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Our family is currently in a bit of dispute over the future of my mother's home (she is still living).

I apologize if my explanation here is more complicated than it needs to be; I have simplified the numbers so the math makes more sense to me.

We are trying to understand if the agreements below are fair and balanced to all parties.

Background:

  1. My sister and her husband purchased a foreclosed house for $60,000 that was valued at $120,000
  2. They held the house for a year and then sold the house to my mother for $60,000, 50% of it's market value.
  3. Per a now contested verbal agreement, they sold the house to my mother at a market loss of 50% with the understanding that they would receive 50% of the sale amount of the house after my mother's death
  4. My sister and her husband have the first option to purchase the home at the current market value, minus 50% (due to the initial loss they took by selling to my mother instead of on the free market)
  5. After purchasing the home from my sister, my mother has spent around $30,000 to finish the basement and add other improvements to the home and land.
  6. Bottom line: when the home is sold, 50% of the sale price will be given to my sister and her husband while the other 50% is split evenly among all 4 heirs (including my sister) as our inheritance.

With the understanding that they purchased the house for the sole purpose of selling it to my mother a year later (and never intended to flip it for profit at the time), is this a fairly standard and fair agreement?

How do we factor in the $30,000 that my mother spent to improve the home?

It should also be noted that when the original verbal agreement was made, my mother made it clear that she did not fully understand it and asked that it be put in writing. This was never done and now memories are failing us and we are just trying to come to a fair written agreement now.

While we understand the legal rights my mother has to simply have the full home value divided evenly among all her heirs, we want to know if my sister and her husband's vision is a fair one.

Example:

  1. My mother passes in 10 years and the home now has a market value of $200,000
  2. My sister and her husband decide to purchase the home from the heirs for 50% of the value.
  3. They pay the remaining $100,000 of the sale price to each of my mother's 4 heirs, with each receiving $25,000 (including my sister)
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  • Did they make improvements to the house before selling it or is the claim that it doubled in value during the year they held it? Or is the claim that it was worth $120k when they bought it? Unless they improved it significantly, the $120k value sounds ridiculous. The bank would not sell it for 50% of its value and it's pretty unlikely for a property to double in value in a year.
    – Hart CO
    Oct 24, 2021 at 4:05
  • @HartCO The understanding is that the home was worth the $120k when they bought it (based on other home sales in the area at the time). They did not make any improvements themselves prior to selling it to my mother.
    – Zephyr
    Oct 24, 2021 at 12:13
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    Well, my statement stands, it was not worth $120k when they bought it and it's very unlikely it was worth $120k when they sold it to your mother. They didn't miss out on $60k profit, that's a fiction.
    – Hart CO
    Oct 24, 2021 at 14:58
  • @HartCO considering the current housing bubble it is not impossible
    – user253751
    Oct 25, 2021 at 12:35
  • @user253751 That's why I said "very unlikely," but it doesn't matter in this case as the claim is that they bought it for half of what it was worth from a bank, but a bank wouldn't give away value. If the market considered it worth $120k they'd have sold it for close to that.
    – Hart CO
    Oct 25, 2021 at 14:21

1 Answer 1

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Assuming it was your sister's (and throughout, by "sister" I mean your sister and her husband) choice to sell the house for 50% of its market value, I would argue that her only "loss" was $60,000 (sold for $60,000 when it could have been sold for $120,000), not 50% of the future value. (If the house were to sell for less than $120,000, would she still argue that she is only due 50% of the proceeds, rather than the $60,000 she did not receive from the original sale?)

At this point, I don't think she has any special claim to future appreciation. (She sold the entire house, not 50% of it.) IMO, it would be fair if she received the "lost" $60,000 off the top of the future sale, with the remainder than split evenly amongst the heirs. So,

  1. The house sells for $200,000 in 10 years.
  2. Your sister gets the deferred $60,000.
  3. The remaining $140,000 is split 4 ways.

The $30,000 investment by your mother only seems relevant if the house is sold before she dies, in which case she could argue she is entitled to a "reimbursement" share of the proceeds before deciding the size of anyone else's share.

  1. The house sells today for $200,000
  2. Your sister gets $60,000 in deferred sale money
  3. Your mother keeps $30,000 to recoup her repair costs.
  4. The remaining $110,000 is split as your mother sees fit.
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  • That's kind of the route we're wanting to take as well. All us siblings are fully on board with them getting back the original "loss" of $60,000. We originally discussed the % of future sale specifically to make it more fair if the value went down (my sister agreed that loss should come from their share as well). Thank you for your insight!
    – Zephyr
    Oct 24, 2021 at 0:27

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