Selling property inheritance share to sibling, 25 years later: original value? current value? something else?

Question

My father died about 25 years ago, leaving me and my siblings a certain percentage of the lake home and property equaling 100%. At the time of death the property/home was paid for. My brother bought out 6 of the 8 siblings' shares. He now owns 95% and wants to buy my 5%. Is this 5% of the worth at the time of my father’s death or the current worth?

My sister is currently using the lake place and pays taxes, etc. My brother would like to tear the place down and build a home for him and his family. I have not used the place much over the last 25 years. At the time of my father’s death the property was worth about $20,000. Now it’s worth around $300,000.

Answer 1

Shared property is tricky when agreements aren't made up front, but the right answer in a situation like this is basically whatever you agree to. That said, you own 5% of the property, not 5% of what it used to be worth. I would encourage you not to dismiss the value of that equity over all these years. If you had gotten 5% of the value 25 years ago you could have saved/invested it and increased it several-fold.

The three factors to consider are time value of money (all the interest you could have earned if that equity wasn't tied up in the house), contributions each of you have made over the years, and benefit each of you have received over the years (rent, or usage of the property).

The time value of money concept makes 5% of current value the logical starting point, but from there it might make sense to adjust up or down based on contributions made and benefits received.

For 25 years have you been paying 5% of the upkeep/property tax/etc? Have you gotten 5% of the benefit of owning the lake house?

If your brother has gotten 100% of the benefit of owning the property for 25 years, but has also paid 100% of the expenses then 5% of current value could be fair. If you've gotten some benefit out of the house without contributing all these years then maybe less than 5% of current value is fair. If you've contributed to upkeep all this time and not gotten much benefit from owning then 5% of current value could be too low.

Answer 2

Technically it is worth what you are willing to sell it for and what he is willing to buy it for. Failing that, it is worth the current market value. If you were going to buy a home, and the you said to the sellers "Hey this property was valued at 25% less five years ago, I would like to pay that price". What would they tell you? They would tell you to get lost.

So the starting point is 5% of current market value. Depending upon your relationship with him, and many other factors the price can be very different. You can and should not be bullied into selling the price at the time of your father's passing.

You may choose to sell at that price just to have this out of your life.

Answer 3

Let’s make a slight change: instead of your brother buying your share, I’ll buy the whole house at market price, give 95% to your brother, and 5% to you. In each case you should get exactly the same money.

If your brother insist you should get paid 5% of $20,000 then you offer to pay him 95% of $20,000 obviously.

Answer 4

Surely the simple answer is 'market value'. But this isn't an open market. It's a very small market, probably consisting of just you and your brother. No-one except him is interested in buying your 5%. So the price is what he'll pay and you'll accept. Period. 'Fairness' doesn't come into it.

If your 5% interest is blocking his ambitions for the property in some way, you could use this to push the price up. Only you (and he) can decide the point where being businesslike turns into being a b*****d about it, and whether estrangement from your brother is worth the game.

Answer 5

If you were to instead sell the house would your brother expect 95% of $20,000 or 95% of $300,000?

You currently own 5% of a house worth $300,000 and any payout you get for that ownership should be based on the actual value.

Answer 6

Note that 5% of what it was worth 25 years ago in today's dollars may be more than 5% of its current worth. $1,000 in 1995 is worth about $1,729 today.

Say the house was worth $100,000 in 1995 and it's worth $1,000,000 today. If it was worth $0 today, say it burned down or was discovered to have toxic waste that would cost more than the value of the property to remove, would your brother still be willing to pay you 5% of $100,000 for it?

I don't think he would. Do you?

You took the risk that the value would drop over the past 25 years. You are entitled to the benefit of taking that risk if it went up in value.

That said, you should take into account the fact that this is your brother and take into account the value, and condition, of your relationship with him.

Answer 7

The answer to your question is 5 % of the current market value. All the other issues mentioned are emotional baggage. That doesn't mean you can't consider them. Maybe since you aren't too personally invested in the property and your brother spent a lot of time effort and money, you are emotionally satisfied with accepting 4 % or 3 %, or perhaps you feel cheated out of 25 years of fair use due to family dynamic, and would be more comfortable with 6 %. That's up to you and your brother. But your question was which year is the 5 % based on, and the answer is the fair market value of the property at the time you decide to sell your stake.