An unbiased opinion of value, provided by a qualified real estate appraiser, is the first step toward a fair settlement between people who have opposing interests in the value of jointly owned property.
But an accurate appraisal is just the beginning. If one party is buying out the equity of another, consideration should be given to the cost of selling on the open market. Here is an example.
Suppose that a house sells for $300,000 and the mortgage payoff is $200,000. That leaves $100,000, so the buyout should be $50,000, right? Think again. The costs associated with a $300,000 sale might be 10% to cover commissions and seller paid items. With these costs figured in, the funds available after the sale closes would be $70,000.
But there is more. When a buyer makes their offer, they often include an inspection contingency. If the inspection reveals repair items, the seller may need to pay for those, or negotiate a lower price.
In our example, lets say the inspector finds a problem that requires a $4,000 repair. Now the true equity is $66,000.
If one party is buying out the equity of another, $33,000 seems like a fair settlement.