Buying Out Joint Owner

We’re purchasing a two family with our long-time friends.  What is the general ‘buy-out’ provision if one party wants to sell?  The average of three estimates from reputable brokers? How do you factor in the original investments or the original purchase price?  We want to be as equitable as possible.  Thanks all.

minasimon

in Real Estate - Sales 13 years and 6 months ago

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Snezan | 13 years and 6 months ago

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be careful with appraisers. I recommend reaching out to a real estate agent or attorney for one with experience in the area your house is located in.

northofditmas | 13 years and 6 months ago

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Never go into real estate with people you care about.  It always ends badly.

slightREobsession | 13 years and 6 months ago

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Before we bought alone we almost bought with friends a few times and we thought about this quite a lot. Per bklnite we’d go with one or two appraisers, but to factor in what each person should pay originally and any improvements made afterwards we came up with the following: – Appraise both units seperately (say unit A comes in at 400K and B at 600K). If done well, the appraisals will take size, state and desirability of units in to account. – Use these appraisals to set the ratio for the building where A+B = 100%. In this example, A would be 40% and B would be 60%. – Use this ratio to determine % of sales price paid. If building was 800k, A would be 320K and B 480K. – When it’s time to sell (in case both want to sell) use the same method to determine ratio for splitting sales proceeds, which will take into account investments made by the owners to their individual units. The above does not take into account how people paid for the house (one might have more cash and the other may want to finance more – %s paid into the mortgage don’t necessarily need to align with %s owned of the house or the amount of the purchase price paid) . If one wants out it gets a bit more complicated, but you could still use the same methodology, just have the appraiser appraise the house as a whole as well, and value of the unit based on the ratio and the estimated market value of the house. Or you could just appraise the unit as a seperate unit, but that will likely disadvantage the remaining person as the two units sold seperately would probably sell for (and would have cost more) more than the entire building would. The only likely scenarios are that A/ you both sell, or B/ one party buys the other out (which will probably require a refi, and is dependant on the remaing party being able to take out a sufficiently large mortgage to pay for the departing party’s equity minus closing costs). Tenancy in Common holdings can technically be sold in NY but there really is no market for it, and they are pretty much impossible to finance. Hope that helped!

Bklnite | 13 years and 6 months ago

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I don’t know if there’s a general rule, but you and your friends can agree to whatever makes sense to you, and should have the agreement written up with an attorney, probably the one that will do the closing for you. Appraisers are probably a better source than brokers for valuation. Your agreement should cover whether in the event one party wants to sell and the other party does not agree to buy the other party out, if you will put it on the market and split the sale proceeds, or allow the selling party to sell his interest at the market price. Example outline of sale of interest / right of first refusal section: neither owner shall have a right to sell his interest unless he first offers to the other owner
owner proposing to sell must deliver notice of intention which must state sales price which shall be

– if all owners agree to a specific appraiser, half the value of the property as appraised
or
– if owners don’t agree to 1 appraiser, 2 licensed appraisers familiar with properties in the area, each owner procuring and paying for one of the appraisers, the value being half the average of the 2 appraisal
or
– any agreeable price