How to value a property

[pb4uski]

I can understand why 2 siblings want to sell.
Their children are not in the bloodline, so either it's sold now or they simply will lose out on any value to their family...

I don't think that is true. One of the existing trust beneficiaries can bequeath their rights to benefits from the trust to one of their stepchildren if they wish to (unless the trust expressly forbids it and I doubt that is the case).

 

[LateToFIRE]

Had a very similar situation a few years ago. We simply spoke to a couple of realtors, gathered some market info on recent sales of similar properties and presented it to the siblings, one of which wanted to purchase the inherited property to use for themselves. After a little bit of haggling a deal was struck. Fortunately, in this case, there were lots of comparable sales to point to, so could value within a reasonably narrow band. Then it became a matter of whether the other siblings wanted to be a little bit generous or not.

 

[kgtest]

We have a family trust that holds a piece of land. 2 of the 3 siblings want out. How best to go about valuing the land? I know I could, and will, get a market analysis and/or and appraisal, but then what? My experience would suggest that those are just starting points and one never knows what something is worth until an independent party makes an offer that the seller would be willing to take.

I thought about trying for something like putting it on the market and then when an offer that the 2 would accept comes through, match that offer. Unfortunately, I can't imagine any realtor would take a listing with that type of contingency and plus, it doesn't seem fair to the person making the offer.

Is there any good way to nail down a number? It's no exaggeration that the outcome of this could impact the family dynamic very negatively going forward. I'm trying for a win win, but all I'm seeing is a losing situation.

Multiple appraisals.

You could look at recently sold comps in the area and compare price/sq ft/acre?

 

[FI_RElater]

Thank you all for your input. You've given me some things to consider but mostly, it sounds like the appraisal route is about the best I can get without actually putting the land on the market. I'll work on getting the appraisal.

Since you've mentioned Douglas lake...
presumably that's the one in TN near Gatlinburg/Sieverville

There's currently multiple listings for 3+ acres for $199 - $250k, but these have been on the market for over 170 days which indicates that the price is over the market clearing level. You mentioned it's 8 ac but only 2 ac usable, so obviously it's on the water.
Does it have its own slip, thus making it more valuable for boat owners, or is it bare land?
Has there been changes in zoning such that 2 ac isn't able to be built upon and that larger acreage is needed? Same thing with septic.... are permits still available or have more difficult restrictions been put in place? These questions have a direct impact on viability of any sale (as might be witnessed by the time-on-market of existing listings).
BTW, you never mentioned how far other the other two siblings are from the property in question; while you might be close if they are in, say TX, it's unreasonable for you to continue to require for them to keep interest in the property.

My experience: once last parent passed, the small house was put into a trust and used as rental. The house was across the country (>2000 miles) from two of us; had it been just land there would have been absolutely no reason to keep... it would have been sold, period. The continued K-1s causing tax filing delays, along with me recognising the likely upcoming costs (roof & HVAC) that would been expected and that would make the property either not give any yield or even require outlay to keep up, made me agree with the other to buy us out of the property. While others may have had some attachment to it.... I didn't (and the others in your case might not either. Memories, yes-- attachment, NO)

 

[Jerry1]

Since you've mentioned Douglas lake...
presumably that's the one in TN near Gatlinburg/Sieverville Yes, it's in Dandridge.

There's currently multiple listings for 3+ acres for $199 - $250k, but these have been on the market for over 170 days which indicates that the price is over the market clearing level. You mentioned it's 8 ac but only 2 ac usable, so obviously it's on the water. Yes, it's on the water.
Does it have its own slip, thus making it more valuable for boat owners, or is it bare land? It had a dock at one time but nothing now.
Has there been changes in zoning such that 2 ac isn't able to be built upon and that larger acreage is needed? Same thing with septic.... are permits still available or have more difficult restrictions been put in place? These questions have a direct impact on viability of any sale (as might be witnessed by the time-on-market of existing listings). I know that there's septic and electricity on it. It needs a well. The in-laws ran water from the neighbor for a trailer that sits on the property, which is very old now with no value that I can see.
BTW, you never mentioned how far other the other two siblings are from the property in question; while you might be close if they are in, say TX, it's unreasonable for you to continue to require for them to keep interest in the property. We're all about 8 hours away. 2 in Michigan and 1 in SC. The in-laws used to spend time there in the spring and fall to extend the better weather vs Michigan

