Real Estate: Bargain Sale
February 3, 2020 12:23 AM Subscribe
How do we sell our house to a non-profit for less than the market value?
We have a pretty new house in a major US city that we are looking to sell.
We don't feel like we need to get the full market value out of it, but would like to get something. By a conservative estimate, the house is probably worth $220,000. We'd like to get something in the $20,000-$40,000 range out of the bargain sale if that's reasonable.
We want it to go to a local non-profit that will use it to provide housing to people who are homeless or low-income.
We also want to set a few conditions - this house has a couple of special features that we want the recipients to keep. One is a particular eco-friendly system that requires extra maintenance. (We are happy to do this with a simple written agreement, no need for establishing a covenant or anything super formal. If they break the agreement later we will be disappointed but will move on with our lives.)
Given all that, questions:
1) How do we approach non-profits about this? Who in the organization do we approach? What do we say?
2) What percentage of the market value is a reasonable "bargain" to suggest, given we're also setting a couple of conditions that will make it a little more complicated to maintain and live in than an ordinary house?
3) What kinds of organizations should we be contacting? Currently, our list includes a few that build and operate low- or mixed-income developments. Some of them just manage a couple of developments, others are quite large and have projects throughout the city/state.
Throwaway email for questions: bargainsalehouse@gmail.com
Looking for answers or resources from people who have done a bargain sale or who handle the nonprofit's side of this sort of thing.
We have a pretty new house in a major US city that we are looking to sell.
We don't feel like we need to get the full market value out of it, but would like to get something. By a conservative estimate, the house is probably worth $220,000. We'd like to get something in the $20,000-$40,000 range out of the bargain sale if that's reasonable.
We want it to go to a local non-profit that will use it to provide housing to people who are homeless or low-income.
We also want to set a few conditions - this house has a couple of special features that we want the recipients to keep. One is a particular eco-friendly system that requires extra maintenance. (We are happy to do this with a simple written agreement, no need for establishing a covenant or anything super formal. If they break the agreement later we will be disappointed but will move on with our lives.)
Given all that, questions:
1) How do we approach non-profits about this? Who in the organization do we approach? What do we say?
2) What percentage of the market value is a reasonable "bargain" to suggest, given we're also setting a couple of conditions that will make it a little more complicated to maintain and live in than an ordinary house?
3) What kinds of organizations should we be contacting? Currently, our list includes a few that build and operate low- or mixed-income developments. Some of them just manage a couple of developments, others are quite large and have projects throughout the city/state.
Throwaway email for questions: bargainsalehouse@gmail.com
Looking for answers or resources from people who have done a bargain sale or who handle the nonprofit's side of this sort of thing.
Assuming that you want a tax deduction, you would need, at least, an appraisal of the value of the home. Consultation with a tax adviser before doing the sale is highly recommended.
posted by megatherium at 4:37 AM on February 3, 2020
posted by megatherium at 4:37 AM on February 3, 2020
Wouldn’t a more rational approach be to sell the house at a market price and donate, e.g. $150k+ of the proceeds to a suitable organization? Allowing the organization to build a facility to their requirements or integrate that windfall with their existing planning seems a preferable to this sale approach (in which they may still need to come up with $40k to buy a house that needs to be retrofitted). Plus you will have a considerably harder time establishing the value of the bargain sale for tax purposes.
posted by Admiral Haddock at 5:03 AM on February 3, 2020 [29 favorites]
posted by Admiral Haddock at 5:03 AM on February 3, 2020 [29 favorites]
The person in charge of fundraising is generally called the development officer/director.
You should contact a tax professional - CPA or lawyer. You are effectively donating around $200,000. There can be significant tax benefits, but it gets complicated because:
1) you are donating property, not cash. In general, it's a good idea to donate appreciated property, rather than cash, because you may owe taxes on the gains in the property, but the nonprofit won't. However, if this is your primary residence, you probably qualify for a tax exclusion and won't owe taxes on any gains.
2) You don't want to donate the whole amount of the sales price. According to this page on "Donating Real Estate to Charity", you can sell the property for below-market value and still deduct the difference between the market value and the amount you received, but there are potential pitfalls.
