If real estate experts were singing the old song “Breaking Up Is Hard to Do,” they might change the lyrics to “Breaking Up Is Expensive to Do.”
This is the case for homeowners, and particularly for non-married co-owners - whether it’s gay couples, boyfriend-girlfriend pairs, siblings, friends or even parent-adult child twosomes who bought a house together and are parting ways.
“If one person doesn’t want to sell, then you can’t sell the house - that’s the law,” explained Stephanie Corley, a Realtor with Re/Max 100 in Dunkirk, Md. “One party can buy the other party out, but then you’ve got to refinance the house in your name, and you may not be able to qualify or afford the mortgage by yourself.”
Carolyn Parr, a former trial lawyer and judge who is a mediator with Beyond Dispute Associates in the District, pointed out that it’s often difficult for the remaining homeowner to refinance.
“Banks like having two names on the loan,” she said, adding that in buyout situations, it’s not uncommon for people to argue over the value of the house.
“The way to resolve that is to get an appraisal or bring in three different Realtors and average the sale prices that they give,” she said. “Some people will accept the tax-assessment value to save on the price of an appraisal.”
Stephen Rochkind, a certified appraiser with Area Appraisal Services Inc. in Bethesda, said appraisals typically cost around $600 and stressed that professional appraisals are more accurate than Realtor valuations.
“There’s no conflict of interest or bias,” he said. “Realtors want to get the listing and make a 6 percent commission or refer the sale to a friend and get a piece of the action,” he said.
To save money, Mr. Rochkind said it’s smart to hire only one appraiser.
“If the other homeowner doesn’t like it, get another and average the two,” he said, adding that it’s best for the homeowners to settle their differences on their own. “If you start fighting, it gets real expensive real quick. If both sides are paying lawyers to duke it out, you could be arguing at $1,000 an hour - the only ones walking away happy and with money are the lawyers.”
Ms. Parr agreed, pointing out that lawyers often ask for at least a $5,000 retainer.
“That’s at the low end - it can go as high as $40,000,” she said, adding that court cases can take up to a year to go to trial. “If you’re waiting around for a trial, you can’t get on with your life and turn the page.”
Mediating these types of real estate cases can take as little as three hours if the parties are on friendly terms and they have their paperwork together, Ms. Parr said, noting that she charges $300 for a two-hour session and splits this fee with a male co-mediator. “A real estate mediation case that involves children and custody issues may take a number of sessions and run from $1,000 to $2,000.”
If unmarried homeowners have children, the split can get more complicated, especially if it goes to court, Ms. Parr said.
“The court may allow one parent to keep the house until the child leaves school, and then the other parent is compensated in some way for waiting - maybe in lieu of child support payments or reduced alimony,” she said. “The court won’t always demand sale of the house.”
Even if one co-owner wins a court case against the other, the payment still must be collected, Ms. Parr said.
“And that’s not always easy,” she said, pointing out that in mediation, the parties hammer out their own resolution. “If they’re both invested in the agreement, they’re much more likely to stick to it. It’s better than having it imposed on them by a court.”
Still, Ms. Parr conceded that mediation is not a good resolution method if one person is physically afraid of the other.
“If there’s been violence in the past, mediation is not a good choice,” she said, adding that barring that, mediation represents a kinder, gentler way to resolve disputes. “Mediation allows for apology and forgiveness because you can both hear each other and know you’re being heard. You might want to see each other in the future if you have a child together [or] if you’re siblings. With a lawsuit, there’s a winner and a loser. With mediation, there can be two winners, and people can walk away friends.”
Unfortunately, friendship may be the only thing many Washington-area homeowners walk away with upon the sale of their jointly owned home.
“If you bought a house in 2005, 2006 or 2007 and didn’t put a lot of money down, chances are good it’s underwater,” Mr. Rochkind said, explaining that the house likely is worth less now than what is still owed on it.
Some areas - such as Gaithersburg, Germantown, Silver Spring, Potomac, Prince George’s County and Frederick in Maryland and Fairfax and Woodbridge in Virginia - have seen real estate values drop significantly, Mr. Rochkind said.
“Inside the Beltway, property values are holding their own,” he said. “Arlington, Bethesda, Chevy Chase and downtown D.C. are all doing OK.”
Ms. Corley said that many homeowners who bought within the past five to seven years are facing short sales or foreclosures.
“Even if you bought a house a year or two ago, you’re not going to make money,” she said, noting that some homeowners are choosing to rent out their properties rather than take the loss. “Either the remaining person brings in another housemate, or both people leave and rent it out to new tenants.”
None of those options - short sales, foreclosures, renting - is a positive move, Ms. Corley said. “My advice is not to buy real estate if you’re not married. Things fall apart.”
Ms. Parr agreed that life can be full of change, bringing numerous unintended consequences.
“There’s losing a job - your credit can be ruined if your housemate can’t pay his or her share of the mortgage; the bank can put a lien on the house,” she said, adding that the Internal Revenue Service also can put a lien on the house if one housemate has tax problems.
“Someone might have an unexpected baby. If one housemate dies, a stranger could own half of your house,” she said. “What if one person’s mother gets cancer and the adult child wants to move her into the house to take care of her? The other housemate wasn’t expecting that and didn’t sign up for that deal.”
Love relationships are more complicated, Ms. Parr said.
“There are situations where one person already had the house and other person moved in, but when they break up, that person might think, ‘I’ve lived here a long time, and I’m entitled to some of this,’ ” she said. “Or the woman owns the house, but the man has made a lot of improvements like added a new bathroom, [redone] the kitchen, put on a new roof - it comes down to what was done as a gift and what was done as an investment.”
Before embarking on a co-owner situation, Ms. Parr said, it’s smart to write down the expectations of what will happen if one person wants to sell the house in the future.
Mr. Rochkind agreed that a signed contract similar to a prenuptial agreement is a smart move.
“Discuss that upfront,” he said. “If our relationship or our friendship breaks up, here’s our exit policy.”
Another solution would be only to buy a home that each party could afford individually, Ms. Corley said.
“Don’t look at houses based on both incomes,” she said. “You may love that four-bedroom, two-bath, but you can only afford by yourself the three-bedroom, one-bath. That takes you out of a bad situation down the road.”