Q: My sister and I own a property together as tenants-in-common (our recently deceased brother’s home). I am planning on buying her out. She is asking for an amount that would equal to the house selling for $565,000, but saying that it’s really only $535,000 on grounds that she refuses to pay the portion of value that would go toward broker’s fees in a regular sale. However, after I buy her out, and I sell it down the road, I will have to pay broker’s fees on the portion that she used to own. Is there a law governing this or would an attorney know which is ethical?
My sister is also accusing my appraiser of appraising the property at an amount lower than its true value, as well as accusing my real estate agent and even other family members of wrongdoing. She has told me that the fair way would be if we sold the property, but when I suggest that we just sell it, she makes a lower buyout proposal.
My wife and I feel like we are being held hostage and are going to give her what she wants just to get her out of the partnership. I just want to get out of this situation even if it costs me a little more money. –Thomas
A: I’m sorry to hear that you are going through this family tumult in the wake of your brother’s passing. The breakdown of the relationship between your sister and yourself and the larger-scale familial upset is by far the biggest tragedy of this situation.
Unfortunately, these situations are not at all uncommon. A pastor friend of mine has said he’s seen so many home-related sibling disputes after a parent or sibling dies that he encourages people to leave orders in their estate plans for their homes to be sold (and the proceeds distributed) by a neutral third party.
1. Fair market value should govern your buyout price — without subtracting broker’s fees. 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 being sold. The fact that you will likely one day pay broker’s fees on what was once her share of the home is irrelevant: You are buying her out of the place, not selling it, so she should not be impacted one way or the other by what you plan to do with the place down the road.
The prevailing indicator of a home’s fair market value is what other, similar homes nearby have sold for in the last six months or even more recently — this is what real estate and appraisal professionals use as the basis for their opinion of the home’s value. Appraisers do not subtract broker’s fees when determining a home’s value for multiple reasons — including that broker’s fees are negotiable/variable and are not always involved, even in arm’s-length transactions (e.g., sales between strangers).
You and your sister must agree on the buyout price for the transaction to proceed. While it is a fact that her buyout share should not be impacted in either direction by a line item for a broker’s fee line item, that may or may not have any impact on either of your positions about what you are willing to pay — or accept. If you are truly willing to pay a premium to be done with this situation, consider whether an incremental price difference is truly worth an argument with her.
If you’re truly looking for an expedient, fair resolution to this matter, and small financial differentials in the buyout amount don’t matter as much to you as closure does, get creative: Provide her with a list of three or five different local appraisers; let her choose one or even multiple appraisers from the list; split the appraisal fee(s) with her; and agree in writing before the property is reappraised that you two will take the average of the appraised values and use that as the basis for her buyout amount — with no adjustments for broker’s fees. Putting her in some control might help her feel less like she’s being defrauded, irrational or not.
2. Consider an action in partition. If you are at a complete impasse with her, you do have the right to bring a lawsuit called an action in partition. In partition, the court will almost undoubtedly order the property to be sold on the open market to a party neither of you know or have any relationship with so as to be 100 percent certain the price is a fair one and that neither party is influencing the price downward to cheat the other out of their fair share.
You both would be required to give a full accounting — under penalty of perjury — of any income you’ve received or expenses you’ve incurred related to the property, and those items, any outstanding taxes or mortgages, and other costs of sale, including — yes — broker’s fees, will be deducted from the sale price of the home before you each are given your share.
3. Before you sue, urge her again to sell. You’ve said repeatedly that you are ready to be done with this situation. That leaves you with two options: You can move forward and buy your sister out, even if you have to pay slightly more than you feel is your fair share, or you can sell the property by legal force, or by a simple agreement with your sister to do the same.
The only thing you can force her to do is to sell the place via a partition action, which would cost you both significantly more money in lawyer’s fees, court costs and potentially other costs of the sale than simply selling it without going to court.
If you move forward with a buyout, you’d do well to choose appraisers and even the attorney and/or title professionals who draft up the transfer documents jointly with your sister rather than unilaterally.
My advice to you is to make a firm decision one way or the other about whether you want to keep or sell the home. If you want to keep it, move forward swiftly, agreeing to pay her price or having it reappraised, as I have recommended above.
If you want to sell it, consult with a local real estate attorney — ideally, the one who would represent you if you did have to bring an action in partition.
Ask that attorney to write a letter to your sister, laying out the law of partition in your state, estimating what the legal fees might be if you are forced to proceed with a lawsuit, making a final buyout offer (if you are still open to buying her out at that point) and expressing your formal request for her agreement and participation in a sale of the home without being forced into court. If she refuses, move forward with the partition action.
The sooner this is all over with, the better, and a speedy resolution will put the realities of this situation in stark focus for her, minimizing her vacillation on the issues.
Tara-Nicholle Nelson is a real estate broker, attorney and the author of two critically acclaimed books on real estate. Tara also speaks and writes on the art and science of life transformation at RETHINK7.com.
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