Why you should never make private deals to buy or sell your house to relatives

Private deals to sell your property are right up there alongside smoking at petrol stations, or airing another season of Point of Entry — in other words, really bad ideas. And if you think it’s less risky when family is involved, you’re wrong. All it takes is one miscommunication, and you will be banned from all future family reunions.

What are the common private deals?

The most common types of private deals are:

  • Giving the property away in exchange for something besides money (e.g. agreeing to look after a disabled family member)
  • Discounts in which the property is sold at a price below market value
  • Delayed payment, where the property is sold below market value and the buyer privately arranges to make another payment (up to full value) to the seller later

Here’s why you shouldn’t do ANY of them

If the seller gets into financial difficulties later, your obligations might be endless

Sure, your uncle may say he’s giving you his HDB flat when he dies without any obligation. But don’t be surprised if things change later since he can change his Will anytime. When his retirement fund runs out due to medical costs, or if he’s suddenly retrenched and has to sell off the property, you’re going to be the first one he approaches.

Even if he doesn’t approach you, odds are that your own conscience won’t allow you to sit by idly. This can mean taking on some extreme obligations, such as indirectly providing for his family (suddenly you’re buying groceries for a whole other household), or letting him move in with you (even though your wife hates it).

Now we know what you’re already thinking: that should be the case, because that’s gratitude. But this is just what we’re driving at — you’ll feel obliged, even if you’re in no position to help.

If you’re not financially well off yourself, are you ready to devote a chunk of your monthly income to help out Uncle Tommy?

And if your uncle must move in with you — despite it being right and good — you must consider if you have the psychological stamina to cope with any strain it puts on your family. Remember, it could be years before he gets his own place, or perhaps not at all.

Before accepting a relative’s generosity, think through the possible future demands it might place on you.

Private arrangements are hard to enforce legally (unless you hire a lawyer)

Say officially, you sell your property cheaply to a relative, but you’ve actually made private arrangements with your relative to pay you more money at a later stage. This additional payment may be paid in instalments or a lump sum.

This sort of request is common for someone with some cash reserves, but can’t take a bank loan or HDB loan and prefer to pay the purchase price to the seller in cash over time.

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However, such an arrangement could lead to some unfortunate scenarios, such as:

  • Disagreements over the total amount owed. This may happen if there’s no third party, like an accountant, keeping track of monthly repayments
  • Your relative stops paying you one fine day
  • Irregular or late payments, that ends up with you being in debt if you have another mortgage you need to service, not to mention the headache of having to demand that your relative pays up. Just imagine the nagging from your mother and the terrible looks from other relatives during CNY gatherings! 
  • Complaints about how you “cheated” your relative, who may find a million reasons why the property was overpriced (e.g. the heater broke down, the area’s property value is not as high as you claim, the neighbours are bad, etc.)

If you are going to make private arrangements like this, always engage a lawyer to guide the process. If there’s nothing in writing stating clearly the terms of the private arrangement, the resulting legal battle will cost both of you money and a lot of your time meeting with lawyers and trawling through private emails and text messages, when you could be sipping a beer and watching the game.

women gossiping
“Did you know that Xiao Ming bought his Uncle Tommy’s Bishan flat at a very cheap price? He even negotiated down the price to S$50,000 below market value!”

Regarding future favours, there is no guarantee they can fulfil

Say you give your house to a relative on the promise that the relative agree that, in exchange, he will look after your disabled single sibling, or other loved one.

The problem here is obvious: you have no way of ensuring that he will do as he promised. What is considered “looking after” may be a point of debate. What counts as sufficient care to one person may be considered as neglect to another.

Another point to note is that if the intention of leaving the property to the relative is to give him enough money to care for your loved one, it would be wise to remember that if he becomes a bankrupt, your loved one will also be left destitute and without care. In such cases, it may be wiser to consider setting up a trust for your loved one with your property or assets which kicks in upon your death.

The flip side is also true. You may be happy to accept a property from, say, an aunt, on condition that you care for her disabled child. But while you may be able to do so now, consider the long term ramifications.  What happens if you get retrenched, or have to take on new debts? Would you still be financially able to meet that promise?

On the contrary, the great thing about buying or selling a property to strangers is that your obligation ends with the handover of the title deed. You know exactly what you are getting into, and beyond the money you owe the bank, there’s nothing else.

property agent and client shaking hands
It’s always better to sell your house to someone who’s unrelated to you.

Being unable to fulfil an obligation to family is an entirely different kettle of fish. It’s psychologically crushing, and it can affect the way you — along with your spouse and children — are viewed by your extended family.

Even if they offer you the low price first, they might still resent you later

When things turn bad, generosity may become a source of resentment in future. Remember when you last lent a friend money, and she didn’t pay you back?

That probably didn’t matter, until you hit a financial crisis yourself. Then you probably started thinking about the money you could have — no, should have — gotten back from her, and the resentment simmers over.

The same thing could happen with relatives who sell you a property below market price. They don’t mind it right now. But if they get into any financial difficulties later, they might start thinking of the hundreds of thousands of dollars they were deprived of because of you.

In our experience, your relatives’ children can develop an antagonistic attitude towards you because of this (i.e. if my dad hadn’t been stupid enough to sell you the house for S$100,000 below value, I could have taken that trip to Europe during my gap year).

A sad and common story in Singapore is, “My family is poor because my uncle cheated us out of our house.” Chances are, you will be that uncle in this story.

As far as possible, try to separate social and financial issues

It’s often better to buy from or sell a property to someone who is not related to you. We’re not saying that your relatives can never be trusted. It’s just that you need to look beyond the proverbial gift horse, and make sure you’re ready to deal with the social pressures or problems that could follow.

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Looking to find a buyer that’s not your relative? Let us help you by connecting you with a property consultant.

If you found this article helpful, 99.co recommends 8 property-related topics you can bring up or do during house-visiting for Chinese New Year and Thinking of co-owning a HDB flat with family? Read this first.

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