Selling your house for less than it’s worth may sound unusual at first. Why would you leave money on the table when you could simply list it at full price and wait for the right buyer to come along?
It turns out there are actually several reasons people do this, and yes, it’s totally legal in Virginia Beach. But before you decide to discount your home, there’s some stuff about taxes, lenders, and Virginia laws you should probably know about. That’s where O'Neill Home Buyers can help, walking you through the details so you can make smart choices and avoid costly mistakes.
Let’s get into what actually goes down when you sell below market value!
What Is Fair Market Value?
Fair market value is the price at which your house would sell if everyone involved were acting in good faith. Nobody’s panicking, nobody’s twisting arms, and both the buyer and seller know exactly what they’re dealing with.
It’s what similar Virginia Beach homes actually sold for lately, plus what your place is worth based on its condition and location. The IRS uses this number to figure out if you’re technically giving someone a gift when you sell below it.
Types of Home Values You Should Know
Your house doesn’t just have one value. It has three different ones, depending on who you ask. Here’s what each number actually means and why it’s important.
Appraised Value
So a licensed appraiser shows up at your door, walks through your place, and pokes around at everything. They’ll also compare your home to what’s been selling in your neighborhood.
Banks require this before they’ll hand your buyer a mortgage, which means you’re likely to receive an appraisal even if you don’t want one.
Let’s say it comes back at $380,000, but you’re selling for $300,000. That $80,000 gap is what the tax people call a “gift of equity,” and yeah, they want to know about it.
Assessed Value
This is the number Virginia Beach uses to hit you with property taxes every year. The tax assessor’s office looks at lots of houses all at once using a computer program. Honestly, it’s almost never what your house would actually sell for today.
Your tax bill might be based on $350,000, while real buyers would pay $400,000. The assessed value just isn’t built to track what’s happening in the actual market right now.
Market Value vs. Fair Market Value
Market value is what buyers are shelling out for houses in Virginia Beach at this exact moment. Fair market value is a similar concept, but it assumes that everyone’s being reasonable and nobody’s losing their mind over a bidding war.
They’re close cousins, but market value fluctuates more because people tend to become emotionally invested in houses. Meanwhile, fair market value is the more level-headed, calmer version of what your place is truly worth.
Can I Sell My House Below Market Value in Virginia Beach, VA?
Short answer? Yes, you can. There’s no law in Virginia that says you have to squeeze every last dollar out of your home sale. You’re allowed to sell for whatever price you and the buyer agree on, even if that’s way below what Zillow thinks your place is worth.
However, just because you can doesn’t mean the government’s gonna ignore it. The IRS pays close attention to below-market sales because it wants to ensure that you’re not trying to evade taxes or slip a large gift to someone without reporting it.
Virginia’s cool with it, too, but you’ve got to play by the rules. Get your paperwork in order, document everything, and be prepared to explain why you’re selling at a low price if anyone asks.
Sell to your cousin for half price without proper documentation, and you might end up with some awkward questions from tax authorities.
Contact us to ensure your Virginia home sale is handled properly and remains compliant throughout the entire process.
Arm’s Length vs. Non-Arm’s Length Transactions
An arm’s-length transaction is when you’re selling to a stranger, and everyone’s looking out for themselves.
You want the most money, they want the best deal, and nobody owes anybody favors. That’s the kind of sale the government likes because it’s clean.
Non-arm’s length is when you’re selling to someone you know, your kid, your sister, your business partner, whoever.
The IRS assumes you might be giving them a nice deal because you actually care about them, which means the sale price might not reflect what the house is really worth.
That’s not illegal, but it triggers extra scrutiny. They want to see appraisals, documentation, and proof that you’re reporting any “gift” properly. The closer your relationship to the buyer, the more paperwork you’re gonna need to keep everyone happy.
What Will Happen If You Sell a House Below Market Value in Virginia Beach, VA?
What actually happens next when you decide to sell low? Well, the IRS is definitely going to want to hear about it; your neighbors might get a little annoyed, and your lender could throw some tantrums your way. Let’s look into what you’re actually signing up for.
Tax Implications for Virginia Beach Homeowners
Taxes are where this whole thing gets real. The second you sell below market value, the IRS perks up and starts asking questions.
Gift Tax Considerations When Selling to Family
If you sell your $400,000 house to your daughter for $250,000, the IRS sees that $150,000 difference as a gift. And gifts exceeding a certain amount ($18,000 per person in 2025) must be reported on a gift tax return.
