Whether you are on good terms with your neighbour or hardly ever see them, you might entertain thoughts of making an offer on their property.
Maybe you want to carve off some of their lands to expand your plot. Perhaps you’re interested in buying the home next door. Or it could be that you want to tear down the house that’s been blocking a nice view all these years.
Why Do You What The Property?
Whatever your motivation, it’s certainly possible to purchase a property from a neighbouring homeowner. However, you’ll likely need to have a fair amount of cash set aside and be prepared for a few challenges along the way.
If you are patient, you can wait until your neighbour puts their property up for sale before making an offer. However, this will also put you into competition with other buyers. If someone else gets in an offer on the property, you might find yourself in a bidding war.
Can You Ask About The Property Even When Not On Sale?
Asking to buy the property when it is not on the market will almost guarantee that your offer is the only one on the table, but you may have to pay more as a result. You can expect to pay 10 per cent above the market value, especially in more competitive markets. Other sellers may offer a similar figure of 10 to 20 per cent above market value.
Look at comparable properties and recent sales to get an idea of what your neighbour’s property is worth. A real estate agent can be especially helpful in this regard.
What About Land?
If you are looking to purchase a neighbour’s land instead of any structures, a survey of the site will let you know where the property lines are. You’ll need to make sure the title to the property is clear of any liens or other problems before seeking a transfer. You’ll need to budget for the title search, attorney’s fees, surveying costs, and other expenses in this process.
Any modification to your neighbour’s property would have to fall within your community’s acceptable land use. For example, you won’t be able to make the purchase if it leaves your neighbour’s home on too small of a lot. A visit to the planning department will let you know what is acceptable.
Consider The Financing
Financing for the land purchase may present some challenges. If the neighbour has a mortgage, the lender should be informed about the proposed change to the property.
If you need financing for the transaction, the lender may require you to make a larger down payment or pay a higher interest rate. This arrangement stems from the fact that land without a home on it gives them less collateral to work with in case you default on the loan. For this reason, you may have to consider whether a home equity loan or cash-out refinancing is a preferable option for purchasing the land.
When you are buying the neighbour’s home, you should be able to comfortably afford to maintain both properties. You should also be sure the layout will work well if you intend to merge properties, a strategy most often used with condominiums and similar homes.
Are You Considering Demolishing The House?
The process is more complex and expensive if you want to demolish your neighbour’s home. There are significant costs involved in knocking down a home, such as disconnecting utilities and resolving any environmental issues.
You’ll also want to make sure any plans you have for the property will be allowed under your community’s zoning rules or homeowners association bylaws. You may not be able to make certain changes, such as putting a swimming pool on the lot where your neighbour’s home once stood, without getting the property rezoned.
Talk Honestly With Your Neighbour
Set up a meeting with the neighbour to discuss why you’d like to buy their property. They may be pleased with the possibility of getting a monetary benefit, but you can make the case that the transaction will help them in other ways as well. For example, purchasing a portion of land will reduce the space the neighbour has to maintain and help reduce their property taxes.
Be patient when waiting for a neighbour’s response. They’ll likely need some time to think it over, particularly if you’re proposing the demolition of their home.
Even if you and your neighbour are on particularly good terms, it is always a good idea to bring in some professional help. A real estate agent and an attorney can help you draw up a formal agreement and transaction.
Consider whether you may be able to make a creative arrangement. Buyers will sometimes make regular monthly payments to a neighbour in exchange for the right to buy their property. Once your neighbour moves or passes away, the accrued payments can be subtracted from the fair market value.
Of course, this arrangement carries some risk. You might decide you want to back out of the arrangement at a considerable cost, or it might be several years before you’re actually able to make the transaction.
Always be considerate when seeking to buy your neighbour’s property. Hence, it won’t do you any good to try to dissuade other buyers if your neighbour puts their property on the market. Your neighbour may even file a lawsuit against you if they believe you are hindering their attempt to make a sale.