Can you sell your house for less money than it's worth, and how much less?

Question

Here's the scenerio:
My husband and my mother bought a house for $183,000. The house is valued at $200,000 today. When they purchased the house, it was only put in my mother's name, but we split everything 50/50. My mother wants to sell the house to us entirely so it'll be in our names only. Here's where it gets tricky. She wants to sell it to us for cheaper than it's worth, so we'll have a low mortgage payment each month. Is she allowed to sell the house for whatever value she wants, or does she have a limit to what she can knock the price down to?
She would like to sell it to us for $100,000. Is this possible? And would she profit $100,000 off the sale and would this money go into an escrow account so she could use towards the purchase of a new house?

Answer 1

The simple answer is that yes, she can sell it for whatever she wants, but it really isn't that simple. She must be able to pay the difference between the selling price and the remaining mortgage balance up front. She would not profit, she would take a loss of $83,000. If there is no mortgage to be paid off, the $100K is hers to do with as she pleases. It goes directly to her, not an escrow account.

The other effect that sale may have is to reduce the value of your home. A good appraiser would know to exclude something way out of line in the computing of average sales prices in the area, but not all appraisers are good.

Answer 2

You can sell the house for whatever price you want - however, you need to make sure that whatever price you get for it is enough to pay off the existing mortgage. Odds are good that the profits from the sale, if there are any, would be given directly to your mother in cash, unless she has a prior arrangement with the closing agent. Most agents would be glad to hold it for a reasonable amount of time for your mother to use against another home purchase.

Answer 3

She could sell the house for $1 if she'd like. but the MOST important item here is:

What's the BALANCE on the existing mortgage?

This is something your mother and your husband still have to payoff before you sell the home or with the cash from selling the home. you need to purchase the home for at least what they owe on the home. anything MORE than what they owe on the home i'm sure can go to your mom to put towards a new purchase.

Answer 4

Your mom can sell it for whatever she wants.

If she paid cash, at the closing table she would get a check for whatever settlement amount the title company comes up with (selling price - closing costs). She can do whatever she wants with the check - another house..Las Vegas, whatever.

If there is a mortgage for the balance, she'll need to satisfy the mortgage. If the selling price doesn't meet the mortgage amount, she'll need to bring a check to closing.

Sounds like your momma better than my momma!

Answer 5

Hopefully an accountant will give you some advice here, if not find one, because I believe that if she sells it to you for that much less than the value of the home then you will have to pay a gift tax. This is a serious question. You need to seek professional advice.

Answer 6

Agreeing with previous posters here again. Additionally, be cautious about such a transaction, since your mother might trigger gift tax liability in such a transaction. She is allowed to give $12,000 worth of such value to each of you annually without triggering the gift tax requirement. You might consider doing what you are doing, and then additionally engaging a SECOND mortgage with mother for the value difference. Then legally, each year she may 'forgive' $24,000 of that 'gift' on the mortgage until it is completely forgiven over the required number of years.

Answer 7

You've got tricky questions here so you would be wise to consult a lawyer specializing in real estate. He/She can probably handle the sale for you, too. If they bought it together 50/50, then $100,000 would be the value of her half.

Answer 8

Its possible -- you can sell your house for whatever you want to. But I dont see how she would profit with that kind of a loss. Buying it for 183k and selling it 100k is a huge loss and certainly she would be losing some money out of the deal.

Answer 9

Go to an attorney and accountant to see about tax issues, the house can be transfered within the family. After the transfer you can refinance and pay mom off.