If you and your siblings have inherited a house in the Sacramento Area, and you’re interested in keeping the house and they want to sell it, can you buy them out? And if so, how? You may continue to read below or watch this video. I’ll go over the steps or processes you may want to follow to do just that.
Most of the time, when someone passes away, they leave behind a property that gets inherited by their children. Sometimes there’s a will that states there are other beneficiaries, other than siblings, but most of the time it’s siblings. And sometimes it can be a complex situation if there are one, or two, or more siblings that want to sell the house, and one wants to keep the house, maybe as a rental or investment property, or to live in. Often, the more people that are involved, the more opinions there are, and, as you can imagine, emotions can quickly escalate and things can get a bit tricky.
If there is a process you can follow, it will help keep things fair and equitable for all parties involved.
Typically when siblings inherit a property, they tend to inherit equal shares of the property, which helps to keep the process simple. But I have seen where one beneficiary received 20% of the property and the other two beneficiaries received 40% each of the property. If you find yourself in a situation where you, or one of the heirs want to buy out the others, here’s how you can go about calculating it and what that process may look like.
First, lean on your attorney or seek legal advice. You want everyone that is involved to come to agreeable terms. If a parent or parents left a home to their children, and it was the home that the siblings grew up in, and one sibling wants to keep the property as an investment, and the other siblings want to sell their family home, you can imagine how emotional this could be. Your attorney may help you know what options are available, they may help to make a plan for how to get through the transaction, and they may help in offering an outline of the terms of the agreement. If you don’t already have an attorney and would like an introduction or a referral, you can always reach out to me.
Next, the person who wants to keep the property is going to have to buy out the others, and pay them their share of fair market value, or what the home might sell for. It’s so tempting to go to Zillow to see what a property may be worth, but it’s not always accurate. And while you can get a better idea of what the property may be worth by asking a real estate professional like me for a valuation, in this case, you’ll want to have the property appraised by a licensed appraiser. Generally, it’s best to hire an appraiser who has no relationship with anyone involved in the transaction. An appraisal may cost around $500 to $700, but it will be well worth it to have a detailed report showing the fair market value of the property to bring to your siblings. If for some reason one of the heirs doesn’t like or agree with the appraisal, you can always have a second appraisal done by hiring another appraiser who, again, is neutral to the transaction.
Once you have a value for the property, the next step is to discuss with the other siblings what each individual share would be if you were to buy them out. Like I said earlier, it’s pretty typical that siblings have equal shares of the property, unless there is a will or a trust that states something different. When a property is going through probate, and there are four siblings for example, the probate court will most likely give each sibling an equal share, or in this case 25%. The buyout for each sibling would be based on their percentage, or shared interest of the property.
Next is the actual payment to your siblings. If you have the cash to buy out your sibling or siblings, you can always do that. Or, you may be able to refinance the property or get an estate loan to pay your siblings their portion of the property. The type of loan and interest rate you get will depend on your use of the property, whether this will be your primary residence, secondary home, or rental property. I recommend you talk with a financial advisor and a mortgage specialist. Let them know what your short-term and long-term goals are regarding the property, and they’ll help you know what options are available so that you can make a decision that’s best for you. Keep in mind, if there is an existing mortgage on the property, that mortgage will need to be paid, especially if it is a reverse mortgage.
Once your siblings have received payment from you, the property doesn’t automatically transfer to you. In every real estate transaction, there needs to be documentation or a contract showing the transfer of ownership. You would want a quitclaim deed signed by your siblings so it’s always best to have this transaction go through a title company or have your attorney help with this. You will also want the deed transferred out of the trust’s name, or out of your loved one’s name and put in your name, or the name of your trust, or LLC.
Again, your real estate attorney or probate attorney can help with this so that all the correct documents are recorded with the Sacramento County Clerk or Recorder’s office so that you can legally take over the property. Some of these documents will need to be notarized, and your attorney or escrow officer will let you know which forms need to be signed before a notary.
In most cases, families can work out the details of a buyout and come to an agreement. However, there are times when tensions rise and the situation becomes very emotional for one or more of the siblings. It’s always best to sit down with your siblings and come to an agreement by working through the steps. But if you find yourself in a situation where you and your siblings just can’t come to an agreement, there is something called a partition agreement or partition action. Simply put, a partition action is a lawsuit that you or your sibling can file and the judge will decide what happens to the property. It can be very expensive, and lengthy, and you would certainly want legal representation. But like I said, in most cases families can work out the details of what the property is worth, how much is split between the siblings, and move forward.
If you have any more questions about buying out siblings, or if you’ve been through this yourself you are welcome to reach out.(916)545-5311