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Inheritance Dispute Between Siblings

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b2bailey

b2bailey

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I'm looking for opinions and feedback -- not legal advice.
My two kids recently inherited a house in Santa Cruz CA.
A tiny thing, I wouldn't want to live in it.
Because of "location, location, location"
It appraised for $1,149,000!
I'm happy for them because my ex wasn't a very good father while he was alive.

If they were to sell it outright, there wouldn't be need for a discussion.
Instead, my daughter (executor) has advised her brother she wants to buyout his share.
She has offered 50% of Appraised Value (less mortgage and other costs)

He requested 50% of Fair Market Value.

And that's when the fighting began. I am part of their group text as "observer" at my daughter's request. Son has history of using foul language. Ironically, daughter was first to sling "f" word. Son managed to retain self-control. Daughter has resorted to name calling -- says brother is being "difficult and greedy".

I'm happy to be living in another town, but will be visiting at the end of this month, to pet sit for my granddaughter. I am sure that I'll be asked to render my opinion.

Looking for some fresh input.
(No need to comment that money can bring out the worst in people. That's on display now.)
 
Appraised value and fair market value should be pretty close in numbers. Assessed value (usually for tax purposes) is usually much lower. I suspect she wants to pay based on the assessed value? What should happen in this situation is it is put up for sale and the daughter just becomes a buyer on the open market. If there is a mortgage, she is either going to have to assume it or get a new one on her own anyway.

If she just wants to buy him out, it should be based on market value. What is stopping her from turning around and flipping it and taking all the extra cash if she sells it at fair market value?
 
Submit to Moneyist column
How far apart are the two offers, split the difference
 
Sounds like the kind of arguing my kids do. I am unlucky to be a bystander via texts. I always see both sides.
 
Should be 50% of fair market value, which you would determine with an appraisal. How far apart are those two numbers? If the appraiser was asked for a fair market value appraisal and the brother wants way more maybe he is misinformed as to the value.

If they just don't agree on the dollar figure because brother doesn't like the appraisal, the obvious fair way to proceed is to have an auction. Get a home inspection done and have it available for bidders, hold an open house showing, and then an auction. Sister can bid and would only need to pay half the winning bid to brother.

Obviously any mortgage would need to be repaid first. Ie if value was $1.2 MM and mortgage is $400k, then equity is $800k. Sister cuts brother a check for $400k and either takes over mortgage or pays it off with a new mortgage.

Edited to add: I've spent some time thinking about this as I think I'll be in the same situation when my parents pass. I think it's likely my sister will want their house. I have no interest in it, and doubt my brother would either. I'd be inclined to just let her have it at a cut-rate price (it would require renovation that I don't feel like managing to maximize value), but I'm uncertain as to whether my brother will feel the same way. Since I'm designated executor I've concluded this is how I'll manage the situation if they can't agree.
 
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I think I have a better answer:

There very well could be a wide gap between what the house is worth to the market, and how it appraises. Happens all the time. List the house on the market. If son wants to make more money, he'll clean the place up and stage it. Great -- one less thing to do.

Then see what kind of offers come in. Just don't take any of them. NOW you know exactly what that house is worth. Not the appraised value. Not the fair market value. The actual value.

If daughter still wants to buy it, great. "We have decided not to sell at this time."

If they decide they want to sell and split, great! They have a solid offer.

Doesn't cost anything. (I don't employ real estate agents.) If you do use an agent, just explain that you're 50/50 about selling the place, and want to see what kind of offers come in. Most agents will take the listing anyway in the hope of making a commission.
 
ScoopKona said:
I think I have a better answer:

There very well could be a wide gap between what the house is worth to the market, and how it appraises. Happens all the time. List the house on the market. If son wants to make more money, he'll clean the place up and stage it. Great -- one less thing to do.

Then see what kind of offers come in. Just don't take any of them. NOW you know exactly what that house is worth. Not the appraised value. Not the fair market value. The actual value.

If daughter still wants to buy it, great. "We have decided not to sell at this time."

If they decide they want to sell and split, great! They have a solid offer.

Doesn't cost anything. (I don't employ real estate agents.) If you do use an agent, just explain that you're 50/50 about selling the place, and want to see what kind of offers come in. Most agents will take the listing anyway in the hope of making a commission.
Click to expand...