Now, please don’t freak out, you probably won’t owe taxes on it right away because there’s a lifetime exemption of $13.99 million. However, you still need to file Form 709 and inform the IRS of your situation.
Capital Gains Tax on Below-Market Sales
You might think selling for less means you owe less in capital gains taxes, but that’s not always how it works. The IRS can consider the fair market value, not your discounted sale price, when calculating what you owe.
So if you bought your Virginia Beach home for $200,000 and it’s worth $400,000 now, you could still be on the hook for gains on that $200,000 profit even if you only pocketed $250,000 from the sale. Consult a tax professional before setting that price, as this can be a complex matter.
Virginia-Specific Tax Laws and Exemptions
Virginia doesn’t have its own gift tax, which is a nice feature. But the state does follow federal capital gains rules, and you could be looking at up to 10.9% in state taxes on top of federal taxes, depending on your income bracket.
The good news is that if you’ve lived in your Virginia Beach home for at least two of the last five years, you might qualify for the federal capital gains exclusion. That’s $250,000 if you’re single, $500,000 if you’re married. That can wipe out a big chunk of what you’d owe, but only if you meet the requirements.
Impact on Local Property Values and Neighbors
Your neighbors aren’t gonna send you a thank-you card for this one. When you sell a property for significantly less than its market value, it affects the comps in your area. Let’s say your neighbor’s trying to sell their house for $400,000, and then your place sells for $300,000. Appraisers will look at your sale and wonder if houses in your neighborhood might not be worth as much as everyone thought.
That is why you must ensure the sale is documented as non-arm’s length, so appraisers know to exclude it when valuing other homes. Otherwise, you might have some annoyed neighbors wondering why their house won’t sell for what they want.
Mortgage Lender Approval Requirements
If you’ve still got a mortgage on your Virginia Beach home, your lender gets a say in this. They’re not just gonna let you sell for whatever you want if it means they don’t get fully paid back.
Selling below market value when you owe more than the sale price is called a short sale, and that requires the bank’s approval. Even if you’re selling for enough to cover your loan, the lender may require additional documentation to verify the sale is legitimate and not a scheme to defraud them.
And if your buyer needs a mortgage, their lender is definitely gonna order an appraisal and ask questions about why the purchase price is so much lower than the home’s actual value.
Process of Selling a House Below Market Price in Virginia Beach, VA
Alright, you’re doing this. You’ve decided to sell below market value, and now you need to actually pull it off without creating a mess. Here’s your step-by-step guide for making this happen the right way.
Step 1: Determine Your Home’s Fair Market Value
You can’t sell below market value if you don’t know what market value actually is, right? This is where you get the real numbers on what your Virginia Beach home is worth.
Get a Professional Appraisal
Fork over the $400 to $600 and hire a licensed appraiser to tell you what your house is really worth. This isn’t optional if you’re selling below market value. You need this documentation to prove to the IRS that you know exactly how much you’re discounting.
The appraiser will measure everything, inspect your upgrades, compare your place to recent sales in Virginia Beach, and provide you with an official number. Keep that report for future reference, as the tax professionals may need to review it later.
Comparative Market Analysis
Your real estate agent can provide comps for free, which is essentially a report showing what similar homes in your neighborhood have sold for recently. It’s not as official as an appraisal, but it gives you a good estimate.
They’ll look at houses with similar square footage, number of bedrooms, number of bathrooms, and condition that have sold within the last few months. This will help you determine if your appraised value is accurate and provide you with information to inform your decision on how far below market you want to go.
Step 2: Decide on Your Selling Price
You also need to figure out how low you actually want to go. This isn’t just pulling a number out of thin air; there’s some math involved.
Calculate Gift of Equity
Take your fair market value and subtract your selling price. That’s your gift of equity. So if your Virginia Beach home appraises at $400,000 and you’re selling for $300,000, you’ve got a $100,000 gift of equity.
This number matters significantly for tax reporting and for your buyer’s lender, if they’re using the gift as part of their down payment. Get this calculation right, because the IRS will check your math later.
Document the Price Difference
Write everything down. You need a paper trail showing why you chose this price, what the fair market value was at the time of sale, and who’s receiving the gift of equity.
Draft a gift letter if you’re selling to family members; keep copies of your appraisal; and ensure that all your closing documents clearly state the sale price versus the actual value.
