Whether you're selling your house to a family member, friend, or stranger, the stakes are high. You have to stay neutral to avoid letting your personal relationship get in the way of a smart financial decision. To avoid damaging your friendship or worse, follow these tips on how to sell your house to a friend, and why you should use an agent.
Let's face it; selling a house isn’t easy. It takes time and patience. So, you might be thinking that selling your house to your friend will make the process easier.
While it does offer some advantages, it also comes with a unique set of challenges that require careful consideration and navigation.
Since you’re selling your home to someone you have a personal relationship with, you may think you don't need a real estate agent’s assistance — think again!
Unfortunately, nightmares can and do happen when it's time to close the deal, even between the closest of friends.
In these situations, an agent serves as an impartial third party, which can help resolve or avoid potential issues before they arise — and when you work with a Clever Partner Agent, you get the added benefit of huge cost savings.
Learn more: Get a Full-Service Real Estate Agent for Just 1.5% Commission
Why You Need an Agent to Sell a Home to a Friend
Selling your home to a friend doesn't mean you don’t need the services of a professional. A real estate transaction is complex, and if you choose to go it alone, it can lead to some serious problems down the line.
A friendly handshake doesn't mean much today, so you'll need a purchase agreement or legal contract. The agreement needs to cover any escrow deposits, down payment requirements, and the agreed upon sales price.
Drafting a purchase contract isn't easy. Although there is an abundance of information on the topic online, it doesn't go into specifics about the fine print. An agent can sit down with you and your friend and discuss the contract's particulars.
Also, an agent will do more than go over a purchase agreement. When you work with a Clever Partner Agent, they will guide you and your friend through the entire process for a significantly discounted commission rate — a flat fee of $3,000, or just 1.5% commission (which isn't due until closing).
Selling Below Market Value
You value your friendship, so you're going to offer your friend a discount on the sales price, right?
There is nothing wrong or illegal about reducing the price for a friend. However, it could lead to tax problems if you lower the price well below market value.
If you give your friend a deep discount, bells and whistles may start going off at the IRS. If you reduce the sales price by $15,000 or more, the IRS considers that amount a "gift" and it is subject to taxation.
As of 2019, you can give up to $15,000 per person during the year without paying any taxes.
Before You Sell Your House to Your Friend, Take These Actions
Since the majority of real estate deals are between strangers, there is no personal relationship on the line. When you sell to a friend, it's more than a business matter. Your friendship could be at stake.
Therefore, you or your friend should have an appraisal and home inspection completed as soon as possible.
A home inspection uncovers any hidden problems with your home. Although your friend may have visited your house a hundred times, there could be problems that aren't visible to the naked eye.
If any issues show up later on, it could damage your relationship if your friend believes you didn't disclose the problems beforehand. Keep in mind that mortgage lenders require a home inspection before they approve financing.
Mortgage lenders also require an appraisal. So, prepare your home in the same way you would if you had it listed on the open market.
The value an appraiser puts on your home could affect your friend's ability to qualify for financing. If your home is in disarray, it could influence the appraiser's decision.
Once you have an appraised value, you should agree on a sales price. To avoid any conflict, you should price your house based on a market analysis performed by a professional.
A local Clever Partner Agent will determine an accurate price using data from recently sold homes in your neighborhood. Once your agent establishes a price, you can settle on the sales price with your friend.
Get a Mortgage Pre-Approval
An appraisal and home inspection are moot if your friend doesn't qualify for a mortgage (unless your friend pays in cash).
So, talk to your friend about getting pre-approved for a home loan. A pre-approval is a commitment from a lender stating you qualify for a mortgage based on your current finances. It will detail how much your friend can finance at a pre-determined interest rate.
However, a pre-approval isn't set in stone. It's just a bank's way of saying chances are good your friend will get a mortgage. Lenders still require borrowers to pass the underwriting process before a final decision is made.
Not sure how to sell your house to a friend? Fill out our online form and we’ll be in touch to answer any questions you might have and connect you with a local Clever Partner Agent for a no-obligation consultation.