buying house off parents slightly under market value?

MoneySpendingExpert888

One of my parents have a house which they are considering putting up for sale because they are reaching that age whereby they don't have the time or energy to think about anymore financial commitments.

The house has now been paid off and they want to sell the house, its not been modernised and its not in the best of conditions so they are willing to settle for £x amount.

I see potential in the house and I would like to buy it from them but i am probably going to be slightly off according to what i can borrow.

For example if the house is roughly worth about £100,000 and I can only get a mortgage for £90,000 and they are willing to discount this amount for me based on the fact that there wouldn't be any estate agent fees, saving some by using same solicitors etc would that be any issue? Only reason i ask is because i thought there was some issues regarding buying houses which are below what the 'market value' is.

Also because we are obviously related, would there be any other efficient ways to do the sale of the property? transfer to me instead of selling etc?

thanks in advance for any advice given

RAS

If yu get a mortgage assume that you will have to use one of the solicitors on their panel. And assume that you parents will have to gift the deposit to you.

Be aware that some mortgage providers will discount a gifted deposit when considering your suitabiity; they expect to see evidence of your prior saving habit.

suchgreatheights

If your parents are selling you a property they will be liable for Capital Gains Tax. If they sell it to you at an artificially low price they would pay too little tax and could therefore be in trouble for tax evasion. You probably need to instruct an RICS-accredited chartered surveyor to provide a Red Book valuation, but suggest you take advice from a financial adviser first.

MoneySpendingExpert888

hi guys thanks for the quick responses.

RAS - Oh right i see what you mean, I will be providing the deposit myself and no cash-funding would be required from them to help me purchase. The only thing would be the flexibility of the sale price i guess?

suchgreatheights - yeah thats where i am slightly confused at the moment, I really don't know what they can consider as 'artificial'.

if lets say you have a house worth 100k and you go through the normal route of selling and after estate agent fees etc you get back £92k in your pocket, whereas if you sold directly to someone you know or a relative for £92k and thats what you get in you back pocket anyways then do you think it would make an alarming difference?

also isn't 'market price' different to everyone? we have had the house valued by a few different agents and they were all about 5-10k off each others prices.

And i also guess there are people in different situations, people who are looking to sell quickly obviously have to discount the price a little to get it moved, whereas people who aren't won't budge on the price at all.

MoneySpendingExpert888

oh i forgot to mention that the property hasnt been tenanted by them in a couple of years and has been rented out to tenants. so they have already expected that they would have to pay CGT for that portion of time anyway.

suchgreatheights

A valuer will be able to provide a signed-off report stating the Market Value of the property. Now of course, every valuer will have a different opinion and market evidence will be interpreted differently by different people, so if you instructed 10 different valuers you would expect a range of values, but you would expect them all to be within about 15% of each other.

Of course, you will need to inform your valuer what the purpose of the valuation is i.e. you need it to be as low as possible so they should be able to report a figure at the bottom of an acceptable range, but (assuming they are not unscrupulous) they should not report a figure that could be considered to be outside this acceptable range of values.

The market value they report will be based on comparables, so disposal costs will not normally feature as these are assumed to be the same for everyone.

I am not sure, but if the valuation is required for a transfer of a property to another fmaily member, it could be that "fair value" rather than "market value" is the basis of value required, which might produce a slightly different result, but you should check that out.

xylophone

http://www.gillespieandanderson.co.uk/cms/filelibrary/Key_features_of_capital_gains_tax.pdf



"The term ‘disposal’ is not defined and is construed as having a wide scope. It includes an outright sale to a third party, as well as sales at an undervalue and gifts.

Therefore, if a parent makes a gift of an asset to a child, the gift is a disposal chargeable to CGT.

Further, where there is a disposal and the transaction is not made on a commercial basis, then for the purpose of calculating the capital gain the market value of the asset is used instead of the actual disposal proceeds.

• Market value is always substituted on a disposal between individuals with a close connection, such as close relatives.

• So, for example, if parents sell a holiday cottage to a child for £50,000 at a time when it is worth £120,000, the parents’ capital gain will be calculated as if they had sold the property
for £120,000.

• Market value can also be used instead of the actual sale price in disposals between unconnected parties, for example, on a deliberate sale at an undervalue or a gift between
friends."


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