Whenever you’re facing a large financial decision like selling your home, things rarely go 100% smoothly.

In some scenarios, you might have a friend or neighbor who hear that you're moving and want to buy your home from you.

Now, this may sound like the easier route since you won't have to list your home, deal with staging or manage showings. However, there are still many steps involved that can cause your relationship to get messy.

Before you move forward with this decision, consider the advantages and disadvantages to decide if you should sell your house to a friend.

Advantages and Disadvantages to Consider Before You Sell Your House to a Friend

Before you make the decision of whether or not to sell your house to your friend, you need to make sure the the advantages outweigh the disadvantages.

Once word gets out that you’re selling your house, you may be approached by a friend (or family member) that happens to be in the market and feel like you have to proceed.

While it might sound like a great idea to deal with someone you already know and trust, it's also possible there’s a disaster waiting to happen. Read below for reasons why you may not want to sell your house to a friend.

4 Disadvantages of Selling Your House to a Friend

  1. Your friend has a biased perspective.

When you’re selling a house (and your friend is buying one), you both will have your own best interest at heart. But, shouldn't you be considering theirs as well since they are your friend? You can already see how the waters can get murky.

In a huge financial decision such as this, it’s better to be able to focus on your needs. When dealing with a friend, you may be scared to step on toes, appear selfish or actually fight for things you want.

For example, will you be able to tell your friend that her offer for buying your house is too low? On the other side, will your friend be afraid to tell you that your unkempt yard needs expensive landscaping before she signs or that you should knock something off the price instead?

The honest relationship you need to be able to have in order to have a successful real estate transaction may be better suited to someone you don’t have to be careful with. If you’re worried about hurt feelings, you’re likely going to make some bad decisions or ones that may not be in your best interest.

While there are some good experiences that we will detail later, some friends may be embarrassed to tell each other how they feel and as a result, never speak to one another again. It has happened! Once you get into the details of the transaction and strongly disagree, you could risk losing your friendship.

2. You may have to forego the profit you could have made.

If you happen to be in an especially hot market, you could be sacrificing potential profit by selling to your friend.

When selling to your friend, you'll probably feel torn between giving them a good deal and selling your home for the most amount of money. After all, you want to make the most profit, but are you willing to do that at their expense?

In addition, if you are only selling to one person, you'll lost out on the potential for multiple offers and even a potential bidding war that could drive your profits higher than what you had initially imagined.

If you accept your friend’s offer right away, then there’s no chance to even see if a higher profit is a possibility.

3. Your friend can’t actually afford the house.

If you’re in an expensive market, you might run into issues with your friend not being able to afford how much your house is actually worth.

While this can be an awkward conversation to have, it is best to discuss numbers early. At all costs, you need to know if your home is not in your friend’s budget before you turn down offers from other potential buyers.

It’s also possible that your friend may be rushing into a home purchase that doesn’t make financial sense for them. While this isn't your decision to make, you don't want to be blamed later for their financial struggles.

While it may seem like the perfect recipe for a smooth transition at times, there are certain options to consider in order for your friend - or any home buyer - to make the best decision for their situation. As their friend, you might want to discuss your home's market value before getting farther down the process.

4. Buying a home can be stressful.

Buying or selling a home can get personal real fast. After all, you're selling the home that you've put hard earned money into and worked hard to keep up. On the other hand, your friend likely has also worked hard for their money and wants to get the best deal too.

The home buying and selling process is already stressful, and adding the complications of a friendship only makes feelings heightened. As a result, the overall stress of such a huge decision and financial endeavor may not be good for a friendship.

So, you'll need to consider if it's worth potentially ruining the friendship before you proceed.

3 Advantages of Selling Your House to a Friend

While there can be several disadvantage of selling your house to a friend, there are some advantages that could make it worthwhile.

  1. Your friend may demand less compared to other buyers.

Let’s say your friend wants your house and in doing so is less choosy than other buyers may be. For example, if your neighborhood doesn’t have easy access to highways or isn’t in close proximity to a big city, a friend may overlook these shortcomings.

Dealing with a buyer who is certain and less demanding could prevent you from having to make several costly repairs.

2. You may be able to negotiate a deal that's beneficial for both of you.

Currently, there is a record-low supply of home listings on the market. This is keeping home-buying somewhat competitive and allowing home price growth to stay steady. Because of these current trends, there have not been huge fluctuations in housing prices. This means that it’s very possible that both you and your friend’s financial goals can easily be met.

3. You may be able to sell your home faster.

Selling your house quickly means more money for you – and you already have a buyer! The faster you sell your house, the faster you get rid of your mortgage payment. If you’ve already bought another house, you are currently making two mortgage payments. This is when having a friend ready to step in and buy your house immediately can be a great thing because you can guarantee that your home will sell fast.

When selling your house to a friend, understanding the implications of a non-arm's length transaction is crucial. These transactions, where the buyer and seller have a personal relationship, often require careful consideration of fair market value.

Ensuring that the property is sold at a market price that reflects its true worth is not just in your own self-interest, but also upholds the integrity of the transaction. Establishing a fair market value helps avoid future complications, especially in cases where the transaction might be scrutinized for tax or legal reasons.

Crafting a Fair Purchase Agreement

The creation of a purchase agreement in these situations demands a delicate balance between maintaining a personal relationship and protecting your own financial interests. This agreement should clearly outline the terms of sale, ensuring they align with market standards to prevent any perceived favoritism or unfair advantage.

By focusing on a transparent and equitable approach, both parties can navigate the sale in a way that respects their personal relationship while adhering to professional standards. This approach not only secures a fair deal for both sides but also helps in maintaining the relationship post-sale.

Should You Use a Realtor When Selling Your House to a Friend?

Now that you've reviewed some of the advantages and disadvantages of selling your home to a friend, it's best to consider how you plan to sell your home.

Will you be selling your house by owner?

If so, it’s important to remember that you won’t have a real estate agent to hide behind when negotiating or making a decision your friend may not like.

In addition, you'll have to figure out what paperwork to utilize and make sure you're taking all of the necessary precautions to make sure the deal is processed correctly.

While they do add an expense to the transaction, a professional who has experience negotiating a real estate contract will work wonders when dealing with friends.

If you work with a SimpleShowing Agent, you can get the expertise needed and save thousands in the process with our 1% listing fee.

Contact us today to get started.

Conclusion

Selling your house to a friend involves a lot more than simply handing over the keys. It is crucial to involve a real estate attorney who can guide both parties through the complexities of real estate transactions, including ensuring that all financial details such as the mortgage pre-approval, interest certification form, and seller financing are in order. The attorney can also help in preparing necessary documents like the property condition disclosure statement. Remember, both parties should get pre-approved to understand the market value of the property, which can be accurately assessed through a comparative market analysis.

Moreover, it's essential to carry out a thorough home inspection to ascertain the particular property's condition and thus set a fair price. A title company should also be engaged to check for any encumbrances that might complicate the process. While selling a house to family members or friends can simplify some aspects, the financial aspect must be treated with the same seriousness and transparency as any other transaction.

Lastly, considering your personal finance is key. Ensure that the terms of sale won't strain your financial future or the relationship with your friend. Undoubtedly, selling your house to a friend can be a win-win situation if handled professionally. So, before you embark on this journey, ensure you fully understand all aspects involved in the transaction.