What could be happening here? First right of refusal...

Question

I can't help think there is an agenda and I do not know enough about putting a creative deal together. What could be happening here: What's on paper VS action?:

A family member of mine has the 1st rt of refusal on the home I sold last fall. Due inreconcilable differences of thr party that purchased the home from me the home is up for sale a again, less than 6 months later. The only change made to the house was a carpet in the den. No major upgrades.

Since I owned the home just prior I am aware of where the house could appraise.

My family member that has the first rt of refusal received the notice that the seller has accepted an offer of 297K, 10k down, 287K expected at closing and a traditional 30yr mortgage of 250K. (and for the first time in 15 yrs of having first rt on a variety of properties- the buyer is wishing their name to be not revealed).

Of course within the body of the text there is a clue as to who it might be (small town that has no dance hall!) Between who we think the buyer is and knowing that the seller hasn't been on the up and up the whole time we have known them we think there is an agenda. The house would not appraise for 297K based on what we know.

Senario 1: The buyer is actually going to pay a cash deal lower than the offer. And the buyer does not want my family member to buy the home for the same price. So they are showing one hand while playing another.

Senario 2: The seller is trying to see if my family member will buy the home for more money than they can sell the house to someone else for.

I think Senario 1 is likely but could someone tell me how that can be creatively done without stepping over the legal line? Any thoughts? :roll:

Richard Warren · Answer

If it’s only 6 months later the tax would be ordinary income not capital gain. To be a long-term capital gain they need to hold for at least a year. An anonymous buyer is unusual but not unheard of. I agree that owning a house without an agreement is tough and shouldn’t be done yet people do it all the time and it often gets ugly. 8)

Richard Warren · Answer

What is your stake in this, in other words why do you care? You sold the home and are out of this process, is your concern that your family member might get burned? Does your family member even want the home? Just trying to get some clarification. 8)

Richard Warren · Answer

Ok, that makes sense. As long as your family member will not be conned into paying more than the house is worth then no one gets hurt. Mortgage scams have been common in recent years but banks are cracking down. An honest appraisal will show what the house is worth and the bank will also seek to verify the funds for down payment. This means that the likelihood of inflating the purchase price to get the house with zero down is not likely. If the seller were to agree to cash back under the table they would have a tax liability. They have only owned the house for a short time so any gain would be taxed as ordinary income which means that they would pay tax on any unreported payments in the form of a higher gain on the house. Interesting situation. 8)

N/A N/A · Answer

Another good point about the capital gains tax. The person I think is buying the house is chunked. Yet they are a good negotiator (obviously). On one hand I see them saying "I don't care what the price is" and over paying because they can. On the other hand, knowing them, I see them wanting the best possible deal. The 1st right of refusal letter is the most bizarre letter we have seen as it. We have signed off on as many as 15 1st rts in the past 10 years and have never had a letter come to us like this! 1. States the buyer literally doesn't want us to know who they are. 2. Contains all the proposed financing details. Based on the letter I think the deal really is for around 265K. I would believe the loan at 250K. I would believe the 10k down although I think it is steep. The seller is involved with a financing group. The seller's previous co-habitator had offered 270K and they refused - that part was emotional. The break up was ugly and no cohabitation agreement. :roll: That's a whole other thread on how to buy a house with someone you aren't married to!!!

N/A N/A · Answer

Good question. My family member would consider the house at the right fair market price. Sure there is a stake in it- it's family. Senario 2 doesn't bother me. That would come out in the wash.

N/A N/A · Answer

and yes there would be a business benefit to the family to buy the house back. It is possible that other people involved have realized the potential gain to my family member buying the house. It is similar to a right of way but not exactly. So it isn't emotionally driven....