There are many reasons to buy a smaller home—or to downsize from your present home—but sometimes, the idea that “less is more” is what propels homeowners to buy a smaller home.
When asked why they might want to purchase a smaller home, 69% of homeowners who have downsized in the past said saving money was their primary reason for doing so.1 But, of course, these reasons can vary.
While it’s true that we live in a society that often holds that “bigger is better,” it can be worthwhile to shift your thinking and consider whether a smaller home would actually serve you and suit your lifestyle.
The financial edge to downsizing, whether it’s a hot, cold, or neutral market, makes little difference overall. But one could argue that downsizing in a seller’s market would give the homeowner more cash on hand after closing. However, the trade-off could be a higher sales price for the smaller home.
For example, say in a neutral market that an existing home is worth $500,000, encumbered by a $200,000 mortgage. Not counting closing costs, which may include commission and title fees, the net proceeds would be $300,000. Let’s also assume that a seller could buy a smaller home for cash at $250,000, putting $50,000 in the pocket.
If it’s a seller’s market, however, and prices have jumped 10%, the existing $500K home might be worth $550,000. Meaning the smaller $250K home could be purchased at $275,000 in cash, resulting in $75,000 cash remaining.
If it’s a buyer’s market, say, and prices have fallen 10%, then the existing home could be worth $450,000. The smaller $250K home would be priced at $225,000, resulting in $25,000 cash to put in the bank.
The best of both worlds would be to sell in a seller’s market and buy elsewhere in a buyer’s market. Either way, a seller could end up owning a free-and-clear smaller home, so take your pick of markets. Realize, though, that you can’t really time the market.
Sellers often ask whether they need two agents to buy and sell. First, consider similar comparable sales and your home pricing. Second, is it located in a neighborhood where out-of-area agents are shunned by local agents? It’s not supposed to happen, yet it does. But if your home is easy to price, and the agent has contacts in that area, it doesn’t really matter where the agent is located. Sometimes agents will negotiate the commission if they are handling two transactions.
Should you sell first and then buy, or buy first and then sell? Generally, it’s better to sell your existing home before buying a new home. The reason is it keeps your emotions in check. But some markets will dictate that it’s better to buy before you sell. Discuss this strategy with your real estate agent.
Article by ELIZABETH WEINTRAUB
Elizabeth Weintraub is a nationally recognized expert in real estate, titles, and escrow. She is a licensed Realtor and broker with more than 40 years of experience in titles and escrow. Her expertise has appeared in the New York Times, Washington Post, CBS Evening News, and HGTV’s House Hunters.Learn about our editorial policies