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By Gary M. Singer

How can I avoid problems if my sister buys me out of property we co-own?

Question

I own a vacation home with my sister we inherited years ago. Recently she approached me about buying out my half of the house. We get along well, and I rarely use the property, while she practically lives there, so this seems fair. But I do not want to cause any problems because of the transfer.

How can we protect against this turning out bad? – Raou.

Answer

Understanding the deal differently than the other because of too many assumptions and poor communication. It is usually agreed to verbally and sealed with a handshake.

Unfortunately, memories fade, and misunderstandings occur.

I often tell clients,”If they can say it‚ they can sign it.” People are reluctant to enter a written contract when dealing with people they are close to. However, this is one of the times that a detailed document will provide the most benefit by avoiding misunderstandings and disputes that stem from them.

Other than favorable terms, you should treat this transaction like you would if selling the property to a pleasant stranger. Have a detailed written agreement drafted and use a professional to prepare the deed and other closing documents and handle your transaction’s details.

Just because your family owned the property for years, do not assume it is problem free. Unfortunately, just because you do not know about a problem does not mean problems do not exist.

You may want a professional home inspection to identify any material issues.

You should also consider purchasing a title insurance policy to protect against unknown ownership issues.

These problems might not be discovered until your sister tries to sell the property years later.

The easily solvable problem found now can become a giant hurdle a decade from now.

The house we are trying to buy was appraised at less than the purchase price. Now what?

Question

We were looking to buy a home and stopped when the interest rates rose, making the homes we looked at unaffordable. Now that the prices have softened a bit, we found a home that fit our new budget and went under contract. Now our lender told us that the house appraised about $15,000 less than the purchase price. What happens now?

– Diane

Answer

After you apply for a mortgage loan, the home you are buying will be appraised by your new lender to make sure it is worth what you are paying for it.

Lenders do this to ensure your new loan is adequately collateralized and the value will be there if they need to enforce their mortgage by foreclosing. Your lender will choose a licensed real estate appraiser to determine what the home is worth in the current market.

To do this, the appraiser will visit the property to see its condition and look at other factors, such as the size of the house and how much comparable homes in the area recently sold for.

Because your lender will give great weight to the value determined by the appraiser, it is hard to get them to re-evaluate the value if you think the appraiser made a mistake.

Most purchase contracts allow you to cancel the deal and get your deposit back when the property does not appraise for the purchase price.

But if you still want the house, you have two options.

First, you can try to get the seller to reduce the price to match the property, — appraised value. Many sellers will compromise since other potential buyers will have the same issue, and a buyer under contract for closing in the near future is often better than the delay and effort of putting the property back on the market.

If the seller will not budge on the price and you can do so, you can pay the difference out of your pocket. In this case, your lender will lower the loan amount to match the appraisal, and you will pay the difference at closing.

Since you are paying more than the home is worth on the market, make sure the new property is worth it.

Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar. He practices real estate, business litigation and contract law from his office in Sunrise, Fla. He is the chairman of the Real Estate Section of the Broward County Bar Association and is a co-host of the weekly radio show Legal News and Review. He frequently consults on general real estate matters and trends in Florida with various companies across the nation.