My experience: once last parent passed, the small house was put into a trust and used as rental. The house was across the country (>2000 miles) from two of us; had it been just land there would have been absolutely no reason to keep... it would have been sold, period. The continued K-1s causing tax filing delays, along with me recognising the likely upcoming costs (roof & HVAC) that would been expected and that would make the property either not give any yield or even require outlay to keep up, made me agree with the other to buy us out of the property. While others may have had some attachment to it.... I didn't (and the others in your case might not either. Memories, yes-- attachment, NO)

See responses in red.

Our intention would be to use it the same as the in-laws. Go down there seasonally. We don't have any intention of building any permanent structure. Our thought was to have proper hookups (2 or 3 three) for an rv/trailer. This was all thought to be agreeable to all parties, but I guess things changed.

 

[MC Rider]

Listings that have not sold tend to show you the high end, and are probably listed higher than actual value if they have not sold. Got closed sales in the last year? Or even 2 or 3 if you must search that far back? From an appraisers point of view it is easier to adjust for market changes / time than differences in properties, locations, etc.



The tax assessors value may or nay not have any relation to reality.


HTH.

 

[Sunset]

Simple answer is that dad wanted it to stay in the bloodline. That's how the irrevocable trust was set up. Now that both parents are passed, a new agreement needs to be set up for the trust. We replicated the original trust and that's when this all came to a head.

I don't think that is true. One of the existing trust beneficiaries can bequeath their rights to benefits from the trust to one of their stepchildren if they wish to (unless the trust expressly forbids it and I doubt that is the case).

OP - stated it was to stay in the bloodline, and that is how the trust was set up. And the replicated trust.

To me this strongly suggests only blood relatives are eligible, and maybe the 2 siblings suddenly realized it and it gave them motivation to sell.
Or maybe they just view the land as awkward to use and less useful than the $$

 

[FI_RElater]

See responses in red.

Our intention would be to use it the same as the in-laws. Go down there seasonally. We don't have any intention of building any permanent structure. Our thought was to have proper hookups (2 or 3 three) for an rv/trailer. This was all thought to be agreeable to all parties, but I guess things changed.

Based on your new information (8 hours away !!), I'd have said buy me out ages ago. You'd need to be sure septic was still good, electric even if not used costs $, as does just the property tax. Sinking a well isn't cheap, assuming you can even do so that close to a reservoir.
Can't see why you don't see why the others don't want to keep it, especially with your "keep it in the bloodline" which I would see as totally disrespecting their kids (IMO).
How long ago was this "agreeable to all parties?".. 10 years ago?? things change and they might just see that 8 hours away is way too far, and they might have better places to go now with their roots now far away

 

[Jerry1]

Warning - Long and soap opera ish.

Somewhat off topic, but to expand on the bloodline. Mom and dad practically raised our daughters. We both worked. They would get on the bus at our house and after school, get on a different bus to mom and dad's house. In the summer, they would stay with mom and dad while we worked. To say they were close, is an understatement. When dad retired, the kids were still small. They would go down to TN and take the kids. There were two large rv/trailers on the property. The other trailer was owned by dad's sister and her husband. They would fish and go into Sieverville, go to Dollywood . . .

DW is the oldest of three sisters and the only one who had children. Sister 3 married an older person after a divorce and his kids were adults and had little contact with mom and dad. Sister 2 married a guy who did have young kids from his first marriage. They did have some contact with mom and dad but they mostly lived with their mom (sister 2's husband's first wife) so no real relationship. As both kids grew up, ours were always at any event like holidays and actually visited mom and dad. The step kids never did. All to say, there just never was any relationship with the non-blood kids. I recognize that the sisters have a husband to consider and accept the husband's offspring as their own, but right or wrong, mom and dad never did.

