Buying Out a Sibling's Share of an Inherited House

How a Buyout Works: The Basic Structure

A buyout is a purchase of one co-owner's fractional interest. The buying sibling pays the selling sibling for that share, and a new deed shows the change in ownership.

In practice, three documents carry the transaction:

• A written agreement. It sets out the price, how payment is made, and when the deed is delivered.
• A deed. It conveys the selling sibling's interest to the buyer.
• Recording. The deed is recorded with the county recorder where the house sits.

The selling sibling is owed money, not a promise, so the buyer usually needs funds. That can be cash, a refinance of an existing mortgage, or a new loan. The price usually starts from an agreed or appraised value of the whole house, and each share is figured from that number.

If a mortgage remains, its due-on-sale clause matters. That is a term letting a lender call the loan when the property is transferred. Under 12 U.S.C. § 1701j-3(d), for a home of fewer than five dwelling units, a lender may not use that clause on several kinds of transfer. These include a transfer to a relative resulting from the borrower's death and a transfer in which the borrower's spouse or children become owners. Whether a later buyout between siblings changes that is a question for the loan contract and the lender.

A buyout also needs every co-owner's agreement. Without that agreement, the path is a court process called partition, described below.

Authority to Sell: Probate, Trusts, and Transfer on Death Deeds

Authority sits in different hands depending on the path the house took. A buyout works only if the right person signs.

In probate. The personal representative, not the heirs, holds authority over estate real property while the estate is open. Under Probate Code section 8400, a person has no power to administer the estate until appointed. The appointment becomes effective only when letters are issued. Letters are the court document that shows that authority.

A sibling can buy the house from the estate, which is a sale of estate real property, or can wait until the shares are distributed and then buy from the other siblings. Under Probate Code section 10308, estate real property sales must generally be reported to and confirmed by the court before title passes, except as Probate Code section 10503 provides. Under Probate Code section 10503, when the personal representative exercises authority to sell granted under the Independent Administration of Estates Act, the court-confirmation requirements, such as published notice of sale, court approval of commissions, the appraised-value rule and the court's examination of the sale, do not apply to the sale. The steps of a probate sale in California apply the same way when the buyer is a sibling, with one limit: except as the Probate Code provides, a sibling who is also the personal representative may not purchase estate property.

In a trust. The successor trustee sells or conveys as the trust document allows. The siblings are beneficiaries, not title holders.

By transfer on death deed. The named beneficiaries hold title themselves and can negotiate a buyout among themselves. Under Probate Code section 5652, the house passes subject to recorded liens and other recorded limits, and without a warranty of title.

Setting the Buyout Price: Appraisals and Agreed Value

Price is often where a buyout stalls, so it helps to know the tools. The starting point is fair market value of the whole house: what a willing buyer would pay a willing seller when neither is forced to act.

The usual sources of a value are:

• A formal appraisal. A licensed real estate appraiser prepares it.
• A broker's price opinion or comparative market analysis. These are less formal estimates.

Siblings can agree on one appraiser. Or each can hire an appraiser and then average or negotiate between the results.

The share price follows from the whole value. Hypothetically, if a house is valued at $900,000 and a sibling owns a one-third interest, that share is priced at $300,000 before any adjustments the siblings agree on.

When siblings cannot agree on value, a third, neutral appraiser can sometimes settle it. If that fails, the remaining route is a partition action. The value at the date of death also matters for the selling sibling's income tax, as the basis section below explains.

Property Tax and the Parent-Child Exclusion Under Proposition 19

A buyout can change the property tax bill, and that surprises many families. California generally reassesses property to current market value when it changes ownership. The State Board of Equalization's Change in Ownership – Frequently Asked Questions explains that only the portion that changes ownership is reappraised.

For a buyout, that means the purchased share is a change in ownership, while the buying sibling's own inherited share is not reassessed by the buyout alone. Rev. & Tax. Code section 62 excludes a transfer between co-owners that changes how title is held without changing their proportional interests. A buyout changes those interests.

The inherited share may qualify for the parent-child exclusion. For transfers on or after February 16, 2021, Rev. & Tax. Code section 63.2 applies. The house must have been the parent's principal residence and must become the child's principal residence within one year of the transfer. The child must file for the homeowners' or disabled veterans' exemption within a year. The section's eligible transferors and transferees are parents, children, grandparents and grandchildren, so a sale between siblings is not among the transfers it describes.

