Expert: Matt Heisler - 8/21/2008

Question
Hi Matt.
My wife and I co-own a vacation home with my sister and brother in law in Hawaii.  We just rented the rented the house out for one year.  My wife and I want to sell the property because we need the money now, my sister and husband want to wait until next year.  My sister and husband are not in a position to buy us out.  My question is could my wife and I sell our interest in the property on E-bay to aquire our share of profit without disturbing tenant? If so, do you know how we might structure it?  If not, are you aware of another way we could get this done?
Thanks Brent

Answer
Hello-

First of all, I don't sell real estate in Hawaii, and there are a lot of issues here that may be very dependent on how those statues are construed.  Nevertheless, I will try to cover the issues as I can.

A) Look at how your ownership is structured.  You're telling me its 50/50.  In order to sell your interest in the property, I suspect your "partner" would have to agree to the new owners.  It is likely, as co-owners, that you are both on the deed, and the mortgage. Almost all conventional mortgages are un-assignable - which means you can't give them to someone else. I can assure that the bank is very, very unlikely to approve an ownership switch - the new owners will have to refinance.  What you would need to do have EVERYONE sell it, and have your partner and the new buyer re-purchase the property.  Obviously, there are numerous tax and financial implications with this approach.

B)E-bay.  My first thought, honestly, was, ARE YOU KIDDING ME?  But I'm sure this just reflects your positive experiences with E-bay.  I, too, LOVE e-bay.  BUT IT IS NOT FOR SELLERS OF REAL ESTATE.  Let me tell you why:
1) Your bidders can not see the property.  Just because you tell them it's in good condition, do you think they'll believe you? Of course not.  Their bids will reflect the inherent risk in buyer a property they have not seen. Pictures are NOT enough.  You are not selling a TOASTER.  This strategy is guaranteed to cost you money.
2) How can you believe them, that they are capable of purchasing the property?  You can buy stuff on e-bay if you have poor credit - but you still can't buy a home.  You could be legally committing your self to someone who can't afford the home - this could tie up the property for months, and end up with no sale, and a lot of legal bills. The amount of legal risk you would be exposing yourself to in Massachusetts is immense.  We have purchase contracts for a reason - I would get an agent, advertise the property nationally (it's not hard, and standard for my office) and sell it conventionally.  You will need to have people visually inspect the property to get top dollar - that's how it works.

C) The tenant:  Typical leases have clauses that allow the landlord to terminate the lease with enough notice.  Review your lease (or ask an attorney if the tenant is At-will) and proceed accordingly.  Of all the issues, this should be the most straight-forward.

My recommendation, since you're talking about 12 months would be to do the following:
1) Convince your partner to sell.  I doubt your unit is forecast to increase substantially in the next 12 months, so why wait?  How much profit are you leaving on the table really?

2) If they won't sell, have them solve your cash-flow problem.  Perhaps they can't buy you out, but if they can cover part of your cash outlay, which gets refunded to them at close in a year, that might work for both sides. For example, he pays $200/month to you, when you close in 12 months, he gets the $2400 back.  It's a loan, with the profits on the home as collateral.  Get it in writing, so everyone is clear on how it works.

Good Luck!