3) Unless you are have a very high income, you will probably be subject to the limit on deductibility of charitable donations in a single year. If you can't deduct the whole amount in a single year you can generally carry it over, but it's still something to think about.
posted by Mr.Know-it-some at 6:15 AM on February 3, 2020
You should contact a tax professional - CPA or lawyer. You are effectively donating around $200,000. There can be significant tax benefits, but it gets complicated because:
1) you are donating property, not cash. In general, it's a good idea to donate appreciated property, rather than cash, because you may owe taxes on the gains in the property, but the nonprofit won't. However, if this is your primary residence, you probably qualify for a tax exclusion and won't owe taxes on any gains.
2) You don't want to donate the whole amount of the sales price. According to this page on "Donating Real Estate to Charity", you can sell the property for below-market value and still deduct the difference between the market value and the amount you received, but there are potential pitfalls.
3) Unless you are have a very high income, you will probably be subject to the limit on deductibility of charitable donations in a single year. If you can't deduct the whole amount in a single year you can generally carry it over, but it's still something to think about.
posted by Mr.Know-it-some at 6:15 AM on February 3, 2020
"Gifting" an eco friendly thing that requires "some maintenance" can be a bit of a white elephant, especially if you're going to try to put some condition on sale in about it. What if it break; does the non-profit now have to get it repaired or buy a new one?
Similarly, location is super important; is your house in a good location (near transit and/or employment options) for low income families? Existing layout of the house is important to how well it can be split up into sub units.
My thoughts are you rent out the house yourself for under market value, and while you're vetting potential renters, you pay particular attention to the income verification/credit checks and eliminate anyone making too much / without a troubled history. As landlord you'd still do the "some maintenance" that's required of whatever this eco friendly thing is.
Alternately, see if anyone is interested in your offer, excluding the eco friendly white elephant wording. If the house isn't appropriate, then sell it, and make a large donation to an agency that works on providing housing and they can allocate the funds more efficiently.
posted by nobeagle at 6:46 AM on February 3, 2020 [3 favorites]
Similarly, location is super important; is your house in a good location (near transit and/or employment options) for low income families? Existing layout of the house is important to how well it can be split up into sub units.
My thoughts are you rent out the house yourself for under market value, and while you're vetting potential renters, you pay particular attention to the income verification/credit checks and eliminate anyone making too much / without a troubled history. As landlord you'd still do the "some maintenance" that's required of whatever this eco friendly thing is.
Alternately, see if anyone is interested in your offer, excluding the eco friendly white elephant wording. If the house isn't appropriate, then sell it, and make a large donation to an agency that works on providing housing and they can allocate the funds more efficiently.
posted by nobeagle at 6:46 AM on February 3, 2020 [3 favorites]
To reinforce what Admiral Haddock said, selling your home for a low price like that will affect the comps and appraisals of similar homes for blocks around you. You may knock some of your neighbors out of a refinance that saves them money, or put a family underwater on their mortgage and prevent them from selling or relocating for a new job.
You're doing a nice thing, but there will be ripple effects.
posted by JoeZydeco at 7:18 AM on February 3, 2020 [2 favorites]
You're doing a nice thing, but there will be ripple effects.
posted by JoeZydeco at 7:18 AM on February 3, 2020 [2 favorites]
A lawyer or development officer at an established charity will know the ins-and-outs of whether this makes sense and how to do it. For example, responding the comment just above, there are likely different ways to structure the transfer of the property to the charity that do not involve selling it for less than it is worth. A development officer will also be able to tell you whether this idea would make any sense for a charity -- e.g., they may prefer that you sell the house on the market and donate cash to them, because they may be looking for particular types of properties or efficiencies in the way they operate that do not involve adding random houses, but who knows.
posted by Mid at 7:30 AM on February 3, 2020 [1 favorite]
posted by Mid at 7:30 AM on February 3, 2020 [1 favorite]
Depending on the state you're in, an apparent non-profit developer may not actually be in the business of planning, creating, and staffing new housing so much as serving as the face of the actual developer in tax-advantaged projects in dealing with lower-income tenants. Such organizations won't really be in a position to make use of such a donation. Just something to be aware of. Otherwise, yes, once you've identified some reputable candidates, it's their development officer you'll want to reach out to to discuss whether your proposed donation is something they'd find useful ("development" is the modern nonprofit word for "fundraising"). Just remember that it may not fit into their plans or budget--any building carries with it staffing and maintenance costs, so whether or not they can find or make room in their budget for this project, especially if your time horizon is short, may be out of their control. Also there may be various zoning requirements that might make it difficult to put short-term housing of many unrelated people in a single-family (?) residence. Would you be all right, e.g., with the charity converting it to offices or a receiving area for their own use?
