How to value a property

[Jerry1]

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.

 

[Fermion]

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

 

[Jerry1]

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

I don't want to sell it. I need to buy out DW's two sisters.

 

[cathy63]

Have the 2 who want to be bought out proposed any way of establishing the price?

What if the 2 got an appraisal and the 1 also got an independent appraisal and you all agreed in advance that if the difference is 10% or less you'll just land on the half-way point. If it's more than 10%, you get a 3rd appraisal paid for by all of you and then you average the two highest ones.

 

[MarieIG]

When a friend and her brother (who didn't get along at all) inherited her mother's house she wanted to buy him out. Each (who happened to have lawyers) got their own appraisal. Surprisingly, the two appraisals were very, very close, and they split the difference.

You can get an appraisal, and if the siblings don't agree they can get their own.

I suppose you could do a "sale by owner" and match offers by qualified buyers if you wished.

 

[Fermion]

I don't want to sell it. I need to buy out DW's two sisters.

Right. I just meant that if you put it on the market without a realtor and got a few offers, you could top the highest offer and then no bad blood between the siblings because it was proof what the value of the land was.

 

[Jerry1]

Right. I just meant that if you put it on the market without a realtor and got a few offers, you could top the highest offer and then no bad blood between the siblings because it was proof what the value of the land was.

Got it.

 

[pb4uski]

Was the land appraised for step-up basis purposes recently? If so, that might be a starting point for negotiations.

If not, then a market appraisal by a realtor or an appraisal by an independent appraiser would provide a starting point for negotiations. In some parts of the country the property tax assessed value might provide a starting point.

I think if you listed it and retained right of first refusal and the broker brought you a ready, willing and able buyer then you would owe the commission if you exercised your right of first refusal.

In some business transactions, the buyer and sellers will each obtain independent appraisals and then negotiate from there and in forced sale situations if the parties can't agree on a price then a third independent appraiser paid for by both parties will do another appraisal that will be binding on both parties.

Appraisals cost money but will add credibility that a fair price is obtained so the cost of the appraisal might be a small price to pay for family tranquility.

 

[Jerry1]

Have the 2 who want to be bought out proposed any way of establishing the price?

What if the 2 got an appraisal and the 1 also got an independent appraisal and you all agreed in advance that if the difference is 10% or less you'll just land on the half-way point. If it's more than 10%, you get a 3rd appraisal paid for by all of you and then you average the two highest ones.

I guess I'm thinking the appraisals will over state the actual value. There is a lot of properties for sale in the area and I'm dubious it would sell for the appraised amount. Conversely, I'm sure one of the people involved is all about the money and I'm preparing for the comeback that the appraisal doesn't reflect what could actually be obtained. It kinda of goes without saying that this is already a terrible situation. My FIL wanted the property kept in the family and now three months after MIL's death (dad died 10 years ago), 2 of the sisters want to sell it. DW has no leverage and our only option will be to buy them out.

 

[pb4uski]

I don't want to sell it. I need to buy out DW's two sisters.

Perhaps get an appraisal and then use that to make them an offer and you can provide the appraisal to them with the offer.

Do you have any idea what they think it is worth?

Or do an appraisal or have a realtor do a market analysis of value and then ask them what they want and play it by ear from there.

 

[Jerry1]

Was the land appraised for step-up basis purposes recently?

No. The land was gifted to an irrevocable trust to avoid Medicare clawback so there is no step up in the basis.

One of my other questions is whether there is any way to buy them out without them (or us) incurring a taxable gain. That could be a significant adjustment to the price if we could avoid the gain. The basis is very low given that the property was bought in the 70's.

 

[Jerry1]

Perhaps get an appraisal and then use that to make them an offer and you can provide the appraisal to them with the offer.

Do you have any idea what they think it is worth?

Or do an appraisal or have a realtor do a market analysis of value and then ask them what they want and play it by ear from there.

Strategically, I was thinking of getting an appraisal but asking them to put the first number on the table. It's early in the process, but I'm in touch with a realtor in the area to discuss a fair market analysis. I'm thinking I could get that quickly as I wait for the appraisal so I'd have something to work with. The pain will come if the price comes back too high for my to buy them out. I need to get that information understood quickly. If it's close to the market value per the tax assessment (not the assessed value), then I'll be okay.

 

[38Chevy454]

Talk to a couple of realtors that specialize in land. Get their opinions and decide if that seems a reasonable amount for you to buy out. All of this done on your own before you talk to the other siblings. If realtor value seems in range you expect, talk to the other 2 siblings and figure out a process. I like the 2 formal appraisals approach and average the two. If you are concerned about the appraisal coming in high, then not sure what to tell you. That is what banks rely on to ensure the mortgage can be supported by a property; even though you may not be getting an official mortgage on the property if you buy it.

