Inherited 50%, should I buy the other 50%?

Question

Property is located in a booming market in Sonoma County, CA where there is currently a shortage. Problem is it is a 2200 sqft mobile home  in need of major work and likely not eligible for a conventional loan. After home/well/septic inspection the home was appraised at $335k. The value is the land though with approximately 30-50k the house could be lived in comfortably.

Here is my bind, my sibling wants to sell the house to me at a valuation of 390k. Assuming I can take over the current loan of 160k I would need to pay him 115k cash and my monthly mortgage would be 1200$. Is the risk worth the reward? Ideally I would take over the mortgage do some inexpensive patch work and save save save. Then when the time is right I could completely demolish the mobile and build my dream home.

Thoughts?

Bill Gulley · Answer

Sounds like you're now in a tenants in common as heirs. Yes, you can assume the loan through the estate as the heir. Since you are in title, you can obtain a new loan (subject to qualifications) to buy the other interest. It will be underwritten as a refinance, which means no down payment, but closed as a purchase buying the other interest.

The value isn't 50% of the appraised value, because in joint tenancy the only way to obtain full title, without any agreement, is to ask the court for a partition of the property, basically a friendly law suit and that will have costs involved. Those costs are used to determine the value when there is no TIC Agreement.

Holding a one half undivided interest means you can move in, you can rent your interest without the consent of other owners, you can also obtain a loan on your interest if a lender is willing.

Not trying to mess over siblings, but they need to be reasonable as they can't get more if you don't want to sell without going to court and that can be a forced sale at auction, might not get the best price.

They can also sell you their interest by seller financing to you, Dodd-Frank won't apply in this situation.

I suggest you not improve it until you have an agreed value as is, you'll just be establishing more equity for them.

You can still love your family and be business like! :)

Cal C. · Answer

I was actually saying to offer to sell her half to the brother for $100 less than he offered to sell it to the op for.

Rick H. · Answer

Just because your other family members want such-and-such doesn't mean that you have to agree.

If you have 50% indicted TIC interest now, the most they have is 50%, unless there are more than one other distributees which would of course be even more fractionalized.

Unlike a typical informal real estate partnership, related owners are less likely to push the issue due to family dynamics and personal reasons unless the other owner(s) are isolated and atypically acrimonious. So, I'm betting that you have less concern over a partition action being filed against you.

The easy solution is to offer to buy the other(s) out, but here's the way to do it:

Determine the fractionalized value of their 50%

Hire an appraiser who currently does work for court receivers and is familiar with the legal costs associated with a partition.

They should adjust for condition, location, etc. like any other appraisal.

Subtract cost of sale, typically 10% for land sales, NOT 5-6% as with standard residential listings. Their share should carry the prorated burden of escrow and title, too.

Offer to pay this new figure in the form of a Purchase Money Note, with payments that are the equivalent of the purchase price divided by 360 payments, without mention of interest.

There are other terms you could put into the note but that's another topic.

Let's us know how it actually gets resolved.

Btw, did they ever reopen Lucas Wharf fish place in Bodega Bay after owner died?

Dean Teter · Answer

Being from that area (and having RE in Santa Rosa) I guess it depends on whether you want to flip and sell or turn it into a rental. In certain parts of Santa Rosa there is low inventory, so its a sellers market. Other parts, not so much. What is constant right now is the rental market which is red hot. Homes in the ghetto which rented for $1,100 a few years  ago are now renting for $2,800 due to low inventory. The lake county fires compounded this situation as everyone who lost their homes in that massive fire moved west into Santa Rosa.

Noel R. · Answer

The dust finally settled and we agreed upon 365K. My brother is finally moving out and now it is time to do some work on the place and get moved in myself.  My next dilema is investing money in fixing the house up knowing it does little to nothing to increase my property value though I plan to live here till I meet my maker.

Scott Trench · Answer

I haven't had this situation apply to me prior to now. If I were in your position, I wouldn't want to hang onto the property with someone else who might not be as business minded as me (or a family member of course!). It also sounds to me like your sibling wants to sell the property to you at a kind of silly valuation (why doesn't he want to sell at the appraised value??).

I'd do one of three things in this situation:

1) Buy his half

2) Sell my half

3) Sell the property and split the equity right down the middle

Why not offer to sell YOUR half at the $390K valuation? It sounds to me like that is way more than the property is worth, but if your brother actually believes that valuation is reasonable. Maybe he will buy YOU out, in which case you win! Heck, even offer to sell it at a $380K valuation - explaining that you are giving him an even BETTER deal than he offered you, and if he thinks he is giving you a deal at $390, why he should be happy to receive an extra $10K in value from his loving brother ;).

My guess is that this will show him that you understand the value of this property, and that you will buy him out at a fair price, else you would sell the property at market value and split things fairly right down the middle.

Also - the valuation should probably be AS IS, and not based on potential.

Sylvester Thompson · Answer

I have the exact same situation. Personally, I've not had that experience, it's been an acrimonious process Partitioning is the only t only avenue, think of it as a hostile takeover through the Courts. It's expensive but less expensive than posting a bail on a weapons charge.

Brent Coombs · Answer

Ha! NOW I get it! That IS a very good suggestion for Noel. Cheers...

(Fairly sure though that the sibling is ONLY saying: "show me the MONEY")!

Brent Coombs · Answer

Aah, you meant a "better" deal for the OP. Ha!

Trouble is, Noel might take that suggestion seriously! Oooh, yes, save $100.00!...

Cal C. · Answer

@Brent Coombs

His brother offered him a crappy deal and I'd go back to him with a slightly less crappy deal.

Inherited 50%, should I buy the other 50%?

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