Real Estate

Cottage - How to handle situation?

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  • Feb 27th, 2018 7:13 pm
[OP]
Deal Addict
Jan 1, 2007
1155 posts
197 upvotes

Cottage - How to handle situation?

My dad and his brother each owns half of the same cottage on title. His brother wishes to sell his half and from what I understand, my dad has the first right to purchase the other half. We can assume the cottage is probably worth close to $500K, I have no debts, and own my current home.

I have so many questions on how to handle this situation.

1/ How does my dad and his brother each get a fair price for the cottage? Should each of them get a different appraiser? How can you trust these appraise values and how do you get to the final agreed price, average of the two? Real estate agents typically would give higher prices, just to get a larger transaction fee. Is the value of the cottage really just based on how much feet of water front?

2/ My dad is nearing retirement and would not purchase his brother's half. I would be the one buying it and in the end, he would want to transfer the his half of the title of the cottage to my name so I would own all of it. So he is going to "gift" me his half of the cottage. How does one handle the tax, if any, implications of this transaction. Gifting be done in lump sum or installments if there are tax advantages? Should the ownership of the cottage be transfer to a corporation?

3/ Since the value of half the cottage is high, I would like to get a mortgage if possible. How difficult would it be to get a mortgage from a bank or any other financial institution? How does the bank value or appraise a cottage property?

What other items should I consider for those who have experience in this situation? Thanks in advance.
13 replies
Newbie
Aug 26, 2009
24 posts
2 upvotes
Regarding to your question 1
Me and my friend bought a house together before and we discussed wt will we do if we face the same question, we decided a pretty fair way

We decided to find a real estate agent and post the property on mls, lets say u said it worth 500k and your brother thinks 550k, ask agent post on mls and see if you really get offer of 550k, if a real offer come in and willing to pay 520k, then thats the market price

And you can just tell the real buyer you decided not to sell and settle with yr brother
[OP]
Deal Addict
Jan 1, 2007
1155 posts
197 upvotes
Hey Alwin120, that is a really good answer to Question 1, let the "market" decide. Continuing on, if I went and got a mortgage on half the property, I wonder what the bank would appraise the value at. Assuming it is lower than the "market", I would have to come up with the difference out of my own pocket.

Anyone else have any other experience to share on this manner? Particularly on the tax implication and financing before I walk into the bank - so I can ask all the right questions :)
Deal Addict
Jan 15, 2017
4109 posts
3613 upvotes
I would simply get a full appraisal from a certified appraiser to determine value. It's simple and easy and a professional appraisal is very detailed and easy to understand. I have had professional full appraisals done on all my homes and it will certainly beat any off the cuff value suggested by a Realtor.

Mortgages for cottages will depend on the location and the condition of the cottage (whether it is a four season or 3 season cottage, water and electricity that sort of thing). Similar to a mortgage on a city home, a lender for a cottage will be asking how marketable the cottage is should the lender have to foreclose and sell the cottage. This is one aspect of mortgage qualification that many people forget - the property has to qualify also.

As for tax implications, here is a link at TaxTips that is a good place to start: https://www.taxtips.ca/personaltax/cottages.htm
Deal Guru
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Sep 1, 2005
13276 posts
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Markham
alwin120 wrote: Regarding to your question 1
Me and my friend bought a house together before and we discussed wt will we do if we face the same question, we decided a pretty fair way

We decided to find a real estate agent and post the property on mls, lets say u said it worth 500k and your brother thinks 550k, ask agent post on mls and see if you really get offer of 550k, if a real offer come in and willing to pay 520k, then thats the market price

And you can just tell the real buyer you decided not to sell and settle with yr brother
That's really unethical...you have no intent to sell and you use MLS to test the market. You're wasting the agent and other people's time.

Normally the best solutions is a "shotgun":

Let's say A wants to buy B's share. A must a offer to buy B's share for $X. The catch is B must sell for $X or he must buy A's share for that same $X. It's a shotgun because A would be dumb to offer too little as he can be bought out. B can't say it's a lowball because he has the option to buy A out....if he doesn't buy A out, he must sell.

If you don't want to do a shotgun, perhaps PAY two or three agents to do valuations and just take the average value and call it a day.
We're all bozos on the bus until we find a way to express ourselves...

Failure is always an option...just not the preferred one!
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Sep 19, 2013
2450 posts
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Winnipeg
gr8dlr wrote: That's really unethical...you have no intent to sell and you use MLS to test the market. You're wasting the agent and other people's time.

Normally the best solutions is a "shotgun":

Let's say A wants to buy B's share. A must a offer to buy B's share for $X. The catch is B must sell for $X or he must buy A's share for that same $X. It's a shotgun because A would be dumb to offer too little as he can be bought out. B can't say it's a lowball because he has the option to buy A out....if he doesn't buy A out, he must sell.

If you don't want to do a shotgun, perhaps PAY two or three agents to do valuations and just take the average value and call it a day.
I agree listing on MLS is not a good approach. As you mentioned, its unethical. But also consider this, what if the the other stakeholder has a friend put in a fake high(ish) offer? Probably wont happen if this is a close family. But still its too much hassle to find the price IMO.

