An Adult Child Buying a Parent's Home Below Market Value

It is common for a parent to sell their home to an adult child for less than it would fetch on the open market, whether to help the child into their first property, to keep a family home in the family, or as part of the parent's own downsizing plans. This is still a genuine sale and still a full property transfer, and both the discounted price and the family relationship raise specific issues that a conveyancer needs to work through carefully, particularly around duty and tax.

It Is Still a Sale, Just at a Different Price

Selling below market value does not change the legal nature of the transaction. Contracts still need to be prepared and exchanged, standard residential purchase due diligence still applies, and the child, as buyer, should still arrange their own building and pest inspections and title searches, exactly as they would buying from a stranger. Skipping these steps because the seller is a parent is a common mistake, since a family relationship does not remove the risk of undisclosed issues with the property, and a child who later wants to sell or refinance will still need clean records of the purchase.

Duty Is Assessed on Market Value, Not the Sale Price

The most important point to understand is that transfer duty is generally calculated on the market value of the property, not on the price actually paid, whenever a property is sold for less than it is worth. This applies specifically to arrangements between related parties, including parent-to-child sales, where a discounted price could otherwise be used to reduce the duty payable. In practice this means an independent valuation is usually required to establish market value, and duty is assessed on that figure even though the buyer paid considerably less. Some states offer specific concessions in limited circumstances, but a below-market sale to a family member is not, on its own, a reason for duty to be reduced.

What Counts as a Gift for Tax Purposes

The difference between the market value of the property and the price the child actually pays is often treated, in effect, as a gift from the parent to the child, even though the transaction is documented as a sale. This has implications on the parent's side for capital gains tax, since the ATO generally requires the transaction to be treated at market value for tax purposes where parties are not dealing with each other at arm's length. The ATO's guidance on property and capital gains tax explains how gains are worked out, and if the property has been the parent's main residence for the whole period of ownership, a full or partial exemption may apply. Because the tax outcome depends heavily on the parent's specific history with the property, this is an area where speaking to an accountant before the contract is signed is genuinely worthwhile, not just a formality.

Financing the Purchase

Lenders generally still require a formal contract of sale and a valuation when financing a below-market purchase from a parent, and most will lend against the market value of the property rather than the discounted price, which can actually help the child's deposit position since the gap between the sale price and the property's value may be treated as equity contributed by the parent. Each lender applies its own policy to these arrangements, so it is worth discussing the structure with a mortgage broker or lender early, before assuming how much can be borrowed. Where the parent is not selling but instead helping with finance in another way, our guide to buying a property with a guarantor parent covers that alternative structure.

Documenting the Arrangement Properly

Because a below-market sale between family members can attract scrutiny from a lender, the tax office or a state revenue office, it is worth documenting the arrangement clearly from the outset. This includes a properly drafted contract of sale, a formal valuation supporting the market value used for duty purposes, and clear records of how and when the sale price was paid. If the parent intends the discount to also reduce what the child ultimately inherits from the estate, discussing this with the parent's estate planning solicitor helps avoid disputes between siblings later, since other children may see a discounted sale as an early inheritance that should be accounted for in the will.

First Home Buyer Eligibility Considerations

If the child buying the property is otherwise eligible for a first home buyer concession or grant, a below-market purchase from a parent does not automatically disqualify them, since they are still genuinely purchasing the property rather than receiving it as a gift. Eligibility rules do, however, vary by state and can be affected by factors like whether the child has held an interest in property before, so it is worth confirming eligibility with your conveyancer before assuming a concession will apply.

Getting Professional Advice on Both Sides

Because a below-market sale between parent and child touches conveyancing, tax and often estate planning at the same time, it generally works better when both parties get independent advice rather than relying on one conveyancer or adviser to represent everyone. Some conveyancing practices will decline to act for both the parent and the child in the same transaction for exactly this reason, preferring each party to have their own representation so that neither side's interests are compromised if a disagreement arises later. A conveyancer can manage the contract, valuation and transfer properly, while an accountant confirms the tax position for the parent and a broker or lender confirms what the arrangement means for the child's finance.