Cabin Ownership?

[CKC]

We are in a 50-50 ownership on a cabin. We don't use it enough due to time and are looking to sell. The other 50% wants to buy us out, but we cannot agree on terms. We discussed this prior to buying but nothing was in writing, which was a mistake. Nobody else felt we needed it since we are good friends, I requested it. We are not fighting over this. Just don't agree.

We did agreed to get an appraisal to get the current market value. From there we cannot agree on whats a fair buy out. Our value is $350k and do have a loan balance but do have large amount in equity. We each brought furniture and went 1/2 on things we wanted/needed to buy, like Seadoo, dock,shed, and all the little things that you need at cabins. I told them they could just have all the items since its us that wants to sell. Probably about $15k of stuff plus our furniture.

What do you think is a fair agreement for both parties?

Thanks for your help?

[TooTallTom]

Fair is what everyone agrees is fair. If you had the cabin appraised, and you're just cutting that number in half to get the market value of your 50% stake, you might be a bit high on the value of a 50% stake in your cabin. If you wanted to sell your 50% share in your cabin on the open market, you might have a tough time getting half the appraised value. Because, frankly, a random buyer to walking in and buying half is taking a pretty big chance. A good appraiser (and appraisal) will be able to give you information on what that 50% stake is worth in dollars, but it might cost a bit more than a run-of-the-mill appraisal to find out.

If you (as the seller) are willing to throw in half of $15k worth of stuff, that's pretty generous. Is that $15k worth of stuff if you wanted to sell it, or did you put $15k into buying it? Because it might not still be worth what you paid for it. I guess I don't have an opinion on whether the deal you've worked out is fair since you don't say what that is.

I don't know how much help I've been, but I do hope this gives you some food for thought.

[CKC]

TTT,

They want to buy our 1/2 rather then lose the cabin. If they didn't, we would have to sell the whole thing. I wouldn't look to sell our 1/2 on the open market. The $15k of stuff would not normally go with the sale unless it was above and beyond sale price. Its mostly person stuff we brought or payed 1/2 for.

This is what I offered them. They keep everything we put into it, furniture, seadoo, dock etc. ($15k) Plus I give them $15k off value to cover more then our half if we would have selling fees etc. So their purchase price would be $335k. Take the current loan amount balance off, that gives us the equity that is then split. He feels he should be getting a much larger discount off the value price plus everything included to let us sell out. I told him if that's the case, I want to list the property and see what the market brings. Thoughts?

[Knoc]

What they appraised it at is not what it would sell for on the market. They just like to do that so you pay higher taxes. Right now the housing market stinks. Id say about every 1 in 5 houses is for sale on my local fishing lake. Its crazy. I personally wouldnt sell at this time but if ya have your mind made up, Id go talk to a Realtor and ask him what he thinks is a realistic selling price for the place and then go from there.

[pushbutton]

Without knowing much for details, would say I agree with the other party. You ultimately bailed on the agreement, not saying you are wrong to do so, but, in my opinion, the 22, 500 you are offering them is not enough to compensate for the depreciation of the stuff, hassle, potential hardship of not sharing the future costs and upkeep, and most importantly the real current market value as well as the possibility it could further deteriorate. Reversing the situation and If the other party offered you the same deal, do you really think you would view it as fair? Not trying to pile on you, just my initial observation of a situation i really know nothing about I do think you are right in one of the best ways to determine the real value and get closer to a solution is to list it and see what it is really worth.....don't know, but think there might be a legality issue concerning listing a property without the intention of selling? Good luck!

[MinnesotaMike]

Call a listing agent and have them take a look at the place. They will do a market analysis and let you know what to list it at. Listing it at a number and getting that number are not going to be the same.

We did this for our property and were suprised at how low the value was, we are keeping the property.

Speaking of appraisals, we refinanced and had the house appraised, it was twice the amount of the house right next to us sold for 2 months ago.

Good luck,

Mike

[pegleg]

So you offered $335K - what does the other party think is fair? How far apart are you? Depending on how far apart you are I would consider spliting the difference to maintain a friendship. Down the road, you could be going up there on weekends with them when you don't own the place anymore so you would get the money back that way. If you burn bridges and lose a friendship what is that worth to you and your wife?