(One thing I would not spend two seconds on worrying about is whether your creating housing for the homeless might affect somebody's refi value.)
posted by praemunire at 8:24 AM on February 3, 2020 [2 favorites]
(One thing I would not spend two seconds on worrying about is whether your creating housing for the homeless might affect somebody's refi value.)
posted by praemunire at 8:24 AM on February 3, 2020 [2 favorites]
As someone who has done this kind of development work for a living, let me gently push back that gifting the actual house might not be the best way to address the need for housing in your area. I can't tell from your original post how much you have already thought about this, so please forgive if I'm telling you something you already know.
A food bank can do much more good with your cash donation than they can do with your gift of actual canned goods. They can use your cash to buy in bulk at ultra-discount prices available especially to them -- you could spend $1 on a can of beans, but they could get 2 cans of beans for the $1 donation. In some cases, they can leverage your dollars to raise more money -- they might be able to use your $1 as matching funds for a grant or major donation, end up with a total of $4, and get EIGHT cans of beans.
Same with the housing for the homeless organizations. Unless you know of a group that is looking specifically for small housing for one family at a time, and is prepared to solve the political/zoning/neighborhood relations issues that often come with putting housing for the homeless in the middle of an existing neighborhood ... your home itself is not likely to be what they need.
A functional, responsible and successful organization will have a multi-year plan to develop housing structured/located according to the needs of the community -- needs that have been established through a long, involved process with all stakeholders given voice. To best support that organization, trust that they know best how to do the work, and give them funds to do it.
KUDOS to you for wanting to help meet this great community need. Please research carefully and choose an organization to support, talk frankly with their Development department about what they need and what you can give, and be prepared to follow their lead. Then, as others have mentioned, consult a tax attorney who can help you structure your gift in a way that's most financially beneficial to you as well.
And YES, please DO consider how your actions affect your neighbors' property values. You are part of a community that asks for consideration for all its fellow members -- both your neighbors and those who are more needy. You can achieve what you want to accomplish and not hurt anyone in the process.
posted by mccxxiii at 9:10 AM on February 3, 2020 [9 favorites]
A food bank can do much more good with your cash donation than they can do with your gift of actual canned goods. They can use your cash to buy in bulk at ultra-discount prices available especially to them -- you could spend $1 on a can of beans, but they could get 2 cans of beans for the $1 donation. In some cases, they can leverage your dollars to raise more money -- they might be able to use your $1 as matching funds for a grant or major donation, end up with a total of $4, and get EIGHT cans of beans.
Same with the housing for the homeless organizations. Unless you know of a group that is looking specifically for small housing for one family at a time, and is prepared to solve the political/zoning/neighborhood relations issues that often come with putting housing for the homeless in the middle of an existing neighborhood ... your home itself is not likely to be what they need.
A functional, responsible and successful organization will have a multi-year plan to develop housing structured/located according to the needs of the community -- needs that have been established through a long, involved process with all stakeholders given voice. To best support that organization, trust that they know best how to do the work, and give them funds to do it.
KUDOS to you for wanting to help meet this great community need. Please research carefully and choose an organization to support, talk frankly with their Development department about what they need and what you can give, and be prepared to follow their lead. Then, as others have mentioned, consult a tax attorney who can help you structure your gift in a way that's most financially beneficial to you as well.
And YES, please DO consider how your actions affect your neighbors' property values. You are part of a community that asks for consideration for all its fellow members -- both your neighbors and those who are more needy. You can achieve what you want to accomplish and not hurt anyone in the process.
posted by mccxxiii at 9:10 AM on February 3, 2020 [9 favorites]
I would list it at a Very Fair price, put the maintenance requirements in a contract, and aggressively seek buyers who are lower income and environmentally-minded enough to value the house and genuinely commit. Be willing to negotiate the price for the right buyers. Donate a bunch of money to an organization doing work you wish to promote. You might want to find a real estate professional who will do lots of the work for you, because there will be many bargain-hunters who will not actually commit to the environmental component. The buyers benefit, and the organizations you choose can help others.
