You are looking forward to sell your house, do you think the easiest way to do this is making offer to a relative who is thinking to buy a house. Or perhaps, you are buying a house and want to buy from a relative who is selling his house. If you are in this situation, you might be in danger. Don’t, I emphasize this again, don’t try to sell or buy from your relatives. Making property deals with your relatives is a very bad idea. One wrong step and you will estrange your relationship for your entire life.
You need a long time to build a cordial relation with your relatives; however, one miscommunication will ban you from all family gatherings. Involving family in property deals is very risky.
Before we discuss about what it is bad to involve your kinsmen in the property deals, let us identify some of the common property deals with the family.
Some of the common types of private property deals are:
1. Exchanging property with something other than money. For example, agreeing to look after a disabled or old family member in exchange of property.
2. Selling property for the price that is less than the market price
3. Delaying payment, an offer to pay full price after a certain time period.
You should not do any of the aforementioned things because:
Think about this. What if the seller gets into financial difficulties? You must be aware that your obligations might increase.
Perhaps, your uncle wants to give you his flat when he dies, and that is without any social or financial obligation. However, your uncle’s Will may change later. For example, he might be in need to sell his property because he may need money for medical bills. In the situation like this you are the first person your uncle approaches (because you are getting his house).
Even if your uncle does not approach you, you may be in an obligation to help your uncle for covering medical bills, you may even have to move your uncle to your house. You look after your uncle because you want to express your gratitude, after all you will be owning his flat later.
Even if you are not in a financial position to help your uncle, you are obliged to help him. If you are not economically sound, can you actually spend money on your uncle.
In case your uncle has to move into your place. Can you cope with the family pressure (your wife may not like this) or financial pressure (because you need more money to feed another person). It may take years before your uncle can actually support himself, or perhaps never.
You need to think about the possible obligations before you accept property deals from your relatives.
You must also know that it is really hard to challenge the private deals you make with your relatives. If you want to enforce the agreements, you will have to hire a lawyer.
Let me illustrate this. You initially sold your property to your relative for a cheap price, and arranged that more money should be paid later through installments over the time or at once after a certain period. This kind of agreements is very common in private deals. The buyer may not have enough cash during the time of purchase and he is not willing to get a bank loan, thus he agrees to pay full amount after a certain period.
This agreement may have following consequences:
- There could be disagreements over the total amount to be paid. If you don’t have a third party to monitor the deal, for instance an accountant or lawyer to track repayments, you might get into trouble.
- One find day, you discover that your relative has stopped paying you.
- There could be late payments or irregular payments. This can create a great problem if you have debt to be cleared or have to pay another mortgage.
- You may also have to listen to too many complaints. For example, the property was overpriced, the property value is not as high as you claimed, there is a leakage in the bathroom etc.
In order to avoid future complications, you will have to employ a lawyer in case you have to make private deals. You should also have the agreements in writing. If there is no written document, you cannot contest in court and you may end up losing big money. Furthermore, when you are selling for the price that is less than the market value, the buyer is paying less stamp duty. This is a case of tax evasion, which may get you into trouble.
Another reason why it is not a good idea to make deals with your relative is there is no guarantee on whether the understanding will be fulfilled.
Let me illustrate this. You gave your house to a relative for free and in exchange your relative has to look after your parents. There is no guarantee that the relative will actually look after your parents, provide as much care as you have agreed. Feeding and giving medical attention are not enough, spending time together is also important, and your relative may not have time for your parents.
Consider this. You gave your property to your relative and in exchange he has to look after your mother. The property is compensation for the money that your relative has to spend on your relative. What if your relative goes bankrupt and has no money left to look after your mother?
Aforementioned cases related to property deals may also be true to you. You accepted property from a cousin on condition that you will take care for his invalid child. Even if you sincerely perform your responsibilities, there might be other ramifications. What if you get into financial troubles and can no longer support the child?
There is an advantage of making deals with stranger over relatives. Once you hand over the property to the stranger, your obligations end. All the arrangements are clear, you know what you are giving and the buyer, a stranger, also knows what he is receiving. However, while selling to relatives there are other strings attached. You have to fulfill a series of obligations and this might financially, socially and psychologically affect you.
Even if you sold the property to your relative on a low price first, he may contest it later. During the bad times, generosity may alter into resentment. Don you remember your friend A, who did not pay your money back, which he had burrowed when he was suffering from financial crisis.
Payback will not matter to you until you yourself are in financial trouble. Imagine this. Your relative is not paying back the installments on time and you are not forcing her to pay immediately. However, can you continue to neglect late payment and irregular payment when you are in financial crisis.
Put yourself in your relative shoes and you are the one who received property for a low price. They are not forcing you at this time, but how long can they not force you to pay pack when they are economically unstable.
There are other consequences as well. If you make a property deal with a relative and later things do not go as they should happen, you might be in trouble. Not just with your relatives, you might develop bad relationship with your relatives’ kids or parents as well as relatives common to both of you. Sometimes bad relationships may be worse to a level of antagonistic attitude.
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You should never be the one who says “I am poor because my uncle cheated me.” You should always separate social issues with financial issues.
Therefore never buy and sell property from your relative or to your relative. Instead buy from or sell to a stranger for a better price and no conditions attached. It is bad to generalize the situation; however, things mentioned above are likely to happen.