[Maverick]

I was involved in a similar situation with other family members. We did not put anything in writing which as you stated was a mistake. Our deal was that if anyone wanted out of the deal they only got back what they put into it. In other words we agreed that the original purchase was not made as an investment, so if someone left the partnership they couldn't expect to make any money or put the others into a position of having to sell because of appreciation. I ended up getting my share of the purchase price not including interest, my share of actual improvements (driveway, well, septic,etc.). Things like the dock and lawnmower were not included in the buy out because they were bought and used. This happened a number of years ago so there was not the big runup of price on the property, but a few years later the remaining partners did real well when selling it. I got nothing out of the increase in value, but that was our deal and I was fine with it.

The idea of getting back only what you put into it without adding appreciation I think is fair in a partnership. You can't really put a price on the times you did use it and I have to think your partner would see it as fair. Also, if that's how you do it you will most likely get invited back once in a while.

Now, with all that said the best advice (too late for you) is to never, ever partner on things like real estate. It seems like a good way to get into some lake property, but it is filled with issues.

[deerminator]

I would say its very possible a desireable cabin on the lakefront could sell quickly for appraised value, IF the appraisal was a good one. As someone who refinanced recently, I can tell you how difficult it is get an appraisal. The lender is typically not willing to give you any more value toward your house than it would actually sell for in light of the whole housing and financial crisised. I think a solid appraisal price would be a fair way to split it. Think about it. If they sell two years down the road and cash in on all the appreciation, is that fair? Also, while housing prices have went down some, lakefront prices have not been hit nearly as hard in all of this. In many cases they've been slowly rising through all of this. While many people are selling, they might not have as desireable a place as your's and those on the market for awhile are typically overpriced as the result of a bad estimate by the realtor or homeowner willing to hold out for an unrealistic price. Bottom line, the only "fair" way here would have been to have the legal paperwork drawn up at the start. Good luck!

[Stcloudangler]

Our deal was that if anyone wanted out of the deal they only got back what they put into it. In other words we agreed that the original purchase was not made as an investment, so if someone left the partnership they couldn't expect to make any money or put the others into a position of having to sell because of appreciation.

This is what we are trying to do with our land and cabin, but is harder because the purchase price in 1967 was 1/50th the appraisal now... 2 want out of a party of 6. Good luck to the OP as this has been an additional stresser for the last 2 years around our camp.

[TooTallTom]

What they appraised it at is not what it would sell for on the market. They just like to do that so you pay higher taxes. Right now the housing market stinks. Id say about every 1 in 5 houses is for sale on my local fishing lake. Its crazy. I personally wouldnt sell at this time but if ya have your mind made up, Id go talk to a Realtor and ask him what he thinks is a realistic selling price for the place and then go from there.

I don't want to be rude, but this is wrong. You might mean assessed value and not appraised value, but I'd still have a tough time agreeing with what you're saying. An appraisal (for real estate) is supposed to reflect the fair market value of whatever is being appraised. An appraiser that makes a report that is way out of line with the market is not only opening themselves up to possibly losing their license, but is also potentially civilly and criminally liable.

[TooTallTom]

CKC, I understand that you don't want to sell your half on the open market, but that's what an appraiser would use to judge the value of your half. If you were to try and sell it, what would someone pay for it? That's what it's worth. So, I'd take whatever number that is as a fair amount for their purchase price. Plus, you're essentially walking away from whatever money you've put into things like furniture, watercraft, etc.

And like another poster has mentioned, what's the friendship worth to you?

[TooTallTom]

Our deal was that if anyone wanted out of the deal they only got back what they put into it. In other words we agreed that the original purchase was not made as an investment, so if someone left the partnership they couldn't expect to make any money or put the others into a position of having to sell because of appreciation.

[CKC]

I don't see the freindship being affected. We are both are being very opened minded on this. We just don't agree on what is fair. I think the appraiser did a fair value of the current market. According to him our value has gone down just like everyone else. It think that is fair.

