnership. If your friend had agreed to pay for all these fees in advance when they first purchased the house, then he will just have to worry about those later.

Just a thought…

Buying Mother out of home - Posted by G.Peters

Posted by G.Peters on February 23, 2002 at 19:47:17:

A friend of mine bought a home with his Mother in 1991 for $215,000 in Carlsbad, CA. He and his wife have been living there since 1993. The Mother has decided she wants out. She wants my friend to find out the value of the house in today’s market then split the equity in half. They went to 3 real estate agents for comps and got 3 different values $400,000, 399,000 and 375,000. The first mortgage is approx. $149,000 with a second at $55,000. The Mother will quit claim it to my friend and his wife and from her half she wants to divide it between her 3 sons (which includes my friend). At this point my friend can not buy out the 2 brothers. What is the best way to go about this? Is what they have planned the most cost effective? tax effective? What about a land trust and how would that work? What would be the best way to pay off the brothers? My friend and his wife plan on staying in the home indefinitely and possibly leaving the property to their 2 children. Right now the deed states “tenants in common”. What is the best way to have the deed set up? Your expertise in this area will be greatly appreciated.