FSBO

February 13, 2006 6:41 PM

Is it always a bad idea to sell a house to a friend?

My wife and I are moving out of the state in June. We planned to begin to put our house on the market in late March (after the residency match). We've lived here 3 years.

Our house is in good shape in Cleveland Heights, Ohio. It's probably below the mean in value for the city because it's on a busy road, but it's an attractive home. A quick glance at listings leads me to believe it might've gone up in value about 10% in the last 3 years.

Moving, selling the house, and everything else is hugely stressful for us. A friend, who is a classmate of my wife, has asked me about our plans for selling it -- she's starting a 7 year residency in Cleveland the same time we move away.

To me, not having to deal with giving tours, creepy realtors (we had a great one buying the house and would use her again, but that's only half the equation), and everything else is worth not getting top dollar. If we did the transaction ourselves we could save the realtor fees. Selling the house for about 7% more than we paid seems fair and would cover our costs.

Our friend is easygoing. We've known her as long as we've lived here, and hang out from time to time, but not often more than once a month. I have no desire to rip her off or create hard feelings. On the other hand, we're moving to the east coast, she's staying in Cleveland, so if the roof did cave in after a month (it won't!) it wouldn't rip apart our peer group or anything.

Anyway, if she does end up being serious about this (which remains to be seen, we're meeting on Friday), am I setting myself up for 1) high drama 2) legal liability?

posted by sohcahtoa to home & garden (15 comments total)

I've never been in your shoes, but I've been helping some friends with real estate issues recently, so have given some of these things some thought:

1. You're not any more legally liable than you would be if the buyer was a complete stranger.

2. Be completely honest about the house, as you should be in any situation. There's that point just below "legal liability" that's formally called "screwing someone slightly but not enough to get sued for." Since this is a friend, and friendships are on the line, you want to make sure you're completely above board.

3. Your biggest potential pit fall would probably be the financial aspects. Haggling with a friend tends to suck. Here's my suggestion: Engage two real estate lawyers (one for you, one for her) to negotiate on your behalves. Have both of you set an upper and lower limit on what you are willing to accept / willing to pay. Have the lawyers completely negotiate for you, without either of you involved in the process at all. Go with what they come up with in the end. You'll both get the best outcome financially, without any hard feelings.
posted by NotMyselfRightNow at 6:55 PM on February 13, 2006

Ask a realtor to give your place a market evaluation (many will do this for free. do not sign a listing agreement with them.) Establish how much it is worth (do not subtract the realtors commission). Establish how much the friend reasonably expects to pay for it. Find the difference.

Decide whether you would rather not have to give tours, not have a realtor, appease your friend and not have the $ determined above, or

Have the $ and potentially irritate your friend by not selling to her.
posted by Count Ziggurat at 7:10 PM on February 13, 2006

Oh, and if the realtor you used before was a friend of yours that factors in too.
posted by Count Ziggurat at 7:12 PM on February 13, 2006

Make sure you BOTH get decent real estate lawyers if you do this. They will protect your interests, and hopefully both sides will feel happy at the result. Without a representative of some sort, one of you is likely to feel slighted somehow.
posted by MrZero at 7:16 PM on February 13, 2006

While I can't speak of this from my own experience, I know that my mom sold her house to one of her closest friends almost 10 years ago. They are still close friends and the friend still lives in the house, so the deal making process couldn't have been too awful.

I would definitely agree with the recommendations that both of you get good lawyers. Then everyone's interests are formally represented and the lawyers can sort things out rather than you guys directly haggling with each other. (Which could put a strain on the friendship depending on how close you are.)

If doing things this way will alleviate some of your stress and help out a friend (if they turn out to be interested), I'd say go for it. Moving sucks enough without having tons of people traipsing through your house. Best of luck to all of you!
posted by melissa at 7:37 PM on February 13, 2006

My opinion: if you sell your house to your friend, you need a good broker. If you sell the house to someone else, you need a good broker. Therefore you need a good broker. You know a good broker; I'm having a lot of difficulty seeing any reason why not to connect the dots.

Brokers have to know about real estate law, and will do more than help you sell the house; they'll also help you protect yourself through the relevant paperwork. Because they're not lawyers, they won't charge you what a lawyer would to do the same work; I think the lawyer suggestion is misguided.
posted by ikkyu2 at 8:12 PM on February 13, 2006

Don't let an appraiser set the price, they swing wildly. Just find someone else to do the negotiating and don't feel bad about the deal unless there is a major problem you aren't disclosing.

Much the same as selling to anyone else, minus the commisions. Everyone wins.
posted by bh at 8:49 PM on February 13, 2006

Get a good house inspector, to help avoid unpleasant surprises. Make sure the inspection can be re-used for the sale. You could even get a formal appraisal and use it as the basis for the selling price, making adjustment for the savings on the realtor costs. If so, do that closer to the selling time, so it can be re-used for the bank.

