Wed. May 25th, 2022
your-guide-to-selling-a-house-with-multiple-owners

When you buy a house with other people, you gain the luxury of sharing the load. Surprise repairs, bills, yard care, and maintenance become a group effort. Sometimes, it’s a chance to go in on a rental property when you can’t afford to do so alone, or maybe you’re buying that vacation house with friends that you always dreamed of. But selling a house with multiple owners can be a nightmare scenario if it isn’t planned out. And if everyone involved isn’t aligned from the start, you can end up disagreeing on important details when it comes time to sell — potentially wrecking the sale and wasting all of the owners’ valuable time.

Fortunately, there are ways to set up a smooth sale on a co-owned property. In this guide, we dive into some of the different types of co-ownership scenarios you should know about, look at the advantages and disadvantages of each, and lay out tips from the pros on selling a house with multiple owners.

Use a Top Agent to Help Sell Your Co-owned House

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Disclaimer: This article is meant for educational purposes only and is not intended to be construed as financial, tax, or legal advice. HomeLight always encourages you to reach out to a  local professional regarding your specific situation and the applicable laws in your state. Laws can vary state to state.

Who may be selling a house with multiple owners?

Before you decide to go forth with selling a house with multiple owners, it’s important to understand what type of ownership category your home falls into. Each type of ownership carries unique advantages, disadvantages, and considerations. Here are a few of the most common types of home co-ownership scenarios, along with how each situation could affect your sale:

Tenancy in Common

A tenancy in common is one situation where multiple people can own the same home. With tenancy in common agreements, you typically can establish as many owners as you want, and they don’t need to split the investment equally. You also don’t have to be married to enter into tenancy in common.

One important thing to think about if you’re considering a tenancy in common is that most of the time you won’t have rights of survivorship – which means that if one of your co-owners dies, their share of the property is passed on to their heirs. This can quickly turn into a tricky situation as you may end up sharing a property with a person or with people you don’t know all that well.

Tenancy in common can be a good option for multiple owners who want to split responsibilities or divide up ownership. It’s also a solid way to set up fair ownership expectations for people who plan to contribute unequal amounts of money into the property.

You can also typically buy out a share of property under a tenancy in common agreement fairly easily. “If you have two people on the deed and they come to an agreement and say, ‘Hey, I want to buy you out,’ that’s very simple,” explains Steven B. Herzberg, a real estate attorney at Vazquez & Associates in Miami, Florida. “All you do is come to your terms, transfer funds, and that person signs a deed of their interest to the other person.”

However, if you’re selling a property that’s listed as a tenancy in common, it’s critical you pin down who owns what portion of the property, who is responsible for costs, and any other home ownership details long before you list the house for sale.

“Problems arise when there are disputes and they haven’t been thought of before: someone put down 30% of the down payment, someone else put down 70%, but in reality, they’re just listed as tenants in common.”

Herzberg says the best way to avoid headaches when it comes time to sell is to craft an agreement stating exactly who owns what. It’s also critical for all of your tenants in common to agree to the sale overall. That’s because you’ll need all of the owners to be available to sign over the deed.

Joint Tenancy

With joint tenancy, multiple owners end up sharing equal ownership rights. That means, even if you contributed more to the property than your housing partner, you’ll split ownership evenly. Herzberg says this is a path he often recommends for people who are engaged or are siblings because if one owner is incapacitated, the process is fairly simple.

“If something happens to one person, full ownership goes to the other owner,” he says. “It doesn’t go through probate because the deed basically transfers 100% of one person’s interest to the other person’s interest.”

This ownership advantage also makes joint tenancy a popular choice for parents who want to co-own a property with their children. That’s because you don’t need to worry about probate court if one owner dies. Herzberg says that this clean process makes joint tenancy attractive for owners who are related or in a close relationship.