This documentation serves as your insurance policy in the event the IRS comes knocking or if your buyer’s lender begins to ask questions about the deal.
Step 3: Work with Real Estate Professionals
You could try to do this solo, but honestly, why would you? Selling below market value is complicated enough without trying to be a hero about it. Get some experts in your corner.
Hire a Real Estate Agent
A good agent knows how to handle these sales without raising red flags everywhere. They’ll help you price it right, deal with nosy questions from buyers, and keep the paperwork clean so nobody accuses you of anything shady.
Yes, you’ll pay a commission (probably around 2-3% for a family sale, since they’re not hosting showings and open houses), but it’s worth every penny when it comes to ensuring your sale is legitimate.
Plus, they can be the buffer between you and your family member if things get awkward about price negotiations.
Consult with a Real Estate Attorney
Virginia Beach real estate attorneys aren’t overly expensive, and they’ll ensure your purchase agreement is bulletproof. They are familiar with all the local disclosure laws, know what needs to be in writing, and understand how to structure the deal so that it withstands any challenges later.
If you’re selling to family, having a lawyer draft everything makes it much more official and helps prevent family drama from escalating into legal drama. Spend the few hundred bucks now instead of thousands fixing problems later.
Work with a Tax Professional or CPA
This is non-negotiable. A tax pro will tell you exactly what forms you need to file, how much gift tax reporting you’re looking at, and whether you can use any exemptions to reduce what you owe.
They’ll also help you determine the capital gains situation, so you’re not surprised when tax season arrives. Don’t just wing this part with TurboTax. Hire someone who truly understands Virginia and federal tax law inside and out.
Step 4: Prepare Required Documentation
Below-market sales require significantly more documentation than regular sales, as everyone wants proof that you’re not trying to pull a fast one.
Purchase Agreement Requirements
Your purchase agreement should clearly outline all details, including the sale price, property description, closing date, and the allocation of fees. However, when you’re selling below market value, you also need language that acknowledges the difference between the sale price and fair market value.
Make it crystal clear this is intentional, not a mistake. Your real estate attorney can help you include the right clauses to ensure there’s no confusion about what’s happening here.
Gift of Equity Paperwork
If you’re gifting equity to your buyer, you need an official gift letter that clearly states the amount of equity being gifted, the recipient, and that you don’t expect repayment. Lenders require this if your buyer is using the gift as their down payment.
The letter should include the property address, the amount of the gift, your relationship to the buyer, and signatures from all parties involved. You need to keep copies of everything because the IRS might ask for them when you file your gift tax return.
Disclosure Requirements in Virginia Beach
Virginia makes you disclose known defects in your property. Selling below market value doesn’t let you skip this step. Complete the property disclosure form accurately and honestly. Talk about that roof leak, the temperamental AC, whatever.
If you hide problems and your buyer discovers them later, they can sue you, even if the buyer is a family member. Be straightforward about what’s wrong with the place and let them decide if the discounted price is worth it.
Step 5: Complete the Sale and Closing Process
You made it to the finish line. Now you just gotta close this thing without any last-minute disasters. The closing process for a below-market sale resembles a regular sale, except that everyone will double-check the numbers to ensure everything adds up.
You’ll sign a mountain of paperwork, transfer the title, and hand over the keys. Ensure that your gift of equity appears correctly on the settlement statement, as it’s the official record of the transaction.
And hey, you still owe closing costs even when you’re selling for less, including title fees, transfer taxes, and whatever else Virginia Beach throws at you. Budget for that stuff so you’re not scrambling at the closing table.
If you want to skip the stress and sell quickly, a cash for houses company in Virginia Beach, VA, can simplify the process and help you close without the usual headaches.
Common Reasons for Selling Your Home Below Market Value
So why would anyone actually do this? It turns out there are a whole bunch of legitimate reasons people sell their Virginia Beach homes for less than they’re worth. Let’s discuss the major ones.
Selling to Family Members in Virginia Beach
This is probably the most common reason people sell below market value. You want to help out someone you love, and discounting your house is a way to do that without just handing them a pile of cash.
Helping Children or Relatives Buy a Home
The housing market is extremely competitive right now, and your kid can’t afford to buy anything decent in Virginia Beach on their own. Selling your house to them at a discount gives them a chance at homeownership without being overwhelmed by a massive mortgage.
