When purchasing a house with a partner, it’s important to consider the possibility of one party wanting to sell their share in the future. To avoid conflicts, it’s wise to have a buy-sell agreement in place. In this article, we’ll explore what a buy-sell agreement is, why it’s important, and how to create one.
What is a buy-sell agreement?
A buy-sell agreement is a legal contract that outlines what happens if one partner in a joint property ownership wants to sell their share. It sets out the terms and conditions for the sale, including the price, who can buy the share, and what happens to the proceeds of the sale.
Why is a buy-sell agreement important?
A buy-sell agreement is important because it provides a clear plan for dealing with the sale of a property when there is a change in ownership. Without it, the sale could be fraught with conflict, as both parties may have different expectations and goals. A buy-sell agreement can help avoid legal disputes and ensure that the sale is fair and equitable for both parties.
How to create a buy-sell agreement
Creating a buy-sell agreement requires a thorough understanding of the property ownership structure, the ownership percentage of each partner, and the reasons for the sale. Here are the steps to follow when creating a buy-sell agreement:
1. Define the terms of the agreement
The first step in creating a buy-sell agreement is to define the key terms of the agreement. This means outlining what is being sold, who is buying it, and how much it will cost. You will also need to decide on the timing of the sale, and any conditions that need to be met before the sale can take place.
2. Determine the valuation of the property
The next step is to determine the value of the property. This can be done by hiring an independent appraiser, or by agreeing on a valuation method with your partner. The valuation will then be used to determine the purchase price of the share being sold.
3. Decide on the funding mechanism
Once the purchase price has been determined, you will need to decide on the funding mechanism for the sale. This could involve financing the purchase through a bank loan, or by using existing funds or equity in the property.
4. Detail the method of payment
The method of payment should also be outlined in the agreement. Will the payment be made in a lump sum or in installments? Will interest be charged on any outstanding balance? All of these details should be included in the agreement.
5. Include any contingencies
Finally, the buy-sell agreement should include any contingencies that need to be met before the sale can take place. This could include obtaining a mortgage pre-approval or obtaining legal advice before signing the agreement.
In conclusion, having a buy-sell agreement in place when purchasing a house with a partner is essential. It can help avoid conflicts and ensure that the sale is fair and equitable for both parties. If you’re considering buying a house with someone else, be sure to speak with a lawyer and create a buy-sell agreement to protect both parties.