Myself and 2 family members own some property near Hico. I am looking to buy one of them out of their share, but need to have the property appraised. I am working under the assumption that an undivided interest would be valued less than the equivalent percentage of the total value since there is still another owner in play.

Does anyone have any recommendations on how to go about this or who to use in that area? Anything I need to watch out for in this process?

This is the answer and sound wisdom.

HTownAg98 said:

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Charismatic Megafauna said:

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HTownAg98 said:

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divide the number by three.

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Then knock off at least 20%, or possibly way more depending on the property and/or the dispositions of the parties involved
Don't offer the full proportional value unless you hate money

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And if they say no? Unless someone is in desperate need of the money at that very moment, discounts or premiums are rarely warranted. When you get into investment grade properties pursued by institutional investors, some of those factors come into play.
Plus, this is a family deal. Is it worth pissing off a relative for a little extra scratch? There are other considerations in life involved here besides money.

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Depends whether or not they want to sell. If they are looking to sell then 20% off is an excellent deal. The interest is worth almost nothing to an outside party and as suggested above you are definitely not getting a loan for the full 1/3 value. If they are not looking to sell and you are approaching them to buy then sure they may feel like you are trying to screw them if you offer less than 1/3 of the appraised value so you may just have to pay up. We have a similar family situation where a small undivided interest owner approached us about selling. We got an appraisal then a well respected attorney in the area to advise us and I believe 40% off was the figure he gave based on how he had seen similar transactions happen in the past. I believe we presented them with this information and offered 80% of the value. Several years later they still hold their interest and it won't be long before that interest is split 3 ways (as well as all the other interests in the property)

I could literally write the book on problems with undivided family interests. With multiple chapters starting in 1925 and continuing today. Fortunately I have solved 8/10 and pray I can solve the last 2 in my lifetime so I don't leave my heirs the same problem.
My favorite example is 5 relatives in their 40s buying a hunting ranch in the hill country together. Owner financed and undivided interest. All first cousins, grew up hunting together with two sets of brothers among the 5. Three years later 2/5 had died and 1/5 had filed for bankruptcy in his business. What a mess it was- finally sold it 15 years later.

Holy Moly! Ours was very easy. A family that actually got along with one another!

I went through some of this several years ago when I bought out my aunts. I basically used CAD values with appropriate discounts for flood plain etc as the basis of my offers. They were also more receptive since since everyone was generally in agreement to recombine the land and I was the best (only) person who would continue to use it.

If they are friendly, just start with the CAD values, offer to pay something for the closing costs, surveys, etc. Also if a title survey has not been done, I would suggest having that done at least post closing.

We six cousins had a trust with 700 acres of undivided land. I was farming 600 acres, 100 acres were wooded with a small river on the west border. I wanted to live on the place, putting a travel trailer onto an old homestead spot that had electricity, a good well, and septic system near the equipment barn. My dad and uncle, the trustees, took it upon themselves to divide it and worked for over a year gerrymandering that 700 acres. They would have made a politician blush. I finally told them to give it up. Family!

Are you financing it or paying cash? My wife was in the same situation 2 years ago and we were fortunate enough to have sufficient inherited cash that we were able to supplement with savings and buy one of the parties out. We paid the appraisal district valuation not the independent appraisal valuation. If we had to get financing on it I doubt we could have found an institution that would approve a loan as another beneficiary wanted to retain their interest in the property.

If they are wanting to sell, they most likely will want what the land is actually worth, not 80% of its value. Not offering the full appraised amount could result in them forcing the entire property getting sold, if they are dead set on maximizing their profits.

And how do you propose they force the sale of the entire property? Legal action? After paying the lawyers then the realtors he would wish he had taken the 20%

Yea all parties must agree to sell or you need a judge order for undivided property.

Folks undivided property are the worse way to transfer land. But that is where OP is now.

To me, any discount that would apply to a third party buying the partial undivided interest is offset by the increased value to you by already owning an interest in the property. Said differently, someone buying into this property is buying a problem. You already have this problem, you are buying a solution so it is of greater value to you.

I've been thru exactly what is being discussed and ended up having to sell 109 acres the family had owned for over 60 years. Trust me, it doesn't take that much in atty fees to force the sale. The atty cost is no where near that 20%.

I suspect most people selling an undivided interest are not going to incur the same level of cost (realtor/marketing, survey, title insurance, etc) that they would participating in a market sale of the whole property. I can definitely see a fair accounting in the intra-family partial interest sale taking those costs into the final price.