When we first did cabin, we did discuss if one wanted out, the other couple would have first option to buy. If that did not work, we would sell. He wants to find a middle ground to make it work. I don't want them to lose the cabin because of us. But I also don't think we need to give them a large discount to make sure that does not happen. Let me ask this, how much of a discount do you guys think is fair?

Thanks for your help!

[TooTallTom]

You should have asked the appraiser about the value of a 50% interest in your cabin. Problem solved. You might contact the appraiser and ask them to do, or recommend someone to do, a restricted-use appraisal report on the value of your share. It would cost more money, but should be a simple way to solve your problem if both you and your friend agree to use the appraiser's number.

I won't speculate about what percentage discount is fair, but I would say that a 50% interest in a property will likely sell for less than 50% of the total value of the property.

[Maverick]

Good Question TTT. The one agreement we had in the beginning was that no one could force a sale at any point by insisting on an appraisal. I was the one that insisted on some sort of buy-out agreement because I knew the partnership wouldn't last forever since one of the partners was quite a bit older. So, in a way I screwed myself, but I am okay with what I got. I was out nothing, I just didn't make anything on it. If we had all agreed to sell at the same time we would have all split the profits since no one party decided to call it quits. At the time I left the partnership the appreciation was only a few thousand dollars so even with an appraisal it would have been no big deal and certainly not a deal breaker for me. I had offered to buy out the others, but they did not want to sell, so I moved on to another piece of property and I really made out in the end.

[BoxMN]

Just my 2 cents... as a single family cabin owner for disclosure

First, don't let this affect friendship, but after a real estate "experience" with family, I can tell you now that it will, in some way. Too bad...

Second, you went into this as "fun cabin" purchase or investment? While they can be combined, the two are totally different things, and since you don't have written agreement, I would assume you did it mainly for fun. Thus any increase in value is just a bonus, for both parties. Look at it that way, that you had fun, AND made money, regardless of how much. Win win!

Third, the other party doesn't want to sell, so you are the party that is bowing out. That doesn't make you the "bad guy" at all, but since it is your decision, you should not get equal "future profits" or even today's "full" profits from it. But you should get some.

Last, and in my usual long winded way I would say that the appraised value is not what it would sell for in the real world, there are just too many of them sitting around and not moving. (Friends have their cabins/lakehomes for sale and have like 2-3 showings in a year! And these are nice places on nice lakes, at appraised or lower prices. Tough to sell now, even at lowered prices. Remember sales fees are included in prices, so take them out of equation.) I guess I would suggest 20-30% of the equity in the appraised value might be a good point for you both. I.e. you get out of the deal with a little cash (at least you didn't lose in this tough market, many people did) and they get a bigger payment on something they love, but didn't plan to get rid of. In the end they will probably make more money, but years from now, and it will cost them more in the short term.

(I'd also add that if we are talking $10-$20k ish, then it is moot, you will save that much in not paying for stuff real quick, ha! But if it is in the $100k's of money, then a bigger deal for you both. But I went a year paying for an empty townhome becuase I wanted to get closer to what it was worth, rather than selling at huge discount but selling it quick, and thus not making more payments on something not being used. So if this is not a huge sum, just don't worry about a small loss or "not as much gain" and you will be money ahead in the big picture.)

Anyway, that advice/suggestion is worth both cents Good luck though, hope it goes well for you.

[wayne123]

I think you should have at least three appraisals and make sure you get the comparables the appraisals are based on. The comparble cabins that the appraisal is based on should give you some comfort in the price. Three appraisals is nice because if they are all about the same you know the price is right. If one is way high or low you just throw it out.

The appraised value is suppose to be what the cabin will see for with an equally motivated seller and buyer. Of course you are more motivated seller than your friends are buyers. With that said you might have to pay more than half. Of course any items purchased together should be taken into account.

[Knoc]

I don't want to be rude, but this is wrong. You might mean assessed value and not appraised value, but I'd still have a tough time agreeing with what you're saying. An appraisal (for real estate) is supposed to reflect the fair market value of whatever is being appraised. An appraiser that makes a report that is way out of line with the market is not only opening themselves up to possibly losing their license, but is also potentially civilly and criminally liable.