“The title automatically transfers down,” he explains. “It’s a good way to avoid the cost and time of probate, and for people who are not legally married but are committed — whether they’re in a committed relationship or family — that’s typically the way they want to hold title.”

However, if you’re selling a house with multiple owners under a joint tenancy, you may run into problems if you have any ownership gray areas. For instance, if one owner feels they put more money into the property or deserves more of the final sale’s income, it could end up disrupting your sale.

“That’s what people typically forget about but should think about when they purchase the property,” warns Herzberg. “They should enter into agreements about what each person owns, who’s putting in what, what happens if one person wants to sell, and what to do if something happens to one of the people.”

As long as you’ve settled any potential disputes before listing your home, selling your house with multiple owners under joint tenancy is fairly straightforward. Just remember, everyone will need to agree to the sale or sign a transfer in order to sell. Also important to remember that your state may have some quirks and/or slightly differing law, so it is always recommended that you consult with a local legal and/or real estate professional to see what works best for you and your specific situation.

Community property and other forms of ownership

For people who aren’t buying a house with a spouse or as an investment property, joint tenancy and tenancy in common are the most popular co-ownership options. However, there are a few less common co-ownership arrangements worth noting:

Corporation ownership

It’s possible to set up multiple owners of a property through a corporation or other legal entity. In this scenario, the corporation (or other legal entity) actually holds title to the property. It’s important to note that this type of ownership can potentially carry a hefty helping of liability and risk for the company that holds title – especially if there’s an accident on the property.

Partnership ownership

Partnership ownership allows you to own a house with multiple partners. This is more common for commercial property and real estate investments than with homeowners planning to live in the house. Under this model, you have the option of owning the property as a limited partnership, in which you designate a general partner, and other partners then take a more hands-off approach when it comes to managing the property.

How to plan for a home sale with multiple owners

Before you buy your home with multiple owners, it’s absolutely critical that you plan for selling a house with multiple owners. Waiting until you’re ready to sell to settle disputes can create disastrous disagreement, sabotage your eventual sale, and even lead to costly litigation. “In reality, a lot of the concerns that come up as you sell a property with multiple owners should be thought out when you purchase it,” stresses Herzberg. “That’s the best way to handle it.”

Here are a few questions to ask if you want to plan your multi-owner home sale before that initial purchase:

1. Who owns what portion of the proceeds from the sale?

As we mentioned earlier, not all types of co-ownership titles will divvy out the property based on an individual’s contributions. And if one owner ends up putting in extra time or money throughout the home-owning process than others, it may not be reflected in the final equity agreement. That’s why it’s critical to establish who owns what portion of the property, and how much everyone should be given when the home sale closes.

2. How will you divide home sale costs?

Selling any home takes hard work, and that process can come at a price. If you haven’t decided who will pay for what home sale preparations early on, you could see fellow homeowners back out of your sale in the middle of the process. Here are a few costs to make sure you’re accounting for before you sell your house with multiple owners:

3. Does your house involve trust ownership?

Creating a living trust is a good way to hand a real estate asset over to a child after a parent passes away – landing estate tax protection and avoiding probate in the process. During this process, you generally set up a trust and a trustee who manages the home for an eventual beneficiary. To sell a trust ownership, Herzberg says you’ll need to give the person who is conducting the closing a copy of the trust or a Certificate of Trust that states who has the power to sell. He also suggests having the authority for the trust available for the closing. As long as you’ve buttoned down those details, you should be set up for a smooth transaction.

As Herzberg explains further, “As long as the trust is clear on who has the authority, it’s not all that complicated.”

Hire a professional to ease your jointly owned sale

If you own a house with other people and decide to put that house on the market, it’s a good idea to engage a reliable real estate agent to represent you in the sale to make sure you maximize the home’s value and ensure a successful sale.

