For decades, home sizes have been increasing. The average American home today is about 1,000 square feet bigger than it was in the 1970s. Now, however, a competing trend is emerging. Led by the ‘Tiny House’ movement, there’s a shift towards enjoying a more minimalist lifestyle and downsizing to more sustainable living spaces.
There are a host of reasons why you might be considering downsizing your home. It may be in preparation for aging, to reduce living expenses, to simplify your lifestyle, for eco-friendly principles, or more. Whatever the reason, downsizing involves serious consideration. There are a lot of decisions to make as you embark on your downsizing journey.
Know Your Finances
Be sure to explore the financial aspects of your move before taking any actions. Downsizing might allow you to capture cost savings, but transactions costs are expensive, equaling roughly 10% of your house value if you’re both buying and selling. Such transaction costs don’t include improvement expenses (to your current home before sale, or to your new home after you acquire it), or moving costs. It’s important to carefully evaluate probable financial considerations, net of all fees and expenses.
Financing is another significant consideration, particularly if you plan to buy your new home before you sell your current one. Many sellers won’t accept a contract that’s contingent upon the sale of your current house, so you’ll need a financing strategy in place beforehand.
It’s best to plan ahead, with realistic figures and appropriate plans in place. SageVest Wealth Management frequently runs through potential home sale and purchase scenarios, helping you to better understand your financing options and more accurately evaluate potential housing solutions that meet your lifestyle and wealth objectives.
Compare Potential Cost Savings – And Increases
One of the primary reasons for downsizing is to reduce expenses, especially if you’re nearing retirement. Sometimes the cost savings are a slam dunk, but not always. While some expenses will likely decline, it’s important to carefully compare and contrast costs such as:
- Repair and maintenance, inside and outside the home
- HOA or condo fees
Retirement communities and condominiums often have high monthly fees. It’s a matter of personal preference and financial capabilities as to whether your find the fees off-putting or whether you’re prepared to make trade-offs in order to enjoy the perks that they offer.
Give Yourself Time
There’s a lot to do when you’re planning to move, but the list gets longer if you’re downsizing. You need to evaluate where you’re going, the life you want to lead, what you want to keep, and how to get rid of the rest. You also need to prepare your home for sale. Be realistic about timelines and allow yourself adequate time to research, prepare, and execute your plans.
Find A Realtor You Trust
Find a realtor who’s knowledgeable and experienced in your area. Look at photos of other houses they’re listing to see how well they position their clients. Discuss the potential value of your home, timing considerations, and ideas to prepare it for sale, including any staging suggestions.
Consider Home Lifestyle Preferences
Before you downsize, consider how you live and what’s important to you. Certain types of housing choices are more conducive to specific lifestyle preferences than others. Some things to think about include:
- Walking trails and green space if you enjoy the outdoors.
- Location, including proximity to public transport and medical care as you age.
- Grilling, gardening and other outside activities.
- Garage and storage requirements.
- Single versus multi-level living, including elevators.
- Pet options
Attend Open Houses
Visit open houses to compare the value and presentation of your own home versus others in your area, as well as to learn the value, amenities and more that a new home might offer.
Get Your House Ready For Sale
Some houses are already updated, needing only a little sprucing up e.g., repainting with current colors or cleaning up the yard. Other times, it’s more involved, such as updating a bathroom or kitchen. Always evaluate the cost of improvements relative to your home’s potential sale value. It can pay to solicit the opinions of multiple realtors, as well as to do your own research. In general, a strong seller’s market may enable you to get away with simple touch-ups. Conversely, a buyer’s market might require additional work or price concessions.
Stage Your Home
Take the time to listen to your realtor about staging considerations. While some houses can command top dollar from the outset, others require a touch of finesse to help buyers envision themselves living there. However, clutter seldom brings top dollar, and some agents advise that it can actually reduce the value of your home by up to 5%. Hiring an organizational expert can be a better pay-off, as you benefit in the longer term, or you could simply rent a storage container.
Evaluate Your Decision
If you’re contemplating a significant lifestyle change, consider renting a home similar to your new housing choice before embarking upon a sale and a purchase. Real estate transactions are expensive, making regrets all the more painful, both emotionally and financially. The cost of renting in the location or type of dwelling you’re considering could be far cheaper than making the wrong move.
SageVest recognizes the importance of your house, both in terms of its financial value, and as a home. Please contact us if you would like to discuss your housing considerations in greater detail or as part of your broader financial planning.