You have to make sure she's serious, so you don't end up with the hassle of a last-minute sale if her plans fall through, so you should still get a written offer and "earnest money" from her. Keep the negotiations businesslike. This should be a good deal for both sides.
posted by theora55 at 8:53 PM on February 13, 2006

About fifteen years ago my parents sold a house to friends. They worked with agents both parties knew and liked, so it was an all-friends deal. Everything turned out just fine.
posted by tangerine at 9:28 PM on February 13, 2006

I wouldn't be in any hurry to get the lawyers involved. You should have the closing conducted by a title company which is lawyers enough. The value of your home is based on the market. If you don't publicly list your home, you can only guess based on imperfect information. The services of a good Realtor would provide past comparable sales, and current comparable homes for sale. You would then inspect the current homes for sale, since that is your competition. With some difficulty, you should be able to do some of this without a Realtor. Once you have decided on the current market price for your home, I wouldn't reduce it the full commission that you expect, since some of that money is buying you services that you are not getting. You may be trading one headache for another. If you underprice your home, and your friend sells it for 25% more next year how will you feel?
posted by gearspring at 9:29 PM on February 13, 2006

First, check and see how the laws work where you are. In many states, lawyers must be involved in a home sale. In others (California, for instance), you can get away with real estate professionals. Whatever you do, I'd strongly suggest that you get outside experts involved. Even though it will cost more, it's good protection for both you and your friend. Professionals in the field are covered by malpractice insurance, so if the deal goes south because someone blew it, there are deep pockets available to make it right.

Other than that, just be scrupulously honest, and everything should be fine. The burden of honesty is mostly on the seller, and that's the part you can control. Write down all your disclosures and get it notarized. (The buyer just needs money.)

As long as you've fully disclosed everything they might need to know about the house, and you have professionals actually conduct the sale and transfer of title, everything should be just fine.
posted by Malor at 10:38 PM on February 13, 2006

Ditto getting an independent housing inspector. You want to avoid any problems down the line that you forget to disclose or don't know about right now. It protects both you and the buyer. Due diligence and all that.
posted by bonehead at 6:17 AM on February 14, 2006

Your post sounds like you're already trying to justify taking her lowball offer to avoid the stress. I don't think that's a productive way to enter negotiations on a valuable asset, unless you want to lose your shirt.
posted by smackfu at 7:15 AM on February 14, 2006

In the past year I sold a house (with a realtor) and bought one (FSBO). A few comments:

1. Assuming the friend isn't paying cash, the lender will require a lot of stuff that will protect your friend (inspection, title search, etc) anyhow. I've heard of cash transactions between friends that went badly because there was no title search or inspection or whatever, which would have turned up glaring problems. In the FSBO transaction I recently completed, we had no such problems, partly because we really didn't have the option of omitting these steps (but I would have insisted anyhow).

2. The buyer's lender (and insurer, I think) will require a house inspection. This is in the buyer's sphere of responsibility to organize. You can also call up an inspector right now to walk through the house with you and point out items that you'll put on your seller's disclosure (something you should offer even if your friend doesn't ask), however, you might ask the inspector "look, I just want to do a walk-through with you. Don't write anything down." Otherwise (as I understand it) it becomes a legal document, and you might prefer to have some stuff off the record (so you can fix it before selling, of course).

3. Don't underestimate the value of never needing to show the home, not having it languish on the market for N months (especially after you move), not needing to keep it spiffed up, etc. Your offering price to your friend should reflect all that, as well as the lack of an agent's commission.

4. Most of the work in this transaction will be done by the buyer. You need to be able to rely on your friend to line up insurance, financing, inspections, surveys, etc. If you don't think your friend is organized enough to do this (and there are a lot of details to cover), the transaction could go badly--even with a buyer's agent, who may not ride herd on the buyer.

5. Do line up a good title company. I don't know how to pick a good one, but they'll be handling a lot of legal documents, liaising with the lender, etc, and so there are a lot of opportunities for them to make errors of omission.

My FSBO transaction went really well, and we became friends with the sellers in the process--we toasted the deal with mojitos on the big day. But that's just one data point.
posted by adamrice at 7:20 AM on February 14, 2006

Don't let an appraiser set the price, they swing wildly.

A appraiser (cost around $300 or so) will normally write up an evaluation that shows how he/she calculated the value of the home, by comparing it to comparable properties in the area. There are standard formulas to add and subtract value based on differences (square footage, lot size, number of bathrooms, etc.), which will be used (and shown) in the appraisal. Then you're in a much better position to evaluate what the house is worth. You don't have to accept the appraisal as the right value; it can still be a good starting point for a discussion. Once you have a pretty good idea of a reasonable price, your friend can go to a few open houses to get a sense of what other properties are selling for, if there are questions.

You might also check out zillow.com for a free, instant valuation. (I've heard that homeshark.com also does this, but for a much more limited set of areas.)

Finally, what you want to avoid is a real estate agent that charges you 3% for selling a house when you already have a buyer lined up, and likewise paying another 3% commission to a buyer's agent employed by your friend. Paying full commission simply for advice and paperwork is absurd - the commissions normally are for all the time and effort of the selling agent to help find buyers, including advertising, and for the buying agent to research and show numerous properties. You should look for a flat-fee (or at least reduced-fee) realtor in your area, or negotiate a fee reduction for what is normally charged. (There are tons of realtors out there - really too many for the number of properties for sale - and most spend a large chunk of their time trying to get clients. If you talk to someone who is unreasonable about wanting a full commission, just move on.)
posted by WestCoaster at 10:59 AM on February 14, 2006