The initial cut is simple -- curently appraised value of the house (by a qualified residential real estate appraiser less the mortgage and any other liens on it. That's the equity.
Now if you sold it, both of you would share the commissions and sales expenses. You'd get 1/2 of the balance, after commissions. If you want to buy it from him it probably is a negotiation issue. While you'd try buy it at 1/2 the equity less all of the sales commssions and likely fix up costs, and taxes that have to be paid until the sale, the other side would say if you want to buy it there is no sales commssion and no fix up expense involved so why should you get a discount?
I'd guess the compromise is 1/2 the equity less 1/2 of what the normal sales commssions would be and 1/2 of what the essential fix up would be.
You'd also want to get a low appraisal and he's want a high appraisal, and as all appraisals are really just estimates, and only an actual sale would give the exact price, that may be the hardest part. Some folks agre on a single appraiser, others each select one and split the difference or have the 2 select a 3rd.
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