Wouldn't this be fraud ?

Bill
 
I don’t know where the house is located, (edited, sorry just read Santa Cruz) but where I live most homes are still selling above appraised value. Sounds like your son would get more money if they sold the house and got fair market value.

I think he would be leaving money on the table to take appraised value.

Your daughter seems to be the one being greedy to me.
 
They should just agree to list it and keep peace in the family. Selling could be better for your daughter in the longrun. Buy something else with the cash. Is it sentimental to your daughter?
 
easyrider said:
Wouldn't this be fraud ?

Bill
Click to expand...

I'm not a lawyer, but assuming CA law is somewhat "normal" on this issue the answer would be no. A real estate listing (like most things listed for sale) is generally considered an "Invitation to Treat". That means you're publicizing that you are interested in selling something so people know to make offers.

See: https://legalvision.com.au/what-is-...vite,legally binding and enforceable contract.

I've made full-price, unconditional offers on real estate that were declined before as the sellers wanted a higher price.

The one thing to ensure if you go this route is that you won't owe a commission if the agent brings you an offer and you decline it. Don't just ask them, read the listing agreement. I think an auction is cleaner/fairer but this way would work also.
 
Appraised value is based on the sales price of similar comps in the area. I don't see how a house can sell much above appraised value if there are recent comps in the area. When your neighbors house sells for 20% more, well that house now becomes a comp to your homes appraisal and increases the appraised value. Also, if someone is getting a mortgage, they have to be borrow the same or less than the appraised value. So if they are paying more than appraised value then they need to be brining a lot of cash to the table, but then once that home sells at a higher fair market price, it becomes a comp for everyone else's appraisal in the area.
 
rickandcindy23 said:
They should just agree to list it and keep peace in the family. Selling could be better for your daughter in the longrun. Buy something else with the cash. Is it sentimental to your daughter?
Click to expand...

There is a whole lot of "depends" there.

Capital gains.
Possibility of big change in value in either direction thanks to the economy.
How much daughter really wants to live there.
Possibility of making improvements and increasing the value by a great deal.
And most importantly -- what is available for the sales price, minus the money still owed on it, minus capital gains, divided by two.
 
ScoopKona said:
There is a whole lot of "depends" there.

Capital gains.
Possibility of big change in value in either direction thanks to the economy.
How much daughter really wants to live there.
And most importantly -- what is available for the sales price, minus the money still owed on it, minus capital gains, divided by two.
Click to expand...

Also I think in CA a family transfer doesn't reset the property taxes. So if the dad had owned it for awhile this could be a big savings vs buying a comparable property elsewhere.
 
bizaro86 said:
Also I think in CA a family transfer doesn't reset the property taxes. So if the dad had owned it for awhile this could be a big savings vs buying a comparable property elsewhere.
Click to expand...

It has reset in every state I've owned property in (currently three states). But that's another big thing to consider. There are compelling reasons to not want to sell and instead buy the other heirs out. There are also compelling reasons to sell and split.

I would absolutely test the waters with a listing. Then they know for certain and it reduces the risk of bad blood.
 
bizaro86 said:
I'm not a lawyer, but assuming CA law is somewhat "normal" on this issue the answer would be no. A real estate listing (like most things listed for sale) is generally considered an "Invitation to Treat". That means you're publicizing that you are interested in selling something so people know to make offers.

See: https://legalvision.com.au/what-is-an-invitation-to-treat/#:~:text=It is when you invite,legally binding and enforceable contract.

I've made full-price, unconditional offers on real estate that were declined before as the sellers wanted a higher price.

The one thing to ensure if you go this route is that you won't owe a commission if the agent brings you an offer and you decline it. Don't just ask them, read the listing agreement. I think an auction is cleaner/fairer but this way would work also.
Click to expand...

All professional realtors will sign the client before accepting offers on a listed price. No one just says make an offer unless its an auction. A client that actually lies about listing the house just to get offers is committing a fraudulent misrepresentation against the realtor and persons making the offers. In scoops scenario, the client has no intent to sell and is only looking for a price point and expects to pay nothing for services. It's fraud and at the very least unethical.