So when dad wrote his will, he specifically said that the land was to be shared by the daughters and that if one passed, their share would go to our daughters. Ultimately, our daughters were to get the land. It's a very special place for them. When dad died, mom had dementia and steps were taken to protect all the assets including the land. The assets were put in an irrevocable trust as a gift to the three daughters. The provisions of the trust were the same as dad's will regarding what would happen upon death of any of the daughters. However, and this is where the main screw up happened, the language of the trust says that upon death, the assets are to be disbursed. As recently as a month ago, just two months after mom died, the sisters were all on the same page (so we thought). They agreed to amend the trust to handle the land "the way it's always been". The direction to the lawyer was to update the trust to handle the land exactly how it was handled in the irrevocable trust. We just got the first draft of the amendment back from the lawyer. DW distributed it for review and set up a call at which time sister 2 said she's out. Sister 3 followed suit stating that her husband has wanted her to sell the land for years and she was going to finally go along with his wishes.

So, it appears that once the document was drafted and sister 2 had to actually sign off on her rights to the land for passing to her family, she changed her mind. She didn't have to sign the irrevocable trust, mom did that. What we don't understand is why she engaged in discussions after mom died about spending time on the land. Now, she says that they don't see themselves using the land. It's hard not to conclude that she had to explain the situation to her husband and it did not go well.

So anyway, you can see why dad felt the way he did. Not so much because of bloodlines, but more because those were his girls (my two daughters). FWIW, one of my daughters does not and will not be having kids so with regards to the land, she's in a similar situation - the land will not pass to her husband or his side of the family. Still, it's absolutely known and been fully understood what dad's wishes were. To have this happen is not only surprising but something that damages family relationships terribly.

Now, the only question I have is whether or not I can afford to buy the property at 2/3's of the fair market value and keep it in the family.

FWIW, I come from a completely dysfunctional family. I married DW at 20 and while I can't say that I viewed her dad as my father, I respected him greatly. It was no effort for me to call DW's parents mom and dad. They had a great impact on our lives and how his two daughters can do this is beyond my ability to grasp. No one in this family is struggling financially and there's no way their share of the land will change their lives. Worse, sister 3 has even stated that her will names my daughters as her beneficiaries. She was also the closest to dad. I can't even comprehend how she came to this conclusion.

Money - tearing families apart for millenniums.

 

[pb4uski]

If the trust requires the assets to be disbursed that doesn't necessarily mean that they have to be sold. My mom and dad's trust is distributing the family camp by putting the camp in an LLC with each of us 5 heirs getting 20 shares in the LLC. While luckily we all agree to this, technically my sister and I as co-trustees could do it unilaterally if we wanted to.

From your previous posts it is unclear whether or not all three trustees must agree or whether just a majority of trustees must agree.

If all must agree then your DW can just say I don't want to sell so lets have the trust transfer ownership to the three of us as joint tenants. If the latter then I guess the 2 younger sisters can force a sale and distribution of the proceeds from sale.

Might there be an opportunity for the trust to sell the land to you and/or your daughters as an installment sale which would spread out the taxable gain and the tax bite for your DW and the 2 sisters?

 

[Jerry1]

If the trust requires the assets to be disbursed that doesn't necessarily mean that they have to be sold. My mom and dad's trust is distributing the family camp by putting the camp in an LLC with each of us 5 heirs getting 20 shares in the LLC. While luckily we all agree to this, technically my sister and I as co-trustees could do it unilaterally if we wanted to.

From your previous posts it is unclear whether or not all three trustees must agree or whether just a majority of trustees must agree.

If all must agree then your DW can just say I don't want to sell so lets have the trust transfer ownership to the three of us as joint tenants. If the latter then I guess the 2 younger sisters can force a sale and distribution of the proceeds from sale.

Might there be an opportunity for the trust to sell the land to you and/or your daughters as an installment sale which would spread out the taxable gain and the tax bite for your DW and the 2 sisters?

From what I understand, all three have unilateral ability to act on behalf of the trust as it sits today.

I was wondering about the gain if I buy them out. I didn't think I'd have to pay my portion of any gain given that I wouldn't have sold my 1/3rd. Wouldn't my basis just become 2/3's of the market value (the payout) plus 1/3 of the current basis, which is about $10K?