Shotgun approach is good on paper. But not practical in this particular scenario because B (OP's uncle) is not really interested in buying OP's dad's share. Also, that may lead to some bad blood as the price is being set by OP (or his dad).

I like the appraisal average approach. Mainly because you are leaving the sensitive part (the price) to a 3rd party expert. I'll only suggest going with property appraisers rather than real estate agents. Appraisers have no incentive whereas agents have incentive of getting your business. Both of you can sit and choose the two appraisers together, so that there is no confusion/ ambiguity. At the end of the day, a couple thousand dollars here and there dont matter when it comes to long term ownership. The good memories you may have had in the cottage will last forever.
In the beginning the Universe was created. This has made a lot of people very angry and been widely regarded as a bad move. -- Douglas Adams
Deal Expert
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Aug 2, 2010
15193 posts
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Here 'n There
I had a similar issue. My brother, who wanted to buy the cottage, hired an appraiser. I got a real estate agent who works the area to run comparables. The appraiser my brother hired came up with a value that was way lower than the real estate agent. Say what you want about real estate agents but if you look at the comparables yourself it doesn't take a rocket scientist to figure out if the appraisal is way off.
[OP]
Deal Addict
Jan 1, 2007
1155 posts
197 upvotes
eonibm wrote: I had a similar issue. My brother, who wanted to buy the cottage, hired an appraiser. I got a real estate agent who works the area to run comparables. The appraiser my brother hired came up with a value that was way lower than the real estate agent. Say what you want about real estate agents but if you look at the comparables yourself it doesn't take a rocket scientist to figure out if the appraisal is way off.
eonibm, if the professional appraiser is much lower than the real estate agent in the area, how did you guys come to the final price? Did you end up selling your half of the cottage to your brother?
Deal Fanatic
Mar 15, 2005
5488 posts
1033 upvotes
alwin120 wrote: Regarding to your question 1
Me and my friend bought a house together before and we discussed wt will we do if we face the same question, we decided a pretty fair way

We decided to find a real estate agent and post the property on mls, lets say u said it worth 500k and your brother thinks 550k, ask agent post on mls and see if you really get offer of 550k, if a real offer come in and willing to pay 520k, then thats the market price

And you can just tell the real buyer you decided not to sell and settle with yr brother
You realize in this scenario that the realtor would likely want his 2.5% commission unless you had worked something out with them in advance right? They aren't taking the time to photo and list your home so you and a friend can settle on fair market value and pull the sale out from under them.
Deal Guru
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Mar 23, 2008
12332 posts
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Edmonton
Ziggy007 wrote: You realize in this scenario that the realtor would likely want his 2.5% commission unless you had worked something out with them in advance right? They aren't taking the time to photo and list your home so you and a friend can settle on fair market value and pull the sale out from under them.
There's nothing obligating you to accept any particular offer, even if it's unconditional and at full asking price. Both realtors may never want to deal with you in the future, but legally, until you sign an acceptance, you're not obligated to sell. As far as I know, anyway...

And it would be very much a dick move, especially if you didn't let your realtor know that you were doing this because you were too cheap to pay for an appraisal.

C
Member
Jan 16, 2008
332 posts
126 upvotes
Chatham
Try this. One name the price, the other decide to buy or sell for that price. Doesn't matter which person name the price or which got to decide buy or sell. If you name the price too high, I decide to sell you that price.
This will apply to any situation.
Deal Addict
Jan 28, 2009
1963 posts
509 upvotes
Calgary
MyLastWord wrote: Try this. One name the price, the other decide to buy or sell for that price. Doesn't matter which person name the price or which got to decide buy or sell. If you name the price too high, I decide to sell you that price.
This will apply to any situation.
You just described a shotgun clause (which was set out earlier).

it really is the simplest way to resolve it, but it has cons. If there is a big difference in net worth between the parties, the richer person can trigger the clause knowing that the less wealthy person can't pay it.

but it is easy and avoids the need for an appraiser.

Also, the MLS method discussed here is stupid and fraudulent.
Member
Jan 16, 2008
332 posts
126 upvotes
Chatham
Yes, I didn't know what is it call, but I applied this to my mother-in-law, when she want to sell our house back then. In the beginning she try to sell me for X prices, I turn around and said for X amount I want to sell rather than buy.
Needless to say that did go anywhere. The only thing I gain is the control, of which REA I used and listing at what price.
Deal Fanatic
Mar 15, 2005
5488 posts
1033 upvotes
CNeufeld wrote: There's nothing obligating you to accept any particular offer, even if it's unconditional and at full asking price. Both realtors may never want to deal with you in the future, but legally, until you sign an acceptance, you're not obligated to sell. As far as I know, anyway...

And it would be very much a dick move, especially if you didn't let your realtor know that you were doing this because you were too cheap to pay for an appraisal.

C
You are not obligated to sell but you are clearly not acting in good faith.

It would be like having someone come see a house your realtor listed and intentionally waiting for the listing to lapse before making the sale to avoid commissions. You would be sued and lose quickly in court.

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