Do you have plans for the property? It is nice to a point that your in-laws wanted it to be for family, but they are controlling things from the grave so to speak. Unless it really benefits you to keep it, what is your main reason to buy it out?

 

[pb4uski]

Who is the trustee of the trust?

You might talk with a realtor about listing it and you retaining a right of first refusal for any offer acceptable to the other 2. It would be hard for them to object to the price in that case.

Do the other 2 want you NOT to have it or are they just more interested in the money?

 

[Ronstar]

I got an appraisal when I bought out my sister. Went fairly smooth.

 

[38Chevy454]

No. The land was gifted to an irrevocable trust to avoid Medicare clawback so there is no step up in the basis.

One of my other questions is whether there is any way to buy them out without them (or us) incurring a taxable gain. That could be a significant adjustment to the price if we could avoid the gain. The basis is very low given that the property was bought in the 70's.

Are you planning to keep the land in the trust? That may be a way to avoid any taxable event. I'm not a tax expert on this, but modify the trust so that you are the sole recipient.

 

[pb4uski]

No. The land was gifted to an irrevocable trust to avoid Medicare clawback so there is no step up in the basis.

One of my other questions is whether there is any way to buy them out without them (or us) incurring a taxable gain. That could be a significant adjustment to the price if we could avoid the gain. The basis is very low given that the property was bought in the 70's.

Ouch. A downside of Medicaid LTC planning I suppose.

Just thinking out loud. The trust transfers the land to a newly created LLC and the LLC issues 300 shares, 100 shares to each trust beneficiary. You buy the 200 shares that your DW does not hold in exchange for 2/3 of the agree value of the land. They end up paying capital gains tax on the sale of their shares, I think proceeds over the cost basis of the land. Your basis in the 300 shares of the LLC is 1/3 of the cost basis of the land and what you paid for the other 200 shares which defers your portion of the gain. Not sure if that would work but worth thinking about.

I'm speculating that when you pass that the 300 shares would be stepped-up like any stock would be stepped up and since the only asset is the land that the value of the 300 shares would be equal to the value of the land.

 

[Sunset]

I guess I'm thinking the appraisals will over state the actual value. There is a lot of properties for sale in the area and I'm dubious it would sell for the appraised amount. ....... My FIL wanted the property kept in the family and now three months after MIL's death (dad died 10 years ago), 2 of the sisters want to sell it. DW has no leverage and our only option will be to buy them out.

Often through inheritance a person gets something they would never go buy and yet they keep it for years thinking in some way it honors the deceased person. This happens with all sorts of things, even stocks, use of bank, houses, land, art, etc.. Yet the original owner likely thought "They can sell it if they don't want it". Not wanting to burden their heirs.

Maybe you've already pondered this a lot, and have some personal reason for wanting to keep the property. What will you do with it ?
If the plan is to simply keep it and pass it to the next generation, you might be simply kicking the can down the road, as it may be sold at that time.

 

[Jerry1]

Do you have plans for the property? It is nice to a point that your in-laws wanted it to be for family, but they are controlling things from the grave so to speak. Unless it really benefits you to keep it, what is your main reason to buy it out?

My in-laws used to take my to daughters there for the summer. They're heartbroken that there's any question that the land would be sold. My reason for buying it is to keep it in our family as dad desired and to protect my daughters from the pain of losing it. It may never get used and while that's a concern, I'm okay to a point. Obviously it was a lot easier to keep it without worrying how it was used when it didn't cost anything more than the taxes.

Who is the trustee of the trust?

You might talk with a realtor about listing it and you retaining a right of first refusal for any offer acceptable to the other 2. It would be hard for them to object to the price in that case.

Do the other 2 want you NOT to have it or are they just more interested in the money?

All three are equal trustees of the trust.

The two wanting out are only interested in the money. The complicating factor is her sisters married men with children but had none of their own. So, keeping it in the family means it would not pass to the step children. Of course, mom and dad did not have any relationship with the step children, but I get the position. Unfortunately, my daughters are in the bloodline and I want to maintain that.

At this point, there's no doubt that either I'm buying them out or we're selling the land. There's no way I can be a joint owner after such a breach of trust - DW is in full agreement and it looks like a family break up is imminent - very sad. I'm still looking for a way to make this go amicably.

 

[Jerry1]

Maybe you've already pondered this a lot, and have some personal reason for wanting to keep the property. What will you do with it ?
If the plan is to simply keep it and pass it to the next generation, you might be simply kicking the can down the road, as it may be sold at that time.