Advertise the house on fb environmental and activist groups. Drop off flyers to affordable housing groups. Don't advertise in the paper or MLS, because you will be inundated.
At 3.8%,a loan of 175K requires 815/month, plus insurance,taxes, maybe PMI, so requires income of @45,000 or so, doable for a couple who can use equity in the house in lieu of most of the down payment. You might want to specify that they can't flip the house.
Re: your house affecting values for others. Overheated housing markets created by rich people having a lot of cash to invest are screwing the poor and non-rich.
Would love to know more about the environmental features. Building green is a dreamof mine.
posted by theora55 at 10:08 AM on February 3, 2020 [1 favorite]
Advertise the house on fb environmental and activist groups. Drop off flyers to affordable housing groups. Don't advertise in the paper or MLS, because you will be inundated.
At 3.8%,a loan of 175K requires 815/month, plus insurance,taxes, maybe PMI, so requires income of @45,000 or so, doable for a couple who can use equity in the house in lieu of most of the down payment. You might want to specify that they can't flip the house.
Re: your house affecting values for others. Overheated housing markets created by rich people having a lot of cash to invest are screwing the poor and non-rich.
Would love to know more about the environmental features. Building green is a dreamof mine.
posted by theora55 at 10:08 AM on February 3, 2020 [1 favorite]
I knew a couple who purchased a house through Proud Ground in Portland; and from what I understand at a glance the trust owns the land that the house is on, and they own the house. There are also some caveats on reselling the home and how much you can 'earn' from a house appreciating. I'm not certain exactly how this works, but it allowed the couple, who were fairly modest wage-earners (freelance writer and a barista) to own a house. They seem to be doing good work, but again, I'm not exactly sure how this works.
There might be someone in your area doing something similar. If you're not in the Portland area, they may know other organization operating in your area.
posted by furnace.heart at 12:08 PM on February 3, 2020
There might be someone in your area doing something similar. If you're not in the Portland area, they may know other organization operating in your area.
posted by furnace.heart at 12:08 PM on February 3, 2020
What you are looking for is a community land trust. The community land trust here in Madison has a variety of single and multi family units that they own, that they have purchased and that have been donated to them. I would reach out to you local community land trust to see if they are interested in your property.
posted by rockindata at 1:25 PM on February 3, 2020 [2 favorites]
posted by rockindata at 1:25 PM on February 3, 2020 [2 favorites]
I work for a DV agency on the Oregon coast and we in large part still exist because somebody gave us a house years ago to use as a shelter. It is no longer the house we use as a shelter - we sold it a while back and bought one that works better for our needs - but first, having the shelter is incredibly important and second, having that seed money from the sale of that property got us over multiple financial rough spots. So, yes, this is a thing people do and it's an incredibly generous thing as well, that can absolutely change an org's course. I do agree with those upthread who say you should talk to a lawyer first (I don't know any legal or tax details, as this all happened long before I started working here last year.) Let me urge you, though, to please consider talking to your local domestic violence organization. Having a confidential shelter that looks just like an ordinary neighborhood house is exactly what they may well be looking for. You will be helping the homeless: the clients who stay in our shelter do not in fact have anywhere else to live and lack of housing is one of the main reasons it can take a survivor seven tries or more to leave their abuser.
posted by mygothlaundry at 2:23 PM on February 3, 2020 [2 favorites]
posted by mygothlaundry at 2:23 PM on February 3, 2020 [2 favorites]
on rereading the question I realized that you want to sell the house, not donate it completely. Still, talk to your local DV organization. You want to talk to their ED - the executive director. They are the only one who will be able to make a decision about whether this is something they want or are able to pursue - and there's a good chance that even if they are not interested they can point you in the direction of a nonprofit that is.
posted by mygothlaundry at 2:27 PM on February 3, 2020
posted by mygothlaundry at 2:27 PM on February 3, 2020
This thread is closed to new comments.
posted by she's not there at 1:09 AM on February 3, 2020