Also, I was wondering if there was any way to structure the deal to avoid or minimize the gain on the sisters. The installment sale is interesting, but in the current environment, if I can avoid the gain and stick it to them, I'm gonna be good with that. If there's some way we could all avoid it by cooperating, I might consider that. Either way, it's not going to change anyones life. I'm thinking the gain will be about $100K to $150K so less than $50K per person - buy hey, they wanted out.

Don't worry, cooler heads will prevail before we do any distributions. Unfortunately, the feelings are very raw right now.

 

[ivinsfan]

Jerry you won't like my comment but this is pretty emotional for you..tread very carefully. I want you to remember your FIL's wishes are simply his wishes, he no longer owns the property. For example, best not to guess what the sisters are thinking about the past, because you don't know. Don't take it personally or as a slam against your FIL. you don't have to understand why the sisters came to their decisions but you do need to respect their decisions.



And lastly I admire your affection for your FIL but you are not one of his children, don't be one who stirs the pot and makes a mess. Hope things work out for everyone.

 

[ivinsfan]

From what I understand, all three have unilateral ability to act on behalf of the trust as it sits today.

I was wondering about the gain if I buy them out. I didn't think I'd have to pay my portion of any gain given that I wouldn't have sold my 1/3rd. Wouldn't my basis just become 2/3's of the market value (the payout) plus 1/3 of the current basis, which is about $10K?

Also, I was wondering if there was any way to structure the deal to avoid or minimize the gain on the sisters. The installment sale is interesting, but in the current environment, if I can avoid the gain and stick it to them, I'm gonna be good with that. If there's some way we could all avoid it by cooperating, I might consider that. Either way, it's not going to change anyones life. I'm thinking the gain will be about $100K to $150K so less than $50K per person - buy hey, they wanted out.

Don't worry, cooler heads will prevail before we do any distributions. Unfortunately, the feelings are very raw right now.

Why are you mad? IMO you aren't approaching this with the right attitude. Your SILs want to sell something they have EVERY right to sell, it doesn't help you to be mad.

 

[Jerry1]

Why are you mad? IMO you aren't approaching this with the right attitude. Your SILs want to sell something they have EVERY right to sell, it doesn't help you to be mad.

I can, and do, acknowledge their right and still feel that what they're doing is not honorable and be upset about it. Not to mention seeing what it's doing to my DW and daughters is obviously very upsetting. Frankly, if my DW was okay with this, I wouldn't be upset at all. I'd be questioning how she reconciled that with her dad's wishes, but I'd support her.

As to your other comment, I have done my best to leave this all up to DW. I'm 100% behind her in doing what she wants. This is her family and I absolutely respect that.

As for "not liking your comments", no harm no foul. I respect and appreciate the input from the group.

 

[evilanne]

The land does not produce income. It's about 2 acres. It's more than that, but it's on Douglas lake and they can bring the water level up to where it's 2 acres. Actual ownership is 8 acres.

I hope that you will have the ability to keep the property in the family.

If it financially overwhelming to buy out 2/3 of the property, is there a possibility of subdividing the property and selling half? They could split the proceeds and you would only have to buy out the remaining 16.67% and you would have a fair market price to work with based on the sale.

I like the LLC or shares option that several people mentioned. This might give you more flexibility to buy shares from the others and allow them to get $$$ that their family could use/benefit from. They would have to pay Capital Gains on the shares they sell and that would increase your basis in the property. Being that they are not financially in need of the money, you could work something out over an extended period of time where there is a win-win solution for all parties. Land generally increases in value so the value/price of the shares should also increase over time and they would still have partial ownership until all shares are sold.

 

[pb4uski]

....Wouldn't my basis just become 2/3's of the market value (the payout) plus 1/3 of the current basis, which is about $10K?

Also, I was wondering if there was any way to structure the deal to avoid or minimize the gain on the sisters. The installment sale is interesting, but in the current environment, if I can avoid the gain and stick it to them, I'm gonna be good with that. If there's some way we could all avoid it by cooperating, I might consider that. Either way, it's not going to change anyones life. I'm thinking the gain will be about $100K to $150K so less than $50K per person - buy hey, they wanted out.

Don't worry, cooler heads will prevail before we do any distributions. Unfortunately, the feelings are very raw right now.

