7 Steps To Selling A House To A Family Member

Selling a house to a family member can be very rewarding.

Perhaps you’re trying to help a relative out by providing them with an affordable price on a home. Perhaps it’s an old family property you’d like to keep in the family. Or maybe this is a way of convincing a child to live closer to you by offering them a deal they can’t refuse.

Whatever the reason, it helps to know how to properly transfer the asset without running into any snags or damaging any relationships.

With some guidance from a top real estate agent and a veteran real estate attorney, we’ll cover seven important steps to consider when selling a house to a family member, as well as some questions you might have about the process.

Disclaimer: This post is for educational purposes only and does not constitute legal or financial advice. If you need assistance navigating the legalities or tax implications of selling a house to a family member, HomeLight always encourages you to reach out to your own advisor.

How to sell a house to a family member

Selling a house to a family member is typically a much quicker and simpler process than selling on the open market. In business terms, it’s known as a non-arm’s-length or controlled transaction. This means the buyer and seller have a pre-existing relationship of some kind (i.e., family, friend, business affiliate, etc.)

In contrast, an arm’s-length transaction is one where the buyer and seller are strangers acting independently and in their own self-interest.

Even with a controlled transaction, there are a number of steps one should consider taking to ensure everything goes smoothly for everyone involved.

1. Agree on a selling price

The selling price will set the stage for how the transaction will be handled moving forward.

It will determine whether the buyer needs to acquire a loan and what sort of taxes the seller may face once the deal is complete.

There are several ways to receive an estimate of your home’s current market value.

The traditional methods are to get an appraisal or have a real estate agent conduct a comparative market analysis (CMA). Using one of these options is prudent when selling to a family member since controlled transactions are typically watched more closely by lenders and the IRS due to a higher risk of fraud. If the IRS decides to audit the transaction, then you’ll have documentation to prove your home’s fair market value at the time of the sale.

If you’re simply looking for a ballpark idea of what your home is worth, then you can use an Automated Valuation Model (AVM) tool like HomeLight’s free Home Value Estimator. AVMs use publicly available data and recent sales records to generate a value-range based on the current market conditions.

If you wish to sell the home to your relative for less than its fair market value, then you’ll likely have to report the difference between the home’s value and the sale price as a gift of equity with the IRS (more on this later in the article).

2. Determine finances (confirm funds are available)

Once you’ve agreed on a price, the family member you’re selling to will need to verify they have the funds available to meet your selling timeline.

This may entail getting a new pre-approved mortgage, transferring the remainder of your mortgage, obtaining a private loan, or settling on owner financing, in which the seller finances the purchase directly with the buyer.

3. Sign a purchase agreement

Even among family members, it’s important to draw up a purchase agreement. This will legitimize the deal and outline any terms and conditions.

Here are some key elements you may wish to include in the contract:

Financing terms
Down payment amount
Closing timeline
Closing costs, and who will be paying them
Buyer contingencies (inspection, appraisal, etc.)
Repairs needed on the home to seal the deal
Any items in the home the buyer would like included in the sale (i.e., fixtures, appliances)
Reasons to cancel the agreement

4. Consider hiring a real estate agent anyway

Selling your home to a family member is one of the few real estate transactions where hiring an agent may not be worth it. If everyone is in agreement about the price and condition of the home, then paying an agent’s commission doesn’t make much sense.

However, going without an agent can backfire and create lasting family divisions, depending on how it’s handled.

An agent’s expertise can remove a lot of stress and responsibility from your shoulders. They’ll also know what pitfalls to avoid.

Some other notable benefits agents can bring to the table include:

Acts as a liaison: An agent can facilitate and buffer all sales correspondence between you and your relative. This can help move the sale along, maintain healthy relationships, and reduce family drama.
Keeps the sale fair: An agent is a professional third party who can make certain the deal is impartial.
Avoid costly mistakes: An experienced agent will know the ins and outs of each step of the transaction, such as which deed to use and how to avoid tax or legal complications.
Can maintain your selling timeline: Real estate professionals know how long each step of the transaction usually takes and can keep the sale on track to meet any timeline goals you might have.
Will know local property sale requirements: An experienced agent will know about regional or state property sale requirements, such as whether an attorney is required by law, mandatory disclosures, or local taxes.

Hiring an agent for an intra-family sale won’t necessarily cost you much, either. When you already have a buyer lined up, agents will often accept a lower commission or flat fee to assist with the rest of the transaction.

Rick Ruiz, a top-selling agent in Las Vegas, Nevada, who sells properties 47% quicker than the average Las Vegas agent, says he almost always charges a low flat fee instead of a percentage of the sale when a client is selling to a family member.

“I don’t feel it’s just to charge somebody to sell a property that you’re really not selling,” Ruiz says. “You’re not selling, you’re facilitating. All you’re doing is handling the contract and overseeing that everyone sticks to the terms of the contract.”

HomeLight’s Agent Match platform can connect you with a qualified agent in your area. Our free tool analyzes millions of transactions and thousands of reviews to determine which agent is best for you based on your needs.