But if you go with an agent referral from a friend, family member, or colleague, the other owners involved in the sale might feel as though your voice and decisions over the house will be heard more clearly than theirs. That’s why it’s usually best to keep the terrain neutral by hiring an agent who no one knows personally but is an experienced, top seller. To make it easy, HomeLight can connect you with top-performing agents in your area with relevant experience for your neighborhood and property type. From there you can select someone who all owners believe are a good match.

Get your house professionally appraised

Setting an appraisal value will help keep everyone in the loop and can help clear the air in the instance of a buy-out. And to avoid as much conflict as possible, it’s best to choose an appraiser who is neutral. By pinning down a professional appraisal price that everyone can agree upon, you can determine a fair price for buy-outs. For instance, if the appraiser says the house is worth $500,000, and there are three parties with equal shares of the property, then each party has a $166,666 share in the property.

Pro tip: If you’re the one who sells your share of a multi-owner property, you’ll need to take steps to remove your legal obligation to the property. This includes making sure the mortgage is refinanced to remove you from the loan, or that your name is removed from the existing mortgage if allowed. You’ll also need to remove your name from the title with a quitclaim deed.

Understand the tax advantages and disadvantages of home co-ownership

The amount of tax you’ll end up paying when you’re selling a house with multiple owners hinges on the ownership structure you set up when you bought the property and can differ from state to state. As such, it’s always recommended to consult with your local tax and/or real estate professional to see what your best options are. Here are some typical tax implications for a few of the most common types of co-owned property:

Taxes for joint tenancy home sales

When you sell a house under a joint tenancy, you’ll still likely need to pay capital gains. However, since you own only part of the property, you’ll also be splitting up any taxes based on your percentage of ownership. So, if you’re splitting ownership between one other owner, you’ll end up cutting the total tax base of the final sale in two. Of course, if you’re a married couple that’s sharing a property under joint tenancy and filing a single tax return, you won’t have a tax advantage. But separate filers will only need to pay taxes on their share of the property.

Taxes for tenancy in common home sales

With tenancy in common, owners can hold different percentages of a house. And their tax write offs and final income taxes will depend on the size of their legal ownership. It’s also worth noting that you should be filing taxes based on the ownership percentage that you map out in your tenancy in common agreement.

Taxes for trust-owned property

Trust owned property can feature major tax advantages because it often allows you to be eligible for a step up in cost basis. That means that the cost basis of the house will be stepped up to the market’s value when the trust owner dies. The advantage? When you sell, you could end up only paying capital gains tax on the home’s appreciation after you inherit it. So, if the home underwent massive appreciation during the trust owner’s lifetime, you, as the heir, could bypass the typical taxes; and, instead, just end up paying capital gains on the amount of appreciation that occurs from the time you inherit the house and when you sell it.

Going to court when all else fails

Going to court should be your absolute last resort if you’re trying to settle a dispute with real estate co-owners. In addition to costing you extra time and money, real estate disagreements can end in a partition action. With a partition action, the court decides how the property should be divided. The whole process is notoriously expensive and may be stretched out over the span of years. All-the-while, the owners are still stuck with the costs of maintaining the property (and paying the lawyers).

To avoid court, go above and beyond to plan for the eventual sale before you buy a house with others. Prior to signing on the dotted line, be sure you know who owns what percentage of the property, who will pay for housing costs, what will happen if one party wants to leave or passes away, and how you’ll go about selling your house with multiple owners. And always capture those critical details in writing.

Plan now to sell your co-owned property with ease

Selling a house with multiple owners can be a breeze, as long as you plan out the sale well in advance. The more energy you put in before you buy a house with co-owners, the smoother your sale will go come closing day. As long as you agree to ownership up front, pin down the right co-ownership structure for you, plan for costs, and nail down agreements early on, you’ll be in the perfect position to sell your co-owned property with ease.

Also, lastly, it is always important to consult with your local real estate, tax and/or legal professional regarding your particular circumstances and the applicable law in your state to see what the best option is for you.

Header Image Source: (Scott Walsh/ Unsplash)

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