You’re essentially giving them a head start, and honestly, it feels great to be able to help in that way. Plus, they get to skip the bidding wars and the stress of competing with cash buyers for every halfway decent property that hits the market.
Keeping Property Within the Family
Maybe your Virginia Beach home has been in the family forever, and you can’t stand the thought of some random stranger living there. Selling below market value to a family member means the house stays in the family, and all those memories remain.
It’s less about the money and more about keeping something meaningful where it belongs. Your parents built that deck, your kids grew up in that backyard, yeah, that’s worth taking less money to preserve.
Avoiding Family Conflicts During the Process
Selling to family members can become awkward if you’re not careful. Hiring professionals and keeping everything documented actually protects your relationship. You’re setting a clear price, and everyone knows what to expect. There’s no room for someone to feel like they got screwed over or that you played favorites.
Do it right, and you help out your family member without creating drama at Thanksgiving for the next ten years.
Financial Hardship Situations
Sometimes you need to get out, and you need to get out now. Money’s tight, life’s hitting you sideways, and waiting around for top dollar just isn’t an option.
Fast Sale to Avoid Foreclosure
If you’re behind on payments and foreclosure’s breathing down your neck, selling below market value might save your credit from destruction. Foreclosure can tank your credit score for years and make it nearly impossible to buy a home again. Selling fast (even for less) gets the bank off your back and lets you walk away with at least something instead of nothing.
Urgent Relocation Needs
Your job transferred you across the country, and you’re leaving in three weeks. Your mom’s sick and you need to move back home to take care of her. Life doesn’t always give you six months to sit around waiting for the perfect buyer at the perfect price. Selling below market value speeds things up drastically because you’re instantly the best deal in town.
Inherited Property Considerations
You inherited your aunt’s house, and honestly, you don’t want it. You live in another state, the place needs work, and dealing with it long-distance is a headache you don’t need. Selling below market value can get it off your hands quickly, without requiring you to invest money in repairs or travel for showings.
Quick Sales for Time-Sensitive Buyers
Maybe you just want this over with. The house is empty, you’re paying utilities and property taxes on a place nobody’s living in, and every month that ticks by costs you more money. Selling below market value attracts buyers immediately and cuts your carrying costs.
Alternative Options to Consider Before Selling Below Market Price
Before considering a low-price sale, let’s explore some alternative options you could pursue.
Seller Financing Arrangements
The first option is for you to become the bank. Instead of your buyer getting a traditional mortgage, they pay you directly over time with interest. You still sell at full market value; you just spread out the payment.
This works great if your buyer can’t qualify for a regular loan, but you trust them to make payments. You collect interest on top of the sale price, which actually makes you more money in the long run.
Just make sure you draft a legit promissory note and record everything properly so you’re protected if they stop paying.
Rent-to-Own Agreements
Let your buyer rent the house first with the option to buy it later. Part of their rent payments go toward the eventual down payment, which helps them save up while you’re still collecting income from the property.
This gives them time to get their finances together or improve their credit score while locking in today’s price. You get steady rental income and a committed buyer down the road.
Be aware that rent-to-own deals are complex legally, so consider consulting a real estate attorney to draft the agreement; otherwise, you may encounter problems.
Short Sales
If you owe more on your mortgage than your house is worth, a short sale might be your way out. This is where you sell for less than what you owe, and the lender agrees to take the loss. It’s not fun. Short sales take forever, the bank controls everything, and your credit takes a hit. However, it beats foreclosure.
Of course, the lender has to approve every step, buyers get frustrated with the wait, and there’s no guarantee the bank will even say yes. Consider this route only if you’re truly underwater on your mortgage and have no other options.
However, if you’d rather skip the red tape and move on quickly, you can sell your house for cash in Virginia without delay. It’s a faster, simpler alternative that lets you close on your timeline with no lender approvals or long waits required.
Key Takeaways: Can I Sell My House Below Market Value in Virginia Beach, VA
As we’ve shared in this guide, you can definitely sell your Virginia Beach home below market value, and it’s completely legal. Just know what you’re getting into. The IRS will require documentation proving the fair market value. You’ll need to report any gift of equity exceeding $18,000. Additionally, your mortgage lender must approve the sale if you still owe money on the house.
If you’re looking for a fast and hassle-free way to sell your Virginia Beach home, contact O'Neill Home Buyers at (757) 578-1214 now! We buy houses as-is and can close quickly. We’ll provide a simple solution whether you’re selling below market value or simply need to move quickly!
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