Selling Your Colorado House to a Friend or Relative

Selling a Colorado house to a friend, a relative or your tenant is a good idea when the price comes from an appraisal or a written market analysis, the deal runs on the state-approved Colorado Contract to Buy and Sell Real Estate, and every deadline, disclosure, appraisal and title step happens exactly as it would with a stranger. Skip any of those and you trade a saved commission for a lost friendship, a gift tax filing or a lender that will not fund. This guide covers how the Kenna Real Estate Group runs a known-buyer sale on the Front Range, and where the tax rules differ when the buyer is a relative.

Is selling to someone you know a good idea?

Yes, with a market price and a full contract. What you gain: no showings, no staging, no weeks on market, a closing date both sides pick, and a buyer who already knows the house. What you give up: the other offers. A Denver metro home listed on the MLS is seen by every buyer in the market and priced by competition; a private sale is priced by one appraisal. The gap between those two numbers is the real cost of a private sale, and it is the number both sides need before anyone says yes.

How do I set the price?

Order two numbers before the first conversation about money:

• An independent appraisal from a Colorado-licensed appraiser, $500 to $700 on the Front Range. This is the number the IRS, the lender and both attorneys treat as fair market value.
• A written market analysis of what the home would bring on the open market this month. The group's Smart Pricing Report is that document, and it shows the buyer what they are not paying.

Then set the price as appraised value minus the costs the private sale avoids: a full listing on the Front Range costs the seller 5 to 8 percent of the price in commissions, prep, staging and concessions; a private sale with one broker runs 1 to 3 percent. Splitting that saving is the deal most friends and relatives land on, and it is written into the contract as a price, not a handshake.

What is a gift of equity?

A gift of equity is the difference between the appraised value and a lower sale price, given by the seller to the buyer as part of the buyer's down payment. Parents selling a $600,000 Centennial house to a daughter for $540,000 give a $60,000 gift of equity, which her lender counts as a 10 percent down payment. Lenders accept gifts of equity from relatives on conventional and FHA loans when three things are in the file: an appraisal that supports the value, a signed gift letter stating no repayment is expected, and the gift shown on the settlement statement.

The tax side follows the gift. A gift above the federal annual exclusion per recipient ($19,000 in 2025) requires the seller to file a federal gift tax return, Form 709, for the year of the sale. No tax is paid with it; the amount above the exclusion counts against the seller's lifetime estate and gift exemption, which is in the millions of dollars. Two parents giving to a daughter and her spouse each get their own exclusion, so a $60,000 gift of equity from two parents to a couple falls under four exclusions and needs no return. Confirm the split with a Colorado CPA before closing.

Do I still need the Colorado contract, title and appraisal?

Yes, all of them. A private sale in Colorado uses the same documents as a listed sale:

• The Colorado Contract to Buy and Sell Real Estate. The state-approved form with its dates and deadlines page. It sets the price, earnest money, the inspection, appraisal and loan deadlines, what stays with the house and the closing date. A licensed Colorado broker or an attorney prepares it; a handwritten agreement is not enforceable in the way this form is.
• Seller's Property Disclosure. Required. A friend who finds the basement leak after closing has the same claim a stranger would.
• Lead-based paint disclosure on any home built before 1978, plus the Colorado source-of-water disclosure and HOA documents where they apply.
• Title insurance. By Front Range custom the seller pays for the buyer's owner's policy and the buyer pays for the lender's policy. The title company also runs the closing, prorates property taxes and records the deed. Do not skip it because the buyer trusts you; the policy protects against liens and errors neither of you knows about.
• Appraisal. The buyer's lender orders one. On a cash sale, use the independent appraisal above.
• Inspection. A $450 to $650 inspection with a radon test and a sewer scope is cheap insurance for the friendship. The seller learns what the buyer will find later; the buyer signs knowing.

The cancellations and penalties in the Colorado real estate contract post explains what happens when a deadline is missed, and what closing costs are in Colorado lists who pays what at the table.

Do I need an agent, and what is a transaction broker?

