Can you sell to a family member? | Family member vs. traditional sale | How to sell a house to a family member | FAQs
Selling your house to a family member sounds relatively simple. You don't need to worry about finding a buyer or paying realtor fees — you just need to sign some papers and have them write you a check.
But, real estate transactions — even with family — are complicated. Transferring a property title always carries the risk that you'll encounter unexpected legal issues.
Just as importantly, there could be tax implications if you sell to a family member below market value. You won't fool the IRS by selling your house for $1 to avoid the gift tax!
If the notion of handling the sale on your own seems daunting, you can always consider working with a realtor. An agent can help you navigate tax, legal, and other matters involved in the transaction. Clever Real Estate simplifies the process by connecting you with agents and negotiating reduced rates on your behalf — for free.
» MORE: Get in touch to learn more and get connected with top agents near you.
In this guide, we’ll cover everything you need to know about selling a house to a family member — whether or not you use a realtor.
Can you sell a house to a family member?
Yes, you can absolutely sell a house to a relative. This lets you avoid the time- and money-intensive process of finding a buyer. There's a disclaimer here, though. If you've ever lent money to a family member, owned a business with a relative or even shared an apartment as roommates, you know it's not always easy. It's hard to have frank conversations with relatives, especially when it comes to money.
To avoid unnecessary family drama, treat the sale like any other for sale by owner (FSBO) transaction. Put your contract in writing, with clear details on a sale price, who's responsible for closing costs, and so on.
Some sellers hire a real estate agent or transaction coordinator to help them navigate the sale process and mediate any conflicts that arise.
Even if you plan to oversee the sale process yourself, you should ask an experienced local realtor for a comparative market analysis (CMA) before you and your buyer set a sale price.
A CMA is an objective assessment of what your home is worth. Getting a home valuation up front helps you and your buyer negotiate a fair sale price and avoid issues with a mortgage lender.
It's also useful to have a CMA on hand in case the IRS asks for proof that you weren't trying to avoid gift or capital gains taxes by selling your house below market value.
Selling a house to a family member vs. traditional sale
The key difference between selling a house to a family member and selling to someone else is that the home may sell for a price other than fair market value, because you might work with the buyer to give them a deal or gain a deal for yourself.
Selling to a family member is what’s known as a controlled transaction, while traditional sales are called arm’s length transactions.
- Controlled transaction: The buyer and seller have a relationship, for example, as family, friends or co-workers. Controlled transactions are subject to greater scrutiny from the IRS, may incur the gift tax if you sell the property below fair market value, and often cost less in realtor fees.
- Arm’s length transaction: The buyer and seller are strangers, and each acts in their own financial self-interest. Most real estate sales are this kind of transaction, and they’re typically facilitated through a seller agent and buyer agent, who connect the buyer and seller.
How to sell a house to a family member
Follow these steps to sell your house to a family member.
1. Decide whether to use an agent or not
When you sell your house, you can list with a real estate agent or do a FSBO (for sale by owner) sale. Work with your family member to determine how you want the process to go.
You might be tempted to handle the process on your own, but note that selling a house to a family member might not be as simple as it seems. There are legal, financial and tax implications to consider, and working with a professional could help you keep everything fair, legal and above board.
Decide with the buyer whether you want to hire professionals to guide you through the process, and decide ahead of time who will pay for those services.
If you’re selling to a family member below market value, you may already be losing money (or forgoing profit) on the sale, so it could be tempting to avoid hiring an agent.
But selling to a relative can be more complex than it seems. A realtor can provide important support, like managing all the paperwork and keeping track of legal considerations.
2. Determine a selling price
Do you plan to gift the home to your family member, sell at a discount, or sell at fair market value?
Work this out with the buyer in advance, so you’re on the same page before you start the process. If you don’t need or want to make a profit selling your home, gifting could be an opportunity to transfer significant value to your family member. But it can come with a lot of emotional baggage and potential conflict down the road, so get crystal clear on the terms of the gift before signing it over.
Your other option is to sell the home for an agreed upon price — at or below market value.