Bill
 
easyrider said:
All professional realtors will sign the client before accepting offers on a listed price. No one just says make an offer unless its an auction. A client that actually lies about listing the house just to get offers is committing a fraudulent misrepresentation against the realtor and persons making the offers. In scoops scenario, the client has no intent to sell and is only looking for a price point and expects to pay nothing for services. It's fraud and at the very least unethical.

Bill
Click to expand...
Scoop did say this "Doesn't cost anything. (I don't employ real estate agents.)"

I guess the thought was an owner listing?
 
dioxide45 said:
Scoop did say this "Doesn't cost anything. (I don't employ real estate agents.)"

I guess the thought was an owner listing?
Click to expand...

Yes but he also says if you do use an agent tell them you are 50/50 which would be a total lie.

We were involved with a for sale by owner in 2019 where the scenario was very similar to the op's. The lady wanted a market value and was taking offers. She did try to have a realtor involved but they couldn't sign her. Once we found out that she inherited the property and wanted a value for purposes of letting her son know what a good deal he has going we low balled our offer. We told another interested person of our offer and they went low too. It's funny that her son has no intention of ever buying this property because he will eventually inherit it when she passes.

Bill
 
If you are wanting examples of raw numbers difference between the two when we last (attempted) to purchase a property the appraised value was $407,000 but the listing was for $425,000, which was our initial offer and what they held firm at when the appraisal came in. Depending on the area, 18K in cash over appraisal might be no big deal or a lot of money.

To some degree, they could look at the online listings for similar properties to see what people are asking to determine how much your son thinks they could possibly get. He might have seen something that he believes is comparable and that's what he's using for his views. Also, looking at the appraisal to see what properties were compared to their own would give them a sense of how very close the comps have to be to their own new home to be considered in the same area. On our first house, that detail was very shocking to me.

Your son might have an unrealistic expectation of what they can get on the market, but your daughter should offer him fair market value because that is what he deserves 50% of as his inheritance. She probably views the appraisal as fair market value... whether she's right depends on if the buyer is me and won't spend a cent over appraisal or someone else who is fine plunking down 18K (or whatever $) more.

Good luck with this!
 
If a loan is required to buy out the brother, then the appraised value matters. And until someone buys it, nobody really knows what the FMV is for that property. For example, there might be issues with location, room lay-out et al. Also, how is the son determining FMV? Zillow? Good luck getting to the two to agree.
 
rickandcindy23 said:
They should just agree to list it and keep peace in the family. Selling could be better for your daughter in the longrun. Buy something else with the cash. Is it sentimental to your daughter?
Click to expand...
I just received text from daughter saying...
"If brother insists on selling on open market -- he will be dead to me."
Makes my my heart break.
 
easyrider said:
Yes but he also says if you do use an agent tell them you are 50/50 which would be a total lie.
Click to expand...

You shouldn't lie to anyone.

I don't think you'd have trouble getting a realtor to list it for you while telling the truth, and it isn't fraud to list a property and not take an offer if one is received.
 
sun starved Gayle said:
I don’t know where the house is located, (edited, sorry just read Santa Cruz) but where I live most homes are still selling above appraised value. Sounds like your son would get more money if they sold the house and got fair market value.

I think he would be leaving money on the table to take appraised value.

Your daughter seems to be the one being greedy to me.
Click to expand...
Your reply hits at crux of matter -- on all 3 points.
My relationship with daughter is tenuous at best -- but she is mother to my 3 grandchildren. It I tell her that I feel she's being greedy -- Lord have mercy.
b2bailey said:
I just received text from daughter saying...
"If brother insists on selling on open market -- he will be dead to me."
Makes my my heart break.
Click to expand...
 
dioxide45 said:
Appraised value and fair market value should be pretty close in numbers. Assessed value (usually for tax purposes) is usually much lower. I suspect she wants to pay based on the assessed value? What should happen in this situation is it is put up for sale and the daughter just becomes a buyer on the open market. If there is a mortgage, she is either going to have to assume it or get a new one on her own anyway.

If she just wants to buy him out, it should be based on market value. What is stopping her from turning around and flipping it and taking all the extra cash if she sells it at fair market value?
Click to expand...
This is my son's point of view -- her ownership of this asset allows opportunity to realize greater growth than investment of his cash. The RE market here is so rough, you couldn't buy any home for under $500,000.
 
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