Partner Buy Out – is 50/50 fair?

just simply agree to 50% of net proceeds.

Ah I am assuming Darren means he is buying out his partner and not simply just selling?

I would take 5% off the Valuation and then split 50/50 as that would seem a very realistic mix of costs and a small reduced selling price.

Don't forget if you keep the property you will gain the future capital appreciation, so you can't really cover the gamble both ways.

What was the basis of the valuation? Open market? Private sale? Do you want to get another valuation?
Who paid for the current valuation?
What is the error margin in the valuation figure?
There are no marketing costs in a private sale!
Who is going to pay the legal costs?
Is stamp duty involved?
Is £1000 important to you?
Are you trying to establish a procedure for future transactions?

The valuation was simply from local estate agents and we have since had 3 more which have averaged out at the £225,000. This was given as their value to market the property at so i think will be optimistic in order to gain our business but not allowing for any drops we may need to make if proved unrealistic as well as the inevitable drop when a buyer puts in their offer. I am as stated looking to keep the property and simply buy my partner's share so an accurate but fair figure for both parties is sought, If anybody can fill in the blanks, albeit very subjective, i would appreciate:-

Average estate agent fee?
Average estate agent is out on their walkaround inspections?
Average that the accepted offer is below the nmarketed value?
Average Solicitors fees to handle the sale?
Any other costs to be bear in mind?

Reply to the comment left by "Neil Patterson" at "14/01/2015 - 09:44":

"I would take 5% off the Valuation and then split 50/50..." at first sight seems fare as there will be no sale costs at this point.

However, what if Darren decided to sell in a few months time, he can not be expected to shoulder 100% of the actual sale costs whilst his partner gets away with 0%.

I think estimated sale costs should be factored into the price now.

The partner must take this hit on his profits as it was his decision to exit early. If they had left it ten years and the property doubled in value then sale costs would not be so much of an issue.

This is a reminder that anyone going into partnership should agree exit strategies from the start.

Frankly, if I were your partner the ONLY point I would accept would be a discount on the estate agent quotes assuming the estate agents quoted the listed price as opposed to the anticipated achieved sale price. At a guess I would expect that to be about 5% lower to the advertised 'for sale' price. But this margin is very sensitive to market conditions. You could ask the estate agents. You could take info from achieved prices in recent sales in neighbourhood.

For the other costs forget it. It is the nature of a private sale & purchase. It is currently a partnership. One wants to exit. Your choice is to exit together or take his share. All you are haggling over is the actual price. You want a bargain. I wouldn't give it to you. But then again I wouldn't have gone into partnership without a written agreement with you, and that agreement would have covered this point.

What do you want to do? Go to arbitration?

To 'twist the knife' the next point I would make is this. If your partner is actually needing the money, you are simply taking advantage and thereby blowing any future relationship.

Private deals are great if they are perceived to be fair by both parties. I have done two. If they are not perceived to be fair by both parties they won't happen or will never happen again.

I agree that you should pay 50% of estimated proceeds, net of likely costs and reductions in achieved sale price. However it does depend on the terms of your original agreement.

1. Reduced completion price: 5% is reasonable, but you can check by looking at comparable properties on Rightmove or Zoopla, to see how the asking/actual prices vary in your area. Or just ask the estate agents. It's also possible you are in a hot market and properties are going at full asking price.

2. Are there any renovations that need to be done before the property can be offered for sale? If so, agree a deduction for that.

3. Estate Agent Fee: ask the agents! 1% if you're lucky, 1.25% + VAT is typical, but it depends on the areas.

4. £500-750 for conveyancing a sale. Again, ask around.

5. Work/time needed to sell property - it seems a bit ambitious to charge for this. How long is a piece of string?

6. Other costs: will you need a larger mortgage to raise the cash? If so, there are fees and other charges here that you will be incurring because the other partner wishes to bought out.

7. I don't think you can charge for a possible fall in the market. How can you find a believable figure for this? I think you should accept that the value of the house may fall, just as it may rise, and that's your affair alone, because you have decided to risk staying in the market.

Mike W.... whilst I appreiciate your comments I think you may be looking at the situation a little harsher than needs to be. My partner who is also a family member was keen to enter into the partnership and was also keen that it was not to be a long term situation, merely a supply of initial capital with an agreeable return based on the term the capital was used for. At the inception it was agreed that when the time came to return the investment that the house would be valued and the amount to be returned could be calculated. Both sides are very cautious not to be seen to doing the other out of money and therefore some independent advice was being sought regarding selling a house.
From my side I appreciate the leg-up their investment has given me and wish to pay them back what is respectfully due to them in order that they may wish to replicate the investment in the future. From their perspective they wish to not come over as 'house is £225k so therefore if sold i would walk away with £112.5k'.

To put my question another way:- If you owned a house which was valued by an estate agent at £225k, how much would you expect to recover after all costs following the sale of the house factoring the points mentioned above as well as any others? It is this figure that I was interested in.

Reply to the comment left by "Mike W" at "14/01/2015 - 11:10":

Actually I agree with Mike W, this is a deal and not a contract, so it is open to negotiation.

But I still hold out that at least a proportion of the eventual sale costs should be factored in. This is not a paper based asset that can be transferred ad infinitum at very little cost, to release the profit the property will have to actually be sold at some point, which will incur significant sale costs.

I guess Darren is just preparing his argument for his side of the deal.

Thank you Tony Atkins