Selling below market value could be a way for you to pay off any remaining balance on your mortgage, recoup selling costs or make a small profit on the sale while making it easy for your family member to own a home without the cost they’d otherwise pay in the market.
A real estate agent can help you determine what the IRS would consider fair market value for your home through a comparative market analysis (CMA), an objective assessment of what your home is worth. Getting a home valuation up front helps you and your buyer negotiate a fair sale price without causing any unnecessary family drama or issues with a mortgage lender.
It's also useful to have a CMA on hand in case the IRS asks for proof that you weren't trying to avoid gift or capital gains tax by selling your house below market value.
If you sell at fair market value, tax implications for you and the buyer are the same as if this were an arm’s length transaction. If you sell below fair market value, you could be subject to a gift tax if you’ve given significant gifts to the buyer in your lifetime. The buyer could also be responsible for capital gains tax when they sell the house, depending on how they use it.
Clever can connect you with an agent who can help you sort out tax implications when selling to relatives. Simply enter your zip code here to get started.
3. Determine financing
Depending on the amount of the sale, the buyer might need to figure out a payment plan. They might be able to pay you in cash, take out a mortgage, or work with you to set up seller financing.
Seller financing is a way for you to lend the money to the buyer (or, in effect, lend the home) and set up a repayment agreement between you, without involving a bank loan. You can determine an interest rate and payment plan that works for the buyer, and the buyer won’t be subject to traditional underwriting and potential rejection.
The IRS might consider a low-interest or interest-free home loan as a gift, so work with a tax professional to determine the buyer’s tax liability based on the financing you choose.
If you still have a subsidized mortgage on your home, like an FHA loan, VA loan or USDA loan, ask your lender if you can transfer the mortgage with the home sale. That could be a way for the buyer to assume payments on the debt without incurring new lending fees, like origination fees. But they’ll still likely have to go through a credit check with the lender and be approved to take over the loan.
4. Transfer your property title
There are several ways to transfer the title of your house to a family member:
- Special Warranty Deed Transfer: This type of transfer protects your family member from any property issues or claims you’ve had while owning the home.
- General Warranty Deed Transfer: Ensures all your property rights are transferred to your family member and guarantees them against any title issues that arise, whether from during or before the time you owned the property.
- Quitclaim Deed Transfer: A quitclaim deed only transfers your property interest to your relative, but does not protect them from any legal claims.
Consult with a real estate attorney to transfer your property title. There are nuances to each way to transfer, and which is best depends on your circumstances.
How you transfer the title also determines the cost. You’ll typically pay fees for the real estate attorney you hire, plus a transfer tax or fee to your county or state based on the value of the home.
You can usually file the necessary documents yourself with the help of a notary, but you run the risk of doing it incorrectly and running into major issues down the line. For instance, a transfer could void your title insurance, cause the full amount of your mortgage to be due immediately, or bring about other unanticipated tricky issues.
Is it illegal to sell your house to a family member?
It’s not illegal to sell a house to a family member, but it’s illegal to take any fraudulent action to avoid taxes on the sale. You have to properly report a home’s fair market value and sale price, as well as any relevant conditions of seller financing, to ensure the IRS has an accurate record of the taxable value the buyer received.
Can a house be gifted to a family member?
Yes, you can always gift a house to a family member without charging for the sale. That gift could be subject to taxes based on the home’s value and your history of such gifts.
As of 2022, you can gift $16,000 in cash or equivalent value each year to as many people as you want without paying a gift tax, as long as you don't exceed your lifetime federal gift and estate tax exemption of $11.58 million (as of 2020) in total gifts. The exception is if you are gifting to your spouse — those gifts are free of taxes, regardless of the value.
So, if you and your spouse gift your $200,000 home to your son and daughter-in-law, you could each count $16,000 per person toward your annual gifts. You’d need to file a gift tax return to report the remaining $136,000 of the home’s value, and you could count that amount toward your lifetime estate and gift tax exclusion.
Capital gains tax
When gifting a home to a family member, also consider their future capital gains tax liability. If they intend to sell the home or use it for anything other than their primary residence, the home could incur capital gains taxes.
