To buy out a tenant in common, you and your co-owner agree on a price based on the property’s appraised value and each person’s share of the equity, you refinance the existing mortgage into your name alone so the seller is released from the loan, and the seller signs a deed transferring their ownership interest to you at closing. The transaction looks simple on paper, but three details do most of the damage when they go wrong: the price calculation, the mortgage handling, and the written agreement. Get those right and the rest is paperwork.
Setting the Buyout Price
Start with a licensed appraiser. For a single-family home, a professional appraisal runs roughly $300 to $425 depending on location and complexity, and it gives both sides a neutral number to work from. Co-owners who negotiate value without one rarely land anywhere useful.
Once you have the appraised value, calculate the equity by subtracting the outstanding mortgage balance and any liens. Request a payoff statement from the lender for the exact figure, which includes accrued interest as of a specific date. Multiply the equity by the selling co-owner’s ownership percentage to get the base buyout price. On a $500,000 appraisal with a $300,000 mortgage, the equity is $200,000; a 40% co-owner’s base share would be $80,000.
Credits for Unequal Contributions
The base number almost never survives contact with reality. If one co-owner has been paying the full mortgage, covering property taxes, or funding major repairs while the other contributed nothing, courts across the country generally recognize a right to credit for those overpayments. Improvements that increased the property’s value, such as a kitchen renovation, are typically credited at the lesser of the actual cost or the value they added.
There is a counterweight. If the co-owner who paid the carrying costs also had exclusive use of the property during that time, the other owner can argue those payments functioned as rent, which reduces or eliminates the credit. Documentation decides these arguments: bank statements, tax bills, repair invoices, loan records. Estimates without receipts rarely hold up.
Writing the Buyout Agreement
Once the number is settled, put the deal in writing. A binding buyout agreement should cover the final purchase price and how any contribution credits were calculated, the closing date, the legal description of the property from the existing deed, allocation of closing costs (title insurance, escrow fees, recording fees, transfer taxes), and who is responsible for mortgage payments, insurance, and maintenance until closing.
Include a release of liability. This clause formally ends the selling co-owner’s responsibility for future claims, debts, or obligations tied to the property. Without it, a loosely drafted agreement can leave the seller exposed to disputes that surface after closing.
Each side should have its own real estate attorney review the agreement. Sharing a lawyer creates a conflict of interest, and the cost of separate independent review is small compared to what a badly drafted contract can cost later.
Handling the Mortgage
This is where buyouts diverge from ordinary home sales, and where the biggest mistakes happen. Signing a deed does not remove anyone from a mortgage. If both co-owners are on the loan, the seller stays personally liable for the debt after transferring their interest unless the mortgage itself is dealt with separately.
Why You Usually Need to Refinance
The reliable way to release the selling co-owner from the loan is for the buying co-owner to refinance into a new mortgage in their name alone. The new loan pays off the old joint mortgage in full. In a cash-out refinance, the new loan is larger than the old one, and the difference funds the buyout payment to the seller. The lender will evaluate whether the remaining owner qualifies on their own income for the new, higher payment.
Some lenders permit a loan assumption, where the buying co-owner takes over the existing mortgage terms, but assumptions require lender approval and are far less common for conventional loans than for FHA or VA loans. Asking the lender for a straight release of liability without refinancing is possible in theory but rarely granted. Lenders have no incentive to let a borrower off the hook.
Plan on 30 to 45 days from application to closing for a refinance, and up to 90 days for complex situations. After a cash-out refinance closes, federal law gives you a three-business-day rescission period before the funds are actually disbursed.1Consumer Financial Protection Bureau. How Long Do I Have to Rescind? Build that window into your timeline.
The Due-on-Sale Clause
Most mortgages let the lender demand full repayment if ownership transfers without the lender’s consent. Federal law limits when lenders can enforce this clause on residential properties with fewer than five units, but the statutory exceptions are narrow: transfers at the death of a co-owner, transfers to a spouse or children, divorce-related transfers, and transfers into certain trusts.2Office of the Law Revision Counsel. 12 USC 1701j-3 – Preemption of Due-on-Sale Prohibitions A buyout between unrelated co-tenants in common does not clearly fit any of these. Refinancing avoids the problem entirely by paying off the original loan.
Closing and Recording the Deed
With financing in place and the agreement signed, a title company or escrow agent handles the closing. The buyer’s funds are transferred to the seller, and the seller signs a deed conveying their ownership interest to the buyer.
A quitclaim deed is commonly used for co-owner transfers. It moves whatever interest the seller has, with no guarantees about title history. Between co-owners who already know the title situation, that is usually acceptable. However, if you later plan to sell or use the property as collateral, some lenders and title companies are cautious about quitclaim deeds in the chain of title, and in some states warranty deeds are preferred even between co-owners. Your attorney can advise on local practice.
The deed must be recorded with the county clerk or recorder’s office where the property is located. Recording fees are generally modest, often $10 to $30 per page. Some states and localities also charge a real estate transfer tax based on the value of the transferred interest, ranging from a fraction of a percent to over 1%. Spell out in the agreement which party pays.
Tax Consequences to Plan For
The IRS treats the sale of a co-owned interest like any other real estate sale. The seller’s gain is the buyout price minus their adjusted basis, which is roughly what they originally paid for their share plus the cost of improvements they funded, minus any depreciation they claimed. If the property was the seller’s primary residence, they may exclude up to $250,000 of gain, or $500,000 if married filing jointly, provided they owned and lived in the home for at least two of the five years before the sale.3Internal Revenue Service. Publication 523 – Selling Your Home For co-owners who inherited their share, the basis is typically the fair market value at the date of the previous owner’s death, which can sharply reduce the taxable gain.
Gift tax is the other issue, and it usually surfaces in family buyouts. When a co-owner sells their share for less than fair market value, the IRS may treat the discount as a taxable gift. For 2026, the annual gift tax exclusion is $19,000 per recipient, so the first $19,000 of any below-market discount is tax-free. Amounts above that must be reported on IRS Form 709 and count against the seller’s lifetime estate and gift tax exemption.4Internal Revenue Service. Frequently Asked Questions on Gift Taxes Arm’s-length buyouts between unrelated co-owners rarely trigger this, but a friendly family price should be structured with the gift rules in mind.
If Your Co-Owner Refuses to Sell
You cannot force a co-owner to accept a buyout offer. But any tenant in common can file a partition action, asking a court to end the co-ownership.5Legal Information Institute. Partition In most jurisdictions this right is considered absolute, meaning the court cannot deny the request once ownership is proven.
For a house, partition almost always means a court-ordered sale rather than a physical division. Proceeds pay off the mortgage and litigation costs, and the remainder is split by ownership percentage. Partition is slow and expensive, and the sale may fetch less than a negotiated transaction would. Both sides typically come out worse than they would through a private buyout, which is why raising partition often pulls a reluctant co-owner back to the table.
Inherited Property and the Uniform Partition of Heirs Property Act
If the co-ownership came from an inheritance, check whether your state has adopted the Uniform Partition of Heirs Property Act. In states that have, co-owners who want to keep the property can buy out the interests of those who want to sell at a court-appraised price, and any court-ordered sale must be conducted at fair market value rather than a discounted forced-sale price. These protections meaningfully change the dynamics of a partition case involving family property.