One co-owner wants to be bought out. How do you split the equity? The house has appraised for $30K more than purchase.

Question

Peoria, AZ asked on April 20, 2017 in Real Estate Law for Arizona

Mark Chernoff · Answer

This would depend heavily on additional details that are not provided.  For the purpose of this answer, I will assume the real estate is held by two owners as tenants in common, each with an equal half ownership.  If that is the case, the exiting owner's legal option is to sue for partition.  The court would likely force the sale of the property.  If the property is of substantial value, then the sale costs and commissions would likely eat up all the equity, leaving both owners with nothing.  It is possible the cost of sale would even eat into the equity that may exist from their down payment, but the question does not say how much the down payment is. 
 
This is a bad outcome for everyone, so the smart thing to do is avoid the litigation and reach an agreement on fair transfer arrangements.  Because both parties would likely get nothing out of a partition action, it makes sense for both to compromise.  The parties should figure out what the net proceeds would be from a sale at a fair price.  They should deduct loan repayment, title and escrow fees, sales commissions, and any other costs of sale.  That would give a fair estimate of the exiting partner's equity.  
 
What is fair once you know this number is subjective, but I think the exiting partner should be happy to be able to exit early, and take a significant discount to avoid the cost of actually suing for partition.

Q: One co-owner wants to be bought out. How do you split the equity? The house has appraised for $30K more than purchase.