Value counts too. Under Rev. & Tax. Code section 63.2, value above the taxable value plus $1,000,000 is added. The Board's Proposition 19 Fact Sheet lists that amount as adjusted to $1,044,586 for transfers from February 16, 2025, through February 15, 2027.

A claim must be filed with the assessor. It is due within three years of the transfer, before a transfer to a third party, or before an eligible transferee stops living there, whichever is earlier. A claim is also timely if filed within six months after a supplemental or escape assessment notice is mailed. The Board's Proposition 19 page adds that at least one eligible transferee must keep living there for the exclusion to continue. The county assessor's office is the place for reassessment questions.

Income Tax and the Stepped-Up Basis

Basis is the starting figure for measuring gain on a sale. Under 26 U.S.C. § 1014(a), the basis of property acquired from a decedent is generally its fair market value at the date of death. The statute gives several alternatives:

• the value on an alternate valuation date, if one is elected under section 2032;
• the value determined under section 2032A, if that election is made;
• the decedent's basis, to the extent the section 2031(c) exclusion applies.

For the selling sibling, a share sold at or near its date-of-death value may produce little or no gain, because that value is the share's basis.

For the buying sibling, the picture splits in two. The share already inherited keeps its date-of-death basis. The purchased share generally starts from what was paid for it. Selling later at a higher price does not change the inherited basis.

Whether a particular buyout produces tax, and how much, is a question for a CPA, an enrolled agent or a tax attorney.

When a Sibling Won't Agree: The Partition Action

Sometimes one sibling wants to keep the house, another wants out, and talking has stopped working. The law's answer is a partition action: a court proceeding that resolves what happens to real property when its co-owners cannot agree. A co-owner generally files it in the Superior Court of the county where the property sits.

The court can divide the property physically, called partition in kind, or order it sold and the proceeds divided, called partition by sale. A single house rarely divides in a practical way. A sale can be ordered even when one sibling lives there and objects.

Where California's partition-of-heirs'-property provisions apply, Code of Civil Procedure section 874.317 builds a buyout into the case. If a co-owner asks for partition by sale, the court determines value and sends notice. Any co-owner except one who requested the sale may then elect, within 45 days after that notice is sent, to buy the interests of those who asked for the sale. The price is the whole parcel's value times each seller's fraction.

The court then sets a payment date not sooner than 60 days after its notice. If some buyers fail to pay, those who did pay may buy the remaining interest within 20 days after a further notice. A sibling living in the house does not erase the others' ownership rights. The others may have a claim for the reasonable rental value of their share.

A contested partition is a different subject. It is handled by an attorney who litigates trust and probate cases.

Selling Instead of Buying Out: When the Whole House Goes to Market

No one may want to buy, or the sibling who does may not qualify for a loan. In either case, the co-owners can agree to sell the whole house and divide the net proceeds by their fractions. There are three common ways to sell, each with its own tradeoffs.

A listing with a licensed agent puts the house before the open market. That often means repairs, staging, showings and a buyer's loan approval, plus a commission.

A sale by the owners without an agent saves that commission. It leaves the pricing, marketing, paperwork and negotiation to siblings who may live far apart.

A direct sale to a buyer paying cash takes the house in its present condition. The tradeoff is price: a direct offer is often below what the open market would bring, because that buyer takes on the repairs, the risk and the cost of reselling. In return, the family prepares less, hosts fewer showings and depends less on a buyer's financing. More on selling a house that needs repairs and on cash offers versus listings is available separately.

Whoever the buyer is, the estate's authority, any court step and the law's duties stay the same. On disclosures, Civil Code section 1102.2 exempts sales by a fiduciary administering a trust or a decedent's estate. That exemption does not cover a natural-person trustee of a revocable trust who is a former owner or was an occupant in possession within the preceding year. The same section also exempts sales from one co-owner to another, which covers a buyout.

Comparing written offers and estimated net proceeds is how a family tells which way fits. Net proceeds are the price less commissions, repairs, carrying costs, loan payoffs and closing costs.