This has been discussed. If you saw the heartache of my daughter you'd buy the land too if you could. I did ask her to put forth a vision of how the land would be used going forward. There's a dollar amount where I won't care andI'll just buy the land and then there's an amount where using it would matter and then there's a price where I just can't swing it. I hope I don't see that price.

 

[ivinsfan]

Does this land produce any income? How big of a piece is it? Why does your spouse want to retain it? These answers will all have a factor in the price.


As far as your comment about the realtor you'll have to pay the commission, how is that not fair. The 3 sibs will have to pay part of the commission anyway.


How long ago did the parent die, some emotions might be coming into play here as well. Some of the suggestions here are fine but let's not forgot the other 2 sibs have an input here are that interested in Jerry getting the best price, they want the highest price.

 

[cathy63]

I guess I'm thinking the appraisals will over state the actual value. There is a lot of properties for sale in the area and I'm dubious it would sell for the appraised amount. Conversely, I'm sure one of the people involved is all about the money and I'm preparing for the comeback that the appraisal doesn't reflect what could actually be obtained. It kinda of goes without saying that this is already a terrible situation. My FIL wanted the property kept in the family and now three months after MIL's death (dad died 10 years ago), 2 of the sisters want to sell it. DW has no leverage and our only option will be to buy them out.

My recent experience with a home appraisal we got before putting a property on the market was that it was very close to the final sale amount after it went on the open market. Appraisers are professionals and their job is to know what something will sell for. If there are multiple property sales happening in the area, then that makes it easier for them to provide accurate information and I don't see what they have to gain from overvaluing a piece of land. Also, you can always tell them that you're getting multiple appraisals if you think knowing their work will be compared to someone else's might influence them to be more realistic.

To maintain family harmony, you might have to pay more than you think the property is actually worth. To your DW, her sisters are probably worth more than the money. If the SILs will agree to wait until late spring/early summer, it also might help your DW to wait a few more months and see if she's ready to sell it too. I know your FIL wanted to keep it in the family, but maybe it had more meaning for him than for everyone else, and now that you've all honored his wishes for 10 years it might be ok to let it go; especially if the property isn't used by the family, or if having it creates a burden or liability for maintenance, wildfire risk, preventing trespass, squatters, etc. We're going through some similar discussions settling DH's mother's estate and I've said these things to all of his sibs a few times now. The main thing they all agree on, and that we in-laws keep reminding them of when they forget, is that their sibling relationships are their most valuable inheritance. Everything else is just not that important.

 

[pb4uski]

.... The complicating factor is her sisters married men with children but had none of their own. So, keeping it in the family means it would not pass to the step children. ...

Why couldn't her sisters pass it to their stepchildren in their will? If the reason for selling it is that they don't think that their stepchildren will benefit from the land then it doesn't have to be that way.

For example, my 4 siblings will be sharing my Mom's lakeside seasonal camp. We will each have a rotating two-weeks each year that it is our exclusive use and we can give that use to our kids or even other "known commodity" friends with consent of all. Outside of the 10 weeks reserved it is first come/first served.

Luckily, we all get along well and I'm sure there will be horse trading of weeks or periods where two or more sibilings will be using the camp (it has 4 small bedrooms and a bedroom in the garage). My single sister is already on record of anyone welcome to use the other bedrooms during her two-weeks.

The trust will transfer the property to an LLC and we will each have 20 shares of the 10 shares issued and outstanding, so if any shareholders later decide that they want to sell their interest in the property they can sell their shares to another shareholder or a child without any consent required or to an outsider with unamious consent required.

 

[cathy63]

OK, I see you mentioned your daughters while I was typing my previous reply. What about involving them in the ownership? Are they in a position to absorb part of the cost? If not, are they old enough to see this from their aunts' point of view and understand that owning a third of a piece of property that they can't pass on in their own families is also difficult for them?

 

[Sunset]

This has been discussed. If you saw the heartache of my daughter you'd buy the land too if you could. I did ask her to put forth a vision of how the land would be used going forward. There's a dollar amount where I won't care andI'll just buy the land and then there's an amount where using it would matter and then there's a price where I just can't swing it. I hope I don't see that price.

I have a similar issue.
Property in the family for over 100 years.
Unfortunately Grandpa didn't construct it like an English castle that could last 100's of years, so it takes a lot of work/money just to keep the building standing and it's a losing battle.
I look at my daughters and one just loves the idea of inheriting it. Unfortunately I think she can't afford to pay the money to maintain it, and I really see no hands on practical maintaining of their own home.

The other daughter has no interest and would sell it.

So I'm left with the thought I devote lots of work and money to slow the decline, only to have it sold off or lost later versus sell it now and pass on the $$.