I meant it like just because a appraiser says its worth X amount of dollars, doesnt mean it will sell for that amount. Most of the time they sell for under what they are appraised for. Just like automobiles. Noone actually gets blue book prices for their cars.

This appraiser could come and say its worth $350k or whatever and it could sit on the market (especially these days) for months/years.

Like I said before, I think the best bet would be to ask a Realtor what a person would most likely bring in for it (in todays market) if they were to sell it, and go from there.

Sad situation though, I dont really see much good coming out of it friendship wise. Hopefully you guys can get it worked out.

[fishing is hot]

Here is what I did and would do again. Tell the other party what you are willing to sell your half for everything. When they say that’s too much you tell them you are buying them out for your price and give them 30 days. Now you are paying them too much and they can either agree to the price or move on. Mostly they will agree to your price.

[bASS_BLASTER]

If O.J. had it his way, he would kill the friend and make it look like a an accident to gain his portion but to be fair and as a previous Mortgage Underwriter I say 90% of the appraised value, divide by 2. After all it is an investment. If the value has dropped you will take a loss and he/she can buy you out at the current split value (If you're willing to sell). If there's equity, he/she will have to buy your portion at a higher value (If he/she is willing to buy). Even though you're both friends, remember it is still an investment and it's either a buyer/seller market.

Example if there's Equity and Market has a gain:

$100,000 Appraised Value

$ 90,000 90% for buyout

2 divide by 2 investors

--------

$ 45,000 Current value worth per share (Cost for buyout)

$ 65,000 Original purchase price

2 divide by 2 investors

--------

$ 32,500 Original cost per investor

If there's a loss in the market, it wouldn't be in anyone's interest to sell.

[cylinder]

I say 90% of the appraised value, divide by 2.

To me, that's the best answer. The biggest problem is whether the other party can come up with the money without a stretch.

If he doesn't want to buy because he thinks the value will go down it's in the best interest of both parties to sell. If the value goes up, he's golden.

[Down Deep]

What would happen if you stuck by what you thought was a fair market value? Would your partner be willing to meet your demands. I guess I would ask for an amount that I thought was fair market value and see what the loss of the cabin is worth to your partner. Whenever I buy anything that has a negotiable price I always try to get the best deal I can, but sometimes I have to pay more just because I need or want what the seller has. Sooner or later you will have to come up with your bottom number, then it is the other guy's decision not yours. Friends or not business is business.

[BoxMN]

What would happen if you stuck by what you thought was a fair market value? Would your partner be willing to meet your demands. I guess I would ask for an amount that I thought was fair market value and see what the loss of the cabin is worth to your partner. Whenever I buy anything that has a negotiable price I always try to get the best deal I can, but sometimes I have to pay more just because I need or want what the seller has. Sooner or later you will have to come up with your bottom number, then it is the other guy's decision not yours. Friends or not business is business.

Read above posts, both sides... when all is siad and done, it comes down to live and learn... and that is... don't buy chit with others... period. But given that it does happen, do what you can to continue friendships. Money comes and goes, true friends stay forever. good luck to the OP!

[Surface Tension]

What if the purchase price was higher then todays estimated value and your friend wanted out?

Would you buy him out at todays market price or would you base that off of the purchase price?

You would have to go by purchase price.

Neither party can get out of this agreement thinking there was no risk.

In that case you would have to pay off half of what is left on the balance.

Now the friend would buy you out at todays market value.

So the cabin is worth more today then when you bought it.

Buying half a cabin to share with strangers is not an attractive deal to a buyer. For that reason alone you can't go by what the estimated value is because your basing that on sole ownership and you are not the sole owner. When you entered into the agreement it was based on co ownership and that is what you have to value the cabin as. Your opting out of the agreement and therefore should not be entitled half its value minus what is owed.

Again you would pay off have the balance.

The magic number would be half of the original purchase price plus a percentage of todays market price. IMO 25% is fair to you and your friend.

Say the cabin was bought for 150K.

You paid off your half of the remaining balance.

It cost you 50k to do that.

75K is yours which is half what you both paid for the cabin.

The price of 300K is agreed on at todays market.

25% of 150k(difference of purchase price and estimated market price) is 33k.

75+33=108k.