What happens when someone wants to sell?
So, you want to sell part of your co-owned property. You’re not alone.
When co-buying a property with family or friends, this is one of the most common questions we receive. Fortunately, it’s not as complicated as you might think. Also, the process is laid out and documented in your group’s operating agreement in the “sale clause” for transparency. Don’t worry. We’ll help you with that, too.
Co-buy groups typically choose the sales approach outlined below. Of course, these aren’t the only ways your group can handle the partial sale of the property, and you can modify this approach to suit your group’s expectations. Also, note these are high-level briefs. More detail regarding the logistics and execution is covered in your operating agreement.
For this we will call the person in your group selling their share a “Selling Member” and the person in your group buying the share a “Buying Member.”
Scenario 1 - Someone in your group wants to buy another member’s share.
The process is as follows:
- The Selling Member and Buying Member determine the fair market value of the property.
- The fair market value of the whole property is then multiplied by the percentage of the property the Selling Member owns to determine how much their share is worth.
- The Selling Member and Buying Member then determine the profits the Selling Member will be given (fair market value of their share less the Selling Member’s share of the mortgage).
- Both parties then sign a sale agreement and transfer funds.
- The Buying Member’s share of the LLC is updated, and the Selling Member is removed from the LLC.
Scenario 2 - No one in your group wants to buy the Selling Member’s share, instead, you need to find a new buyer.
In this scenario, the process is as follows:
- Selling Member has 60 days to find a buyer.
- The remaining group members must unanimously approve the new buyer.
- If the new buyer is approved, the new buyer determines fair market value with the Selling Member and pays the Selling Member for their share of the property.
- The LLC and operating agreement are updated after funds are transferred.
Scenario 3 - No one in your group wants to buy the Selling Member’s share and they cannot find a new buyer.
In this scenario, the process is as follows:
If no new buyer is found after 120 days or the entire group decides to sell the entire property, the property is listed for sale by an agreed-upon realtor.
These are three of the most common scenarios when selling part of a co-owned property, but other approaches exist. Schedule a kickoff call with a Nestment concierge in your group’s dashboard to learn more.
Nestment, Inc. does not guarantee and is in no way responsible for the accuracy of the information provided in this blog post. All information is provided “AS IS” and with all faults. Data presented here may not reflect all real estate activity in the market.