real estate

Real estate agent needed in family sale?

Steve McLindenQuestionDear Real Estate Adviser,
I want to buy my mother's home and we've agreed on a discounted price. So where do we go from here? Do we need a real estate agent or just a real estate lawyer? Are there any potential tax issues to take into consideration?
-- Donna S.

AnswerDear Donna,
Typically, a real estate agent is not needed in such "friendly" intra-family transactions because there is no marketing involved. But your mother needs to consult with a very good tax adviser, attorney or estate planner who is well-versed in all the consequences of such sales -- particularly regarding gift, estate and income taxes -- and who can best structure the deal to suit her overall financial plan.

This is especially important if you have agreed to buy your mom's home for substantially less than its market value, which is often the case in such heir transactions.

In the past, a heavily discounted sale to a family member could create more serious gift-tax consequences for the giver, but every person now has a lifetime $1 million exclusion. So your mom will likely not face tax consequences from such a gift unless she made sizable disbursements earlier.

You will also want to be sure your mother gets enough out of the closing to retire her home mortgage and pay for closing costs.

However, if Mom plans to continue living in the house after you buy it, this could create other potential tax problems. If this is the case, she might benefit from making a seller-financed sale to you at full-market value, then renting the property back at market rate. Such considerations are all the more reason to not scrimp on established professional guidance.

In any case, you will still need the down payment, income and credit to qualify for a home loan to buy the house, except in the unlikelihood you are buying with cash. In some higher-priced "heir" sales, buyers may still be required to have liquid assets in their accounts equal to 5 percent of the purchase price, in addition to any gift funds they are receiving.

While this is a friendly deal, you should consider hiring a home inspector to give you a clearer picture of the home's condition and any needed repairs, particularly to major components like the roof, foundation, plumbing and mechanical systems. Older homes often harbor hidden flaws and you will want to know what additional expenses await you.

And be sure to carefully consider all the quality-of-life and neighborhood-culture factors that make any home purchase a sensible one. You may be getting a great deal and making your mom's life less complicated, but ultimately you will be the one living with this decision in the future.

As you can see, there are many moving parts to such all-in-the-family sales to carefully consider. But ideally, this transaction will be a great opportunity for you while facilitating your mom's continued security and comfort.

Good luck with your purchase!

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

Read more Real Estate Advisercolumns and more stories about mortgages. 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.

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