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Real Estate Law: Co-Owner Buy-Outs

Real Estate Law strategies are sometimes like playing chess

Be Bought Out or Sell, That is the Question

You’ve just suffered the loss of your last parent. While you knew this day would come, it doesn’t lessen the impact. You’re overwhelmed with grief. Adding to the stress, a real estate law firm representing your only sibling has written you a letter quoting some mumbo jumbo real estate laws and asking you to buy-out your brother’s share of the home. Typical. Your long-lost brother wasn’t around when Mom was dying. Better yet, he was never around! And now you’re expected to pay this hippie long-hair for “his share” of the home? According to your attorney, that’s what the estate planning documents say. You now own the inherited home as tenants in common with your brother.

Unfortunately, there’s no real estate laws that govern this scenario. Your options are limited. You either going along with the buyout or have the property sold with the proceeds distributed amongst you and your brother. For sentimental reasons, you decide to pursue the buyout. The fair market value of the property should determine the buy-out terms. There’s a problem though. You’re brother’s never been fair to you, or your parents for that matter. You’re convinced this is another situation where he’s going to try to take advantage of you. Not this time. And so the chess match begins…

Real Estate Law’s Top 5 “Buyout” Guidelines

California real property law causes many siblings of inherited property to fight

There are five basic guidelines of California real estate law that will help facilitate the transaction between you and your sibling.

Guideline 1: Get an Appraisal!

Getting an unbiased appraisal from a qualified appraiser is paramount to achieving fairness between the parties. The selection process should involve an appraiser that doesn’t represent either side and has no previous family or business connection to either party. Attorneys specializing in real estate law are a good resource to help you locate a qualified appraiser.

Guideline 2: Property Value Doesn’t Account for Brokers Fees/Expectancies

The fair market value of the home is what it is, regardless of what a broker might charge someone to sell the property if it were indeed being sold. Even though you may one day incur brokerage fees on what was at one point your sibling’s share of the home is irrelevant and not considered in the fair market valuation. You’re buying him out of the home (not selling it), so he shouldn’t be impacted by what you plan to do with the home in the future. You may never sell the house and hence never incur brokerage fees. Further, brokerage fees are negotiable and thus too speculative to be considered in the co-owner buy-out terms.

Guideline 3: Real Estate Law Aside, Let’s Make a Deal

While broker’s commissions won’t be considered in the fair market valuation, there’s intra-family relationship and other sentimental issues that impact buy-outs between co-owner siblings. Valuation is in the eye of the beholder. You’re the only one who can place value on the fact that took your first steps in this house and placed the corsage on your high-school prom date in the front atrium, for goodness sake. The love you have for you childhood home may impact the property’s value for you, thus influencing you’re bottom line.

Guideline 4: “Keeping it in the Family” Means Saving Taxes 

If the real property is part of an estate, probate, or trust administration and the buyer and seller are brother and sister, there are ways to keep the same real property tax basis under Prop 58.

Guideline 5: File a Partition Lawsuit if All Else Fails

If you’re at an impasse, you may bring a lawsuit called an action in partition. The court takes jurisdiction over the real property, appoints a receiver to sell it, requires an accounting, and ultimately distributes the proceeds according to ownership.

 

About Dan Hanley

Specializing in estate planning, elder law and real estate law, Dan brings a wealth of experience and knowledge to help his clients with a variety of legal needs. In addition to a MBA and Juris Doctorate from Santa Clara University, Dan is also a licensed real estate broker since 1980.

Comments

  1. real estate lawyer says:

    Very nice information provided about real estate law for the co owner buyout guidelines. These points can save a lot of money.

    • Thanks, Mr. Kaufmann. Indeed, we’ve been able to streamline and clarify the process and have saved our clients a great deal of money in co-owner buy-out situations.

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