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Jointly owned property question
Old 02-12-2014, 02:30 PM   #1
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Jointly owned property question

A friend of mine has a jointly owned property - a duplex - she lives in one unit and her cousin lives in the other. A few years ago, the cousin took out a line of credit and she is still paying this back.

They had a semi-fallout and now they are putting the duplex up for sale so they can go their separate ways (they are still cordial with each other at least on the surface.) The cousin has been renovating her unit in preparation for the sale of the house. My friend hasn't been doing much although when she initially moved in, she did some renovations. Anyway, the cousin is now saying she has so far spent over $xx,000.00 on renovation. Evidently, the amount of money the cousin mentions is not just material cost, but the labor cost which cannot be substantiated with receipts since she is doing the work herself with her friends (not licensed.)

What I read said (googling) "a co-owner is entitled to recover the value added by his or her improvements of the property.", so by her doing renovation, she is entitled to "recover the value", but how do you measure the value she added?

Lets say, for example that this house sold at the market value. That is, the only increase from when we bought it, is a rise at the regular rate of the increase of the value of property in this area. What then? Can she then claim all that money back on renovations?

How do you even determine how much more the cousin should get over my friend? Is it just up to my friend and her cousin to negotiate the amount? What if they don't agree on the breakdown?

Any comments appreciated.
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Old 02-12-2014, 03:41 PM   #2
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Well, according to tax law for rental properties, if you do the labor yourself (such as for repairs to the property) your labor does not have any value you can deduct. Logically extending this to the duplex case, it seems that the labor is also not able to claim without legit receipts and cancelled checks or other proof of payment. Therefore any materials purchased, and any other real expenses can be used. Your own labor is not able to be claimed.

I think this will fall into the "negotiate between the parties" for a solution. As your friend did some renovations originally, that may also have some offsetting value. Although the use and time since the renovations may reduce the impact those older renovations have. In the end, most of the value of the work done may be that it is more "sale-able".
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Market Value
Old 02-12-2014, 07:49 PM   #3
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Market Value

I would recommend an appraiser assess the value of the entire property, as well as each unit. Improvements do not necessarily increase the market value of the property. Some do. If one unit is valued $5,000 more than the other, then that would be a fair settlement when it all sells. If there is no appreciable difference, then they should simply spit the proceeds, less of course the debt.
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Old 02-12-2014, 08:20 PM   #4
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I would recommend an appraiser assess the value of the entire property, as well as each unit. Improvements do not necessarily increase the market value of the property. Some do. If one unit is valued $5,000 more than the other, then that would be a fair settlement when it all sells. If there is no appreciable difference, then they should simply spit the proceeds, less of course the debt.
Thank you for your post. The problem is that some things are not very clear cut as they would like - Some things are shared like a furnace which is in one side of the house and not in the other, so units aren't identical to start with. Plus there was no unit by unit appraisal done when they first bought the house that shows how much each unit was worth separately before the renovation, so we cannot at this point tell if the renovation done in one unit raised the value, or not.

At least, that's my thinking.
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Old 02-13-2014, 10:46 AM   #5
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Really no need to consider the value BEFORE the rehab. Just get each unit appraised separately (like a condo sale). I've seen plenty of DIY projects which have REDUCED the value of the property. If there are concerns like livable space differences the appraiser can adjust (put a value on it) then work the valuations accordingly. The two owners need to come to an agreement.

If this is not done and the place sells, the closing attorney will write 50% checks to each since the property is owned jointly. He will not get involved. The "loosing" party then needs to sue ... let the games begin.
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Old 02-13-2014, 11:44 AM   #6
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Really no need to consider the value BEFORE the rehab. Just get each unit appraised separately (like a condo sale). I've seen plenty of DIY projects which have REDUCED the value of the property. If there are concerns like livable space differences the appraiser can adjust (put a value on it) then work the valuations accordingly. The two owners need to come to an agreement.

If this is not done and the place sells, the closing attorney will write 50% checks to each since the property is owned jointly. He will not get involved. The "loosing" party then needs to sue ... let the games begin.
Thank you for your response.

I am a little lost at your suggestion about doing appraisal of each unit. What benefit would my friend get by doing that? She has been paying exactly 1/2 of everything including down payment, mortgage and utilities up to this point, despite the differenaces of units in size, configuration, condition, etc. What difference does it make if for example, her side of the house is appraised more or appraised less? Can you elaborate?

All my friend wants is 50% of the profit, nothing more - she is willing to give the cousin extra for the amount of money the cousin put in (minus the labor cost). But from what you say it sounds like the closing attorney will give each person 50% of the profit if nothing is negotiated in advance?
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Old 02-13-2014, 04:32 PM   #7
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Originally Posted by tryan View Post
Really no need to consider the value BEFORE the rehab. Just get each unit appraised separately (like a condo sale). I've seen plenty of DIY projects which have REDUCED the value of the property. If there are concerns like livable space differences the appraiser can adjust (put a value on it) then work the valuations accordingly. The two owners need to come to an agreement.

If this is not done and the place sells, the closing attorney will write 50% checks to each since the property is owned jointly. He will not get involved. The "loosing" party then needs to sue ... let the games begin.
This is pretty specialized, and I have no relevant experience, but if the owners are not cooperating, isn't this a matter of wasting a lot of money in litigation?

If the appraisals come back uneven, can't the loser just refuse to OK this, and figure at worst she will get 50% of the total?

I'm getting the vibe that this is already pretty far gone, and self preservation is the wisest path for the cooperative one.

Ha
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Old 02-14-2014, 10:22 AM   #8
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What difference does it make if for example, her side of the house is appraised more or appraised less? Can you elaborate?

All my friend wants is 50% of the profit, nothing more - she is willing to give the cousin extra for the amount of money the cousin put in (minus the labor cost). But from what you say it sounds like the closing attorney will give each person 50% of the profit if nothing is negotiated in advance?
Yes, your friend could "do nothing" ... sell and walk with her 1/2. Let the cousin ... whine, tattle to uncle, and/or sue. Coming to agreement will only avoid the family squabble. What the value of that is, is up to her.

To do it "right" an appraisal is needed. Cut corners now and some judge might be left to sort it out in small claims (which is probably not the best outcome).

I would wait for a written offer before coming to an agreement wo an appraisal and put it in writing. Price adjustments in todays market are down ... and any adjustment puts LESS value on improvements. Just because someone installed a 5k hot tub in the master bath doesn't mean the place is worth 5k more.
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