Reality in this scenario is what will someone pay for that 1/3 interest with nothing specific is cut out.

We are still dealing with this scenario on our farm. Some family that hasn't been on the place in over a decade think the place is worth millions. Reality is nobody on the planet wants 1/3 interest in a place where the other 2/3 is owned by one person.

I don't think it's that big of a deal for a party in a shared interest to sue for partition and get their section carved out separately. I think multiple parties can aggregate together if they want and get their portion carved out as a single combined section. So I don't think anyone would be willing to take that big of a discount. I'm sure it can get very messy if some folks don't agree with the appraisal/partition. My understanding is that Texas makes it easy to partition out a shared interest without forcing the sale of the total property, unless it's something so small that it can't be split up (like a single house).

Curious for you people with experience on this. Have friends going through this exact scenario locally. Someone bought out 1/3 from a greedy in-law of a family place of many years (70+). The new buyer turned around and cancelled all leases and changed locks on the place within 48 hours without talking to the other owners. My question is, if you are a 1/3 owner can't the other 2 owners make all decisions if they are in agreement since they are majority owners together?

Undivided interest has been a disaster in the experiences I have.

Ask the appraiser to provide a discounted value for undivided ownership, if you want that value. I can see both sides of the equation from a buyer's/seller's perspective. Be prepared to be asked why you should only pay the discounted value if you are consolidating ownership to yourself.

giddings_ag_06 said:

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Curious for you people with experience on this. Have friends going through this exact scenario locally. Someone bought out 1/3 from a greedy in-law of a family place of many years (70+). The new buyer turned around and cancelled all leases and changed locks on the place within 48 hours without talking to the other owners. My question is, if you are a 1/3 owner can't the other 2 owners make all decisions if they are in agreement since they are majority owners together?

Undivided interest has been a disaster in the experiences I have.

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Generally yes, and the lessees could sue all the owners as well. This can get messy and expensive in a hurry.

It already is in this case. Sad deal all around.

To answer your question, no, not from what my atty told me while going thru this, and I was the majority owner.

My father and uncle shared 3 different properties and I use to always try and talk to them when Dad was alive about deciding who gets what, they refused, the conversation made them uncomfortable.

Dad passed, Uncle and I were able to do horse trading plus cash for property one to go in his name 100% and property two in my brother and I name 100%.

Property 3 is the one I want the most but Uncle is not ready to let go of his 50%. His two daughters have not been to any property in 30 plus years and will want their money fast when the time comes. My brother and I also have different visions and goals of the property. I believe. It's going to be a mess when that time comes.

My opinion, three owners that are family and get along, the value is 1/3rd of total value. The more complicated it gets, with number of owners and who they are, how well they get along, the more the value drops for everyone. Each person is a variable that has the ability to really screw things up for each other. That comes with a steep discount.

Getting rid of the undivided interest is priority one. Making sure everyone gets along is priority two. One person could get pissed and sell off their portion to however many new owners as they want. Supposedly that's what happened With Matagorda peninsula. 5500 acres undivided interest. Family apparently got sideways and one started selling 1/4 acre undivided interest to screw the other family members. Couple hundred owners now and title can never be fixed.

#1- Is this a family or "valued" place, or is it "just land"??

If "just land", may be a good time to plan on ALL of you selling, and 1031 your individual proceeds into a place you like better (on your OWN).

If it's "family land", or you just really like it, then get an appraisal (you can get an initial "general" idea by searching your county on Land.Com, and looking at neighboring land values, so you AND your relative has an idea of what to expect).

Also, as previously mentioned, NOW is the time for you and the other "remaining" owner to have some REAL discussions, and some written agreements, on what happens in the future. You two may get along great, but once spouses/children get involved, if one of you dies, it can go south FAST. Make sure there's something regarding what a future buyout would look like (appraised market values, with the other party having first refusal, not some "lottery" value that one of the kids believes), or divide the place up, if possible to do so, and agree on some visitation/use/hunting rights, if you want.

Also, I don't see the future going well if YOU own 2/3, and the other person owns 1/3.

Discuss with the seller about the benefits of a 1031 exchange, if they don't already know. It COULD give you more time to come up with the money, but if they DO want to consider waiting 6 months-1 year, to do the buyout (to find another piece of land), force them to agree to a price NOW, and contractually hold them to it, so they don't expect ANOTHER 10% or more, if values go up in a year…