What is a fair percentage to offer a minority holder of rental property for a buyout?
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What is a fair percentage to offer a minority holder of rental property for a buyout?
I own 75 of some rental property with a relative, who has been essentially a
silent partner and owner of 25. The relative passed away and the property is
passing to his son. The son has no interest in owning the property and would like
to negotiate a buyout. I have been advised that his ‘share’ should not be exactly
25 because he is a minority holder and cannot sell it outright. I was thinking of
offering him 80 of what his 25 was appraised at. Does this seem fair and
correct?
Asked on December 13, 2017 under Real Estate Law, Massachusetts
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 6 years ago | Contributor
You are not quite right. If the property were sold to a third party, he would get 25%, since he is a 25% owner: that is the percentage or share of the value to which he is legally entitled.
It is true that it is difficult for a minority owner to sell his share by itself, and that reduces its value, so offering him less is reasonable, and 80% of the 25% seems a reasonable number. Practically, it is a number that is fair for you to offer and that he should take. But as stated, bear in mind that he would be entitled to 25% if the property were sold--the "haircut" or "discount" for a minority position is not a legal fact, but is something that the minority owner would have to agree to. So at the end of the day, you and he have to come to a number you are both happy with, since his sell out to you (your buy out of him) is voluntary on both your parts.
Note that if you and he cannot agree to a price but he wants out, he can go to court and seek a court order requiring that the property be sold and the proceeds be split according to ownership (75/25). This can be an expensive understaking, since he'd likely need an attorney, but it is an option for him, and so it does give him some leverage. (This is commony called seeking an order for "partition.")
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