House owned in 3-way split - now 1 leaving

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bdecuc

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Hi folks
Some general advice sought??

3 of us siblings built a house in our parent's side garden. Funded evenly 1/3 each. Now inevitably one of us is moving out. 2 are staying. We have paid off 5 years of the 20 year mortgage. What is the fairest way to calculate how much the person leaving is owed? Figures are:
House valuation 450k.
Mortgage principle 190k with about 180k outstanding i.e. this 180k includes principle and interest.

We have seen 2 theories about how to do it. They are:
1.
(House valuation - Outstanding owed) / 3
(450 - 180) / 3 = 90
So this would be a third of the 'equity'?


2.
House valuation / fraction paid off mortgage / 3
450 * 1/4 / 3 = 37.5
This equation is saying that the bank still 'own' 3/4 of the house so the person leaving is entitled to a 1/3 of 1/4 of the market valuation.

Any thoughts appreciated.
Bdecuc
 
I would imagine the first calculation would be correct -
The value of the house - amount owed - that is the current equity. Divide that by the owners in your case 3.
P.
 
Breaking it down into its constituent parts.

Three of you own a house which is worth €450k. You own one third of it, so you are entitled to €150k.

You have a loan of €180k between three of you , so you owe €60k.

Whatever way you cut it, you should get €90k.

Even better, if you wrote an agreement before you built the house, it would have said what was to be done when one person exited.

Brendan
 
I'm curious as to how you arrive at an accurate house valuation especially in your case given it sounds like a one-off. (Unless of course a very similar one has sold recently in your area and you have access to the sales price?)

For example,the following numbers from an actual case I'm aware of:

EA suggests putting house on market for €495k. Is this the value of the house? I don't think so!

After a few months of no interest asking price dropped to €470k.

Eventually the asking price dropped to €425k and seller is getting cranky and starting to dig his heels in.

One low-ball offer came in for €395k and was rejected outright. That was months ago and if anything, credit conditions
have deteriorated since then.

How does one reach agreement on the actual value of this house ?
 
Thanks for the above replies.

There was no agreement written before the house was built but it is all very amicable so no problems on that score.

Regarding the value of the house that is an interesting question. I guess we get it independently valued and do our own research for similar properties in the area and then agree a valuation we are all happy with without falling out over it!! :>

Thanks
Bdecuc
 
Get 3 valuations and use the mean (average) of the three to calculate the house value. Now would be a good time for the 2 remaining to write down what they would decide to do if one wants to leave. Also who is going to pay the legal bills of transferring the title to two people and remortgaging.
 
I presume paying for an independent valuation would be the best idea... not going through an estate agent who may be after a sale.
 
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