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Steve McLinden, the Bankrate.com Real Estate AdviserKeeping home in the family has advantages

Dear Steve,
Are there specific advantages or disadvantages to selling a home to a family member as opposed to a stranger?
-- Kathy

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Dear Kathy,
Keeping things all in the family in a home sale has several advantages, plus some potential downside. But the pros generally outweigh the cons, so let's start with them.

Since the seller already has a buyer lined up and an agreed-to price, there's no need for an agent, so the two parties are saving about 6 percent right off the top.

The approach is also a great way for older sellers -- who may be moving to warmer climes, downsizing to smaller digs or segueing into a retirement community or retirement facility -- to keep the place of their cherished memories in the family and ease that often emotional transition.

In fact, sales of homes that go from parent to child, known as "legacy home" sales, are becoming increasingly prevalent these days, particularly as soaring home prices have made it tougher for young people to enter the housing market in many parts of the country. So if you're selling at an under-market price, you could be helping younger family members to circumvent years of economic struggle and afford them more time and energy to tend to their own families and careers.

But realize that selling a home at significantly less than fair-market value to a family member carries with it some gift-tax ramifications, so I strongly suggest use of an attorney or financial adviser to sort that out, as well as potential capital-gains and estate-planning issues.

Also, there are several alternative means of transferring ownership, such as quit-claiming the property, having the family member finance it or placing the home in a trust (so an ex-spouse can't grab it in the event of a divorce). These also merit the help of a professional.

Good will and emotions aside, don't jump into a family-sale arrangement without thinking it out very thoroughly.

You will also need a title company to help you manage the closing. Some municipalities also require a point-of-sale inspection, which you also can't get around. Additionally, any state- or city-required disclosure forms for home transactions will still have to be filled out.

Realize that whichever family member you're selling the home to will henceforth be its owner and that his of her house rules and decorating tastes will prevail. While you can ask the family member to respect the integrity of the place, don't expect a sense of indebtedness to you to govern "nesting" and remodeling decisions.

But if executed correctly, such sales are usually a win for everyone because they keep the dear old homestead a family gathering place for years or even generations to come.

Good luck.

To ask a question of the Real Estate Adviser, go to the "Ask the Experts" page, and select "Buying, selling a home" as the topic.

Bankrate.com's corrections policy-- Posted: April 8, 2006
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