Yes, I would think your basis would be 1/3 of mom's basis a plus what you pay for the other 2/3.

An installment sale wouldn't change the gain, it would only change the timing of the gain, IIRC generally a percentage of the proceeds... so if the gain is 80% of the proceeds and the installment sale is over 5 years then 16% of the proceeds/principal received would be LTCG each year... plus any interest on the seller financing would be ordinary income to the sellers.

 

[HarveyS]

... if I can avoid the gain and stick it to them, I'm gonna be good with that. ...

It appears you are using a WIN:LOSE strategy. Probably not the recommended approach with family, unless you are willing to risk 100% of the relationship. I'm sure FIL did not want this. Please re-evaluate your position.

They want out, let them out. If you end up paying more for the property, so be it. In the worst case, how much more than fair market value could you end up paying? 10%, 20%? Less than the price of a car. It's not going to matter in 5 years.

 

[ivinsfan]

I'm sorry your own family is upset, yet it's the memories that are special not the actual bare piece of land. It doesn't sound like you even really plan on using the property..this bloodline you mention is just muddying up the situation. It's not a good situation to put a family that has step kids into, it actually seems mean.



Hope you all manage to work it out...

 

[pb4uski]

An additional thought for you. IF the sellers have substantial headroom in the 0% capital.gains tax bracket an installment sale could be structured to make the sale tax free rather than 15%.

 

[imnontrad]

Hire a professional appraiser to give you a valuation. Some experienced real estate agents may take this as a "side gig", even though it is never listed.

 

[captain3d]

Too much emotion attached now. 2:1 vote said sell. Probably time to sell and go from there.

 

[llolly]

The best thing would be if you/DW can let go of FIL's stated wishes that it sounds like are not in any current trust/will and treat the decision on whether to try and buy the property as if he had NEVER said that.

I have personal experience of the whole stated (for many years) wish that is not in will/trust (and by the first to go just like in your case). However, the facts/law is what was put in the will/trust - the rest is just deceased parent's dreams.

The best reason to let it go is because - even with the best will in the world to give all benefit of the doubt and love sibling regardless (from my side anyway, but I think from other side too in interactions since, even if not apparent at worst moments) - it HAS impacted our relationship negatively--which is NOT what that parent would EVER have wanted, not in a million years.

Also: my DH was NOT helpful when saying stuff like -- just drop sibling, do what's right for us, who cares about sibling! Which I fortunately I was able to laugh at -- "Would you ever drop <DH sibling> no matter what they did? Yeah, I thought not -- so this is unhelpful advice even though you think <DH sibling> would never do what <MY sibling> is doing" and thankfully he stopped once I said that.

Note: this is not statement either way on whether to buy the property -- that is between you and DW -- but let go of all these thoughts about this is what FIL wanted and DW's siblings are being unreasonable. Instead focus on things like: What would you have done if property had needed to be sold before MIL died for example? Answer should be factual stuff like researching whether property is actually livable, what you'd be willing to pay for it (which I'm pretty sure you'd not have been talking about sticking it to MIL!), what is appraised value -- all stuff that people on this thread are suggesting.

 

[Stormy Kromer]

To the OP and anyone else interested. The only way to get others off your back is to have a public auction and show up and buy it using your interest as a down payment.

 

[SecondAttempt]

Why not put it on the market without using a realtor? We sold our house this way.

Personally I do not trust realtors to give an honest price. I've sold 2 properties in my life and both times the realtors wanted us to set a low price and lower it often to sell fast. Both times we refused to lower the price and sold at our original asking price, which we determined ourselves based on publicly available comps and county assessment valuations with reasonable adjustments after walking around the neighborhood and looking at condition and curb appeal.

When I asked why it was more important to sell fast even if it meant leaving money on the table we only got double-talk about buyers not being interested in properties that had not sold in 30-60 days. That turned out to be dead wrong. One sale took 10 months, the other 14 months.

Both times we would have lost tens of thousands of dollars by listening to the realtor. They price low for a quick sale so they get paid fast. Even taking into account opportunity cost and mortgage/tax/insurance expenses the realtor clearly did not have our best interests in mind.