Colorado does not require a broker or an attorney to sell a house, but it licenses three ways a broker works: as the seller's agent, as the buyer's agent, or as a transaction broker who assists both sides without representing either. A transaction broker is the fit for a known-buyer sale: one licensed professional prepares the contract, tracks the deadlines, orders title, coordinates the appraisal and closing, and stays neutral on price. The Kenna Real Estate Group handles private sales on a flat fee or a reduced commission, and both parties sign the Colorado brokerage disclosure that spells out the role.

How do lenders treat a sale between relatives or to a tenant?

Lenders call a sale between relatives, or from a landlord to a tenant, an identity-of-interest transaction and look at it harder: the appraisal is reviewed, the gift of equity is documented, and FHA applies its own rules that change the maximum loan in some of these sales. A tenant buying the home they rent gets the same review. Mike Oswald, VP of Mortgage Lending at Rate, NMLS 261003, Equal Housing Lender, pre-approves the buyer and confirms the identity-of-interest and gift-of-equity rules before the contract is written, so the loan does not fail at the appraisal deadline. You are free to use any lender. Start at mortgage pre-approval in Colorado and Kenna financing.

Can I carry the financing for a relative?

Yes. Seller financing in Colorado uses a promissory note and a deed of trust recorded with the county, with the county public trustee named on the deed of trust, the same instrument every Colorado mortgage uses. Charge at least the IRS applicable federal rate for the month of closing; below that, the IRS treats the missing interest as a gift and taxes the seller on interest never received. Set the payment schedule, the balloon date and the late fee in the note, and have a Colorado attorney draft both documents. Read the seller financing guide for the full structure.

What are the capital gains rules when I sell to a relative?

• The primary residence exclusion still applies. A seller who owned and lived in the home two of the last five years excludes $250,000 of gain (single) or $500,000 (married filing jointly), whoever the buyer is. Gain above that is taxed federally at 0, 15 or 20 percent and by Colorado at the flat 4.4 percent.
• Gain is measured on the price actually paid. A below-market price lowers the seller's gain; the difference is a gift, reported as above.
• No loss on a sale to a relative. Federal law disallows a loss on a sale to a spouse, child, parent or sibling. A rental sold to a son for less than its adjusted basis produces no deductible loss.
• The buyer's basis. On a part-sale, part-gift, the buyer's basis is the greater of the price paid or the seller's adjusted basis. That number decides the buyer's own tax when they sell later, so both sides keep the appraisal and the closing statement.
• Divorce is different. A transfer between spouses as part of a Colorado divorce is not a sale for federal tax purposes and produces no gain; the receiving spouse takes the original basis.

Confirm the numbers with a Colorado CPA or attorney before closing. The group's home equity and net proceeds guide shows the seller's net at any price.

Does a below-market sale change the property taxes?

No. Colorado county assessors revalue every home on a two-year cycle from market sales in the area, and a single sale does not reset a home's assessed value the way it does in some states. The buyer's first tax bill is based on the assessor's current value, not the private price. Read the Denver property taxes guide for how the bill is calculated.

How do I protect the relationship?

• Put every number in writing before the first dinner-table conversation: appraised value, price, who pays which closing costs, the closing date and what stays.
• Use one neutral professional for the contract and deadlines, and let that person deliver the hard news.
• Do the inspection. Every dispute the group has seen between friends after closing came from a defect the buyer found later.
• Give the buyer a walk-away. The inspection and appraisal deadlines in the Colorado contract let either side end the deal cleanly and get the earnest money back. Use them instead of pressure.
• Keep the market price in the file. When a sibling asks later why the house went to a brother for less, the appraisal and the market analysis answer it.

Buyers who want to see what the open market offers at the same price can compare on homes for sale in Centennial or any Front Range city before signing.

Where to go next

• How the Kenna Real Estate Group helps sellers
• How to sell a house in Colorado
• The Colorado home seller's guide
• Co-buying a house in Colorado with friends and relatives
• Top questions to ask about selling your Colorado home
• Meet the Kenna Real Estate Group agents

Talk to the Kenna Real Estate Group

The Kenna Real Estate Group at Keller Williams DTC runs private sales between friends, relatives and tenants across the Denver metro and the Front Range as a transaction broker: appraisal and Smart Pricing Report first, then the Colorado contract, disclosures, title and closing on a flat fee. Call or text 303-955-4220. A live person answers. Not a robot, not a phone tree. You can also search every home for sale in Colorado.