Here’s an example: If you paid $100,000 for a house 30 years ago, gifted it to a family member, and they immediately sold it for a $400,000, their capital gains would be $300,000, because the IRS uses the last purchase of the home as a basis to determine the increased value. They’re allowed an exclusion, but they would need to pay capital gains tax on the remainder of their gain.
That’s different from how capital gains are treated on property inherited upon your death. The IRS determines the value on a “stepped-up basis,” which would more closely resemble current market value. An heir could sell the house for that price without incurring capital gains tax.
» MORE: A guide to gifting real estate to family members
Do you need a lawyer if you sell a house to a family member?
You don't have to use a lawyer to sell a home to a relative, but it's highly recommended. As with any legal (and family) issues, things can go south quickly over small miscommunications or misfiled paperwork. Choosing one form over another could have huge implications on taxes or legal issues.
A lawyer will make sure everything is laid out in writing and can help you avoid future legal battles or unanticipated expenses.
» MORE: How much does a real estate lawyer cost?
Do you have to pay capital gains taxes on a house you sell to family?
Regardless of whether you sell your home to a family member or anyone else, it is unlikely you’ll owe capital gains taxes. The IRS calculates capital gains as the difference between the price you paid for the home — its cost basis— and the price you eventually sell it for.
If you bought a home 20 years ago for $100,000 and recently sold it to a family member for $200,000, your capital gain would be $100,000. The IRS allows an exclusion of $250,000 of capital gains on real estate if you're single, and $500,000 for a married couple filing together. Regardless of whether you're married or not, your capital gain falls below both amounts, so you would not need to pay capital gains tax.
Selling your house and not sure where to start?
You can save a lot in potential taxes or costs by consulting a professional before you venture down the road of selling your home to a family member.
Top FAQs About Selling Your House to a Family Member
You can. And it works similarly to gifting your home to a relative. But, it may end up costing you if you're too generous. Since the IRS sees any discount you give a family member below market value as a gift, you may have to pay gift tax on the amount. As of 2019, you can gift $15,000 to as many people as you want annually without paying a gift tax, as long as you don't exceed your unified federal gift and estate tax exemption of $11.4 million total over your lifetime.
Parents can gift a home to their child, but they may be subject to estate and gift tax. If the home is worth less than $30,000 (each person is allowed a $15,000 gift exemption) or if the parents have not made gifts exceeding $22.8 million over their lifetime, the tax would be waived.
However, the child may be subject to future capital gains if they don't live in the home for at least two years before selling. This is because the IRS calculates the cost basis as the amount the parents paid for the property.
While your parents are able to sell you their home for a lower price than market value, that discount may be subject to the estate and gift tax depending on the amount and their lifetime giving habits.
As of 2019, you and your spouse can each gift $15,000 to an individual annually without paying a gift tax, as long as you don't exceed your unified federal gift and estate tax exemption of $11.4 million total over your lifetime ($22.8 million between the two of you.) So, if your parents sell their home to you for $30,000 under its value, you're in the clear. If the discount is over this amount, but your parents have not made substantial donations over their lifetimes, the gift also will not be subject to the gift tax.
Be prepared for legal, tax and personal risks when you sell a house to a family member. It’s easy to cut corners, avoid important conversations, and skip official paperwork when you do business with someone close to you. But those all have serious implications. Work with a real estate agent or attorney to make sure you and the buyer agree to a fair selling price and terms, get all the proper paperwork set up for the financial and ownership agreements, and prepare for proper tax reporting.
Selling a house to a family member means you don’t have to go through the long process of finding buyers and negotiating an offer for your home. It could also provide a benefit to the family member, who doesn’t have to go through the process of finding a home. You could also both save money on real estate agent fees, even if you work with an agent, because they’ll likely be willing to take a lower commission if they don’t have to find you a buyer.
If you sell the house at below fair market value, gift it and/or work with the buyer to set up seller financing, the buyer could benefit significantly from cost savings and the effort of securing a loan. If they had trouble qualifying for a loan or saving for a down payment, this might even be the only way for them to become a homeowner.
If the house has sentimental value in your family, selling or gifting it to a family member is a way to ensure it continues to provide that value within the family for another generation.