Buying Home With Friend Leads To Problems
Ask the Real Estate Lawyer: Real Estate Law Q&A
REM #LAW 737
By Ilyce R. Glink and Samuel J. Tamkin
Summary: A ThinkGlink reader bought a home
with the help of a friend. Six months later, the friend got out of the deal
and they are now negotiating a reasonable settlement. Ilyce and Sam encourage
all people to get a sound contract before entering into any real estate deal.
Q: I purchased my present residence in December of 2004. Shortly thereafter,
a friend of mine, who basically lived out of the country, inherited some money
and wanted an investment.
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Stupidly, I suggested she purchase one-half of my house. She paid half of the
purchase price. Less then 6 months later she opted out of the deal and wanted
her money back (which I gave her). In the meantime, the house had increased
in value significantly.
Now she wants half of the equity for that short period of time. I offered her
6 percent interest on money. There was no contract of any kind. Due to a problem
with my lender, she was put on title to the home and later taken off title and
never put back on.
What, if anything, do I owe her? She never saw the property; and specifically
wanted an investment. Thanks for your help!
A: If you sold her half of the home on day one and six months later the home
appreciated in value, you owe her half of the increase in the value of the home
during that time period.
You paid her what she invested in the home and by your own admission, the value
of the home increased. She should be entitled to her share of the appreciation.
Of course, she also might be responsible for one half of the expenses incurred
in connection with the home during the time you and your friend owned the home.
Clearly, it would have been better for both of you to have had some documentation
-- even a letter that described your relationship and expectations, and in particular
described who would pay for what expenses and how profits would be shared upon
the sale of the home.
Also, some people overlook certain expenses that would otherwise get paid in
the sale of a home that might not be paid when one partner buys another partner
out of an investment in a home. One such expense is the cost of paying a real
estate broker. When you sell a home, you might list the home for sale and pay
a real estate broker between 4 and 6 percent of the sales price as a commission.
When you bought your friend out of the home, you could have assumed that the
sale was done as if it had been done in the marketplace and deducted from your
friend’s proceeds those costs that she would have otherwise paid.
You might have made a mistake when you sold her one half of your home, but
you should honor the terms of your arrangement – whether or not that arrangement
was in writing – and pay her half of the appreciation of the home, less
costs and expenses.
Sit down with a real estate attorney to work through the numbers and then sit
down with your friend and walk her through the numbers. Before you hand over
a check to your friend, make sure you have some documentation that recognizes
that your friend has been paid in full and has no claims against you or the
home for any money owed.
Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce
R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your
Home Faster and For More Money In Any Market. If you have questions for
them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022
or contact them through Ilyce’s website www.thinkglink.com