When people come to our class and ask me this question, we discuss three important issues about buying your Grandma/Mom and Dad/Brother or Sister’s home.
First, most people who are thinking of purchasing a relative’s home expect to get a “deal”. They think that because they are related to the seller, they should be given some type of discount, especially if a Realtor will not be involved in the transaction. I think it’s important for all parties to lay their cards on the table. The seller should frankly discuss how much they think the house is worth and why. The buyer should explain how much of a discount from market price they are expecting. If the two parties are too far apart (more than $10,000 is probably too far apart), the deal probably will never come together. It’s better to find this out immediately.
Second, condition issues will come up. If you were buying a home from a seller you didn’t know, and there were broken or cracked windows, you would ask to have them fixed before closing. You may hesitate to do this with a relative. People are often afraid of hurting the relationship or hurting someone’s feelings. If there are lots of condition issues with your relative’s home, put together a budget of the money you would have to spend to make the house acceptable to you. If that budget exceeds the discount you are getting on the price, you may want to rethink your decision to purchase this fixer-upper. Be frank with your relative about why you are rethinking the home purchase.
Third, how you plan on financing the purchase may become an issue. If your credit isn’t great, you might not qualify for a mortgage. You may want your relative to carry a contract for deed instead. They, on the other hand, may not want to lend you the money. They may want to cash out the house so they can move on or purchase another home. A contract for deed keeps them on the hook for the home. This should all be discussed in advance.
One overall piece of advice is to encourage both parties to treat this purchase as they would any other sale or purchase. Keep it business-like. Don’t get personal. Work out the big issues in advance. If it appears necessary, get a Realtor involved to help you out.
For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs. “Simple answers to home ownership questions”.