If you’re an empty nester contemplating a change in lifestyle, downsizing can be a beneficial financial move -- if not in dollars, in value. But the savings or cost should not come as a surprise after you’ve made the decision to sell or have actually moved to a smaller home. The following are important factors to consider and ones in which a realtor experienced in anticipating the questions and needs of downsizers should be able to assist you in evaluating.
Estimating costs in prospective new communities
Moving to a smaller home may or may not reduce your expenses. Your realtor should be able to help you assess the following in any home or community you are considering:
- Property taxes- Tax assessments on homes can vary significantly from state to state, so you may not realize the tax savings you hoped by downsizing. (And if not continuing to spend your children’s inheritance on property taxes was a motivator for moving, this would be important to know!)
- Cost of living