What are Your Options If You Inherited a House with a Sibling?



The death of a first-degree or a close family relative is one of the hardest impacts that can affect the bond between siblings. In the perfect scenario, everyone would be friends and in sync with any direction that is decided upon. Sadly, that is not the way it always works among siblings. A parent’s normal death from age leaves siblings as adults with their own lives, choices, and financial needs. Sometimes conflicts may arise among siblings due to sentimental, financial, or other reasons. The logic behind distributing inheritance is fundamentally simple but can get complex due to such conflicts.

Selling, renting, or even moving on the property can sometimes be complex matters that require the mutual agreement of siblings on what to do with the property. While it’s ok for everyone to have their own plans and direction they want to go in, it’s very important to know your rights so you can act accordingly. We’ll be helping you figure out your options when it comes to inheriting a house with a sibling.

Share Buyout

This is one of the most common ways to settle a house inheritance between siblings. For example, you and your siblings inherited a house with 50-50 ownership distributed amongst you. You two may have conflicting plans where one would like to sell it and the other would prefer to have it remain as it is. The simple answer is buying out the share of the sibling who’d like to sell the house. This way the conflict can be easily resolved as both parties can get what they want without the need to resort to a court or other complex arrangements. Purchasing the deed of the house from the other sibling will require paying 50% of the value of the house. This amount is usually quite big to be upfront and would take a lot of time to get from a bank. A home equity loan on inherited property can make the buyout quicker. The loan and interest rates are paid by the keeper of the house. This is done by hiring a professional appraiser to determine the exact cost of the house. The total cost of this buyout transfer is amongst the lowest of all options as the expenses are mainly the appraisal and closing costs.

Private Arrangement

 

Sometimes financial arrangements with a bank to issue a buyout can be complicated and fail midway. If you or your siblings are unable to qualify for a mortgage on the house, the transaction can be conveniently financed between siblings. This doesn’t have to involve buying the bulk of the house’s price on the spot or taking a home loan. A promissory note is a legal document that allows the paying party to promise a specific sum of money to another party, in this case, the sibling, in a fixed or varying time frame or even on-demand. The sibling who wants to keep the house provide a promissory note with half the value of the appraised house to the other sibling.

This option allows financial flexibility as you’ll both be able to find a middle ground without putting too much monetary pressure on yourselves. A monthly payment installment plan with interest fees can be convenient as it allows you to buy out the sibling’s share over time at a comfortable pace. The other sibling will receive extra monthly payment which would be a good incentive to accept the deal since the main reason the sibling wants to sell the house is due to monetary concerns. A deed of trust can also increase the security of the arrangement and provide the sibling with the power to foreclose it if the paying sibling defaults on installments.

Selling and Renting

 

In the case where no conflict exists between you and the sibling as you both would prefer to sell or rent the house, the process should be smoother. You and your siblings can be co-owners and rent the property, then split the money monthly. Sometimes a sibling may be able to manage the rental property more than the other due to experience, location, or free time. The managing sibling should get a little extra for their effort. Even if the relationship between you and your sibling is strong, it’s important to put all the little details in a written agreement to avoid any conflicts in the future and keep yourself safe.

Renting is a pretty good and sustainable option, depending on the circumstances, but sometimes selling the house could open new avenues of opportunity for you and your siblings. You should be able to split the house’s value after taking care of fees, commissions, and other costs. The sooner you sell after the inheritance the better as it decreases the chances of being taxed for capital gains tax since the house’s value is valued at the date of death of the parent. The only capital gains tax you’ll pay is the difference between whatever price you sell it for and the valued price at the date of death.

Forcing a Sale

 

When tensions are high and conflicts arise, one sibling may not agree on selling or renting the house for any reason. This only leaves you with one option, which is to involve the court in ordering the sale of the house. This involves a rather complicated process that makes it seem quite unnecessary if an agreement can be reached between the siblings, but sometimes it’s the only legal course of action available in some cases. A formal letter must be sent to any siblings with stakes in the house and provides them with information regarding the causes of sale. The best thing is to try and reach a settlement before the value of the money being split decreases due to the legal costs and other fees. 

Inheriting a house with a sibling can sometimes be a blessing or a curse. Depending on the relationship with the sibling, your options have to be considered carefully. It’s best if the siblings get together and decide amongst themselves the best plan that mutually benefits all of them with some compromises.