What do dopers think of this deal? My sister recently lost her husband. She owns the house they lived in since they bought it new around 1970 and has had essentially no maintenance since then. Her only heir is her daughter (there is a son from whom she is totally estranged–there is no chance this will change). After more than 50 years, serious maintenance is now required and she has no money for it. Her daughter does but will not help. But the daughter has offered to buy the house for $1 plus a lifetime rent-free occupancy and guaranteed maintenance. To me, it seems reasonable. Her main hesitancy is that she might decide at some time in the future to mover to an apartment. My advice is to either sell it now and move, or take the deal.
I think if she does go for the deal, she needs a real estate attorney to draw up the contract. There are a lot of ways this could go south.
She doesn’t have to sell it for a $1. Mom can just do a Quit Claim Deed and transfer the house to daughter.
What is the market value of the house in its current state?
This kind of arrangement could be great if everything works out well, but that’s rarely the case. What if the daughter doesn’t want to take care of the house anymore? What if the daughter can’t afford house maintenance? What if daughter goes bankrupt? What if the daughter gets married? What if mom and daughter have a falling out? What if mom needs the value of the house to pay for assisted living? etc etc etc. There are uncountable number of ways for this to go bad.
It’s probably best for everyone if mom sells the house in the normal way and uses the money for herself.
Besides maintenance, there are bills. Always. Gonna turn the water off? What about power? If it has a yard someone will need to mow it. Snow? Well that’s another one. And of course yearly taxes.
My brother and I inherited my mothers house. The above is no big deal for us. The house is a good place for me to land when I’m in Denver. But that’s about it. We will sell in a year or two.
That’s your answer right there ^.
Is this in Canada or the US? The loss of the use of a FHSA and principal residence capital gains exemption would be big reasons not to do this in Canada.
Thanks for your replies. I can only guess what the house is worth. It’s in Malvern, PA about 20 miles west of Philly. Actually, I advised her even before her husband died, to sell the house and move. They had separated and they signed a separation where she gave up any claim on his estate and he ceded the house to her.
I am afraid there are too many ways this could go wrong.
A lot would depend on the local market, but even an old house that needs repairs can still be worth a lot. My house is older than this, has had very little in the way of major maintenance/up grades, but I could still sell it for quite a bit of cash in hand, even knowing the buyers would probably drop 20-50K in fixing stuff as soon as they bought it.
I agree. A house is a substantial asset, even if it needs maintenance. She should at least look into market value; may be worth enough for her to get a nice little seniors condo or apartment.
Would the daughter owe taxes on $(FMV - 1)? Gift taxes?
Whose lifetime? Can the daughter “buy” the house and land for a dollar, then resell the house and land? How much land, by the way?
This is called a life-time lien, the sister would be allowed to live in the house as long as she wanted. But, this will show up as a lien on the property if the daughter wants to take out a loan, like a HELOC.
It is either a legal agreement, like a lien, or just a sort of gentlemans verbal agreement, which is worth nothing.
Anything written into the agreement will be a lien on the property and the banks won’t to loan on it.
And she should get independent legal advice, without her daughter in the room with her.
Seconded. I would be suspicious of the daughter’s motivations. If she is the sole heir, and will inherit the house anyway, why does she insist on title now?
I think this transaction with the daughter is a can of worms. Even if intentions are good, as @filmore pointed out there are too many things that could change in the life circumstances of both parties.
Remember that if your sister should have serious health problems and need to go on Medicaid for long-term care, they will look back five years to see if she unloaded her assets below market value. Selling her house to her daughter for a dollar and continuing to live there rent-free is going raise red flags.
This sounds like the sort of deal that rich people get away with by having lawyers (and the threat of lawyers) on call (and everybody knows it, including the people they enter into deals with). Maybe not the best idea for someone who can’t afford a lawyer. If it seems too clever, it probably is.
Yes, this is a terrible idea. Your sister needs to have the house appraised as is, then sell the home. Give the daughter right of first refusal if that is what the daughter wishes to do. Take the $ and move. Anything else will be a disaster for all concerned. Money and family with estranged family and housing-that isn’t just a recipe for problems it is a guarantee.
Almost certainly some tax consequences for this. It’s the kind of thing people would try to do to transfer assets to avoid estate taxes.
Add another vote to consult a lawyer. Too many ways this can go south
You don’t have to guess. Go to Zillow.com, or any other similar real estate website, and enter the address. You’ll see whatever public information is available about the house from the last time it was sold – square footage, number of rooms, heating/cooling, etc. – and and estimated value, based on comps in the area.
It’s not perfect, but it’ll be in the ballpark.
Or, get it appraised, and use that value as the basis for a home equity loan to do the repairs. Find a bank that’s willing to do an interest-only loan, with the principle to be paid back when the house is sold, either because the sister sells and moves later, or it’s sold by the estate.
Hell, maybe she could even get a reverse mortgage, with an up-front lump sum for the repairs.
Banks will do a lot of things if they think they’ll make a profit on the deal. Can’t hurt to ask, once you know what the house is really worth.