Buying a home with a friend, brother or mother can be a wonderful thing, said Paul Purcell, managing director of the New York City office of real estate firm William Raveis Real Estate. But buying a home with someone other than a spouse can also be a disaster.
It all depends on how much planning unmarried buyers do, Purcell said.
"When money comes into play -- and it will when buying real estate -- we can all behave very badly," Purcell said. "You'll see people fight even over a dime. When you buy a home with a friend or family member, then, you could be in for some ugly times if you're not careful."
There are plenty of advantages to buying a home with someone other than a spouse. You might be able to buy a larger home if you team up with a friend or sibling. Maybe you can only afford your first home by teaming up with a brother or sister to split the down payment and monthly mortgage costs. If you buy property as an investment, the purchase might result in profits for both you and your friend or relative.
The need for a contract
But buying a home with someone to whom you're not married can also be complicated, especially when one person wants out of the arrangement when the other does not. How do unmarried homeowners handle such a dilemma?
"There are so many little odds and ends that you won't think of," Purcell said. "I hear all the time from people who want to buy real estate with a friend. My advice? They need to have a very clear -- and I mean legally clear -- document that spells out how the arrangement is going to work."
That word legal is important. Michael Ouziel, an attorney and real estate specialist with Los Angeles-based law firm Schorr Law, says that anyone planning to buy a home with someone to whom they're not married should meet with a real estate attorney. The buyers and the attorney should draft a written contract spelling out how buyers will pay for maintenance and repairs , how and when they will sell the property, how potential rental incomes or sale profits will be split up and what happens when one party no longer wants to own the home.
Ouziel also recommends that all buyers put their names on the property's title, ensuring that all are considered legal owners. This ensures that all the buyers can enforce their rights as property owners. Those buyers who don't put their names on the title? They might find themselves losing out should an ownership dispute land them in court.
Avoiding a civil suit
Married couples face their own potential issues when buying a home together. If the marriage ends, these couples, too, will have to decide what happens with their residences.
But the situation is different for non-married homeowners. These owners don't have the divorce process to help them divvy up assets, including their shared residence. That's why a contract written up by a real estate attorney is a necessity for non-married buyers, Ouziel said.
Here's a reason: When you buy a property with someone to whom you are not married, you have to file a formal civil lawsuit to force the other side to either buy your interest or agree to sell the home when you want out of the joint ownership. This is known as a partition action, and it's far from a simple legal maneuver.
"It can be a long and expensive process for all involved," Ouziel said.
A signed contract that includes an exit strategy for all buyers, though, can circumvent this messy process.
Pej Barlavi, owner and chief executive officer of Barlavi Realty in New York City, said that unmarried buyers need to write out, too, how the profits from an eventual sale will be disbursed. This can vary depending upon how much cash or down payment dollars each individual brings to the initial purchase, Barlavi said.
If the home will be rented out, unmarried buyers need their contracts to state how much of the monthly rental income each buyer receives, Barlavi said.
It's important for all parties to be fair in these cases, Barlavi said.
"If two people put in an equal amount of the down payment and equally pay off the mortgage each month, they should be equally entitled to the profits," he said.
Too often, unmarried buyers fail to prepare for potential pitfalls. As Brian Koss, executive vice president of Mortgage Network in Danvers, Mass., says, friends or siblings who buy together rarely think that their relationships will run into problems in the future.
Addressing potential pitfalls
But often, these relationships do fall on hard times. And when they do -- when two friends, for instance, no longer are on speaking terms -- what happens to the condominium they purchased together?
What happens, too, if two brothers buy a home together only to have one of the brothers fall in love and propose marriage to a co-worker? That brother will want to move out of the home he shares with his brother. What happens next? Does his brother have to buy him out? Or do both brothers have to agree to sell the home?
These are the questions that unmarried homeowners need to consider and spell out in legal contracts, Koss said.
"They should prepare for worst-case scenarios and life changes," he said. "The important thing is to try to take the emotion out of it. You'll want to construct the deal so that everyone is protected. So getting the advice of legal counsel at the very beginning of the process is a good deal."
Then there are the matters of repair and maintenance. It's easy to say that all buyers should contribute equally when a home needs a new roof. But what about those buyers who don't have the financial ability to cover their share of the repairs? A contract should state how this potential pitfall should be handled.
For Purcell, it's most important for unmarried buyers to prepare an exit strategy. This means that should one buyer want out of ownership, everyone already knows what the next steps will be.
"Buying a home with someone you're not married to can be a real winning situation," Purcell said. "But it does get complex, even if you're just buying a vacation home with a friend. You might want to be in the home on the 4th of July. But what if your friend wants to be in the home at the same time? It can get complicated. That's why you need legal documents that spell everything out. Verbal agreements aren't good enough."