How Co-Ownership of a Home Works

Table of Contents

What Is Co-Ownership of a Home?
How To Buy a House With Multiple Owners
Co-ownership of a House Family
Selling a House With Multiple Owners
Home Co-Ownership Bottom Line

What Is Co-Ownership of a Home?

Co-ownership of a home is when multiple people jointly own a property. Co-owning property with family or parents is the most common scenario, but it is becoming more common for people to consider buying a house together, even for investment purposes.

When undertaken with care and consideration, co-owning a property can have its benefits, particularly when it comes to being able to afford a home that you wouldn’t have been able to buy on your own. For example, if you co-buy a house with your parents, you can benefit from their credit history and income.

However, everyone involved in the purchase must have a thorough understanding of how the co-ownership process works. 

How To Buy a House With Multiple Owners

1. Determine the Ownership Structure 
2. Draft a Home Co-Ownership Agreement
3. Figure Out Financing
4. Search For Suitable Properties
5. Handle Potential Issues Before They Arise
6. Exit Strategy

1. Determine the Ownership Structure

The first and most crucial step in buying a property with multiple owners is figuring out what type of “tenants” you want to be. You will need to decide whether you will be Tenants in Common or Joint Tenants With Right of Survivorship. In both cases, you still own the home, but there are different implications.

1.1 Tenants in Common 

This type of tenancy is most common among business partners or unmarried people. With Tenancy in Common, each tenant owns their own separate share of the property, the shares do not have to be equal, but each tenant reserves the right to occupy the property. When a Tenant in Common dies, their share of the home goes to their beneficiaries rather than to the other tenants.

1.2 Joint Tenants With Right to Survivorship

This is most common amongst married couples, as it means that if one tenant dies, their share of the property will pass to the surviving owners. So, if you share ownership of a home with your husband or wife and your spouse passes away, you will then own all interest in the property, and it will solely belong to you. Unlike Tenancy in Common, with Joint Tenancy, the ownership shares in the property are equal parts. 

2. Draft a Home Co-Ownership Agreement

Drafting a legal agreement is a crucial part of home co-ownership. The agreement will outline the terms of ownership, responsibilities, and the process for selling or transferring ownership. It should include:

• Ownership Shares: Percentage of ownership for each party.
• Financial Contributions: How much each party will contribute towards the purchase price, mortgage, and ongoing expenses.
• Usage Rights: How the property will be used, including living arrangements and access.
• Maintenance Responsibilities: Allocation of maintenance tasks and costs.
• Dispute Resolution: Processes for resolving disagreements.
• Exit Strategy: Terms for selling the property or buying out an owner’s share.

3. Figure Out Financing

After deciding on the type of co-ownership works best, you'll need to work out your financing, unless you plan on paying all-cash. One of the biggest benefits of co-buying a house is that you can qualify for a larger loan more easily, but all the parties will need to be sure to submit the required paperwork. 

4. Search For Suitable Properties

After sorting out financing and setting a budget, you and your co-owner will need to start searching for suitable properties. You can search online, but for the best results, it's recommended to enlist the help of a real estate agent. 

5. Handle Potential Issues Before They Arise

Don’t wait for a problem to appear before you solve it. With co-ownership, it’s a good idea to draw up a document that states what will happen in a given situation and have each tenant sign it. For example, if you are Tenants in Common, it’s vital to establish exactly how much of the property you own since it’s not required that you split your interests evenly. You should also decide how any ongoing costs and bills will be paid, so there are no disagreements among tenants over who is responsible for what expenses.

6. Exit Strategy

Selling a home with multiple owners can be tricky, so it's best to plan ahead and outline the exit strategy in the co-ownership agreement. You may also want to include an option for buying out a co-owner. This way, if only one co-owner wants to sell their share, they can sell it to the other co-owners or to a third party, depending on the agreement.

Co-ownership of a House With Family

More and more people are buying homes with the help of their parents or other family members. This can be a great way for parents to help their children purchase a home and can be set up in multiple ways, depending on everyone's goals. It's even possible to get a joint mortgage. 

Selling a House With Multiple Owners

Selling a house with multiple owners can be a complex process that requires clear communication, legal agreements, and coordination among all parties involved. Here’s a step-by-step guide to help you navigate the process:

1. Review Ownership Structure

Types of Co-Ownership:

• Tenants in Common (TIC): Each owner has a distinct, divisible interest in the property, which can be sold independently.
• Joint Tenancy: All owners have equal shares with rights of survivorship. Any sale typically requires the agreement of all owners.
• Community Property: In some states, married couples share equal ownership, and both must agree to the sale.

2. Agreement Among Owners

• Unanimous Consent: All co-owners should agree to sell the property. If not all owners agree, you may need to negotiate or seek legal advice.
• Co-Ownership Agreement: Review the original co-ownership agreement, which may outline the process for selling the property.

3. Hire a Real Estate Agent

• Experienced Agent: Choose an agent experienced with multi-owner property sales. They can help manage communications and negotiations between owners.
• Market Analysis: The agent will perform a market analysis to determine the appropriate listing price.

4. Legal and Financial Considerations

• Title Check: Ensure the title is clear and all ownership interests are correctly documented.
• Lien and Debt Clearance: Confirm that there are no outstanding liens or debts on the property.
• Tax Implications: Understand the tax implications of the sale for each owner. Consult with a tax professional if necessary.

5. Prepare the Property for Sale

• Repairs and Staging: Agree on any necessary repairs or staging to make the property more appealing to buyers.
• Shared Costs: Determine how the costs of repairs, staging, and marketing will be shared among the owners.

6. List the Property

• Marketing Plan: Work with the real estate agent to create a comprehensive marketing plan, including online listings, open houses, and promotional materials.
• Showings and Offers: Coordinate property showings and review offers. All owners should be involved in the decision-making process for accepting offers.

7. Negotiation and Acceptance

• Offer Review: Review all offers together and negotiate terms. Be prepared to compromise to reach an agreement that satisfies all parties.
• Acceptance: Once an offer is accepted, ensure all owners sign the purchase agreement.

8. Closing the Sale

• Escrow and Title Transfer: Work with the escrow agent to handle the funds and transfer the title to the new owner.
• Distribute Proceeds: Distribute the proceeds from the sale according to each owner's share. This should be outlined in the co-ownership agreement or determined through mutual agreement.

9. Handling Disputes

• Mediation: If disputes arise, consider mediation to reach an amicable resolution.
• Legal Action: As a last resort, legal action may be necessary to force a sale or resolve disagreements.

Home Co-Ownership Bottom Line

Buying a house with multiple owners can be a practical and financially beneficial arrangement if managed correctly. To avoid potential disagreements, it's essential to have a clear legal agreement, thorough communication, and an understanding of each co-owner’s rights and responsibilities. By following these steps, you can navigate the complexities of co-ownership and enjoy the benefits of shared property ownership. And remember that it's always advisable to seek legal counsel if you find yourself in over your head, or you don’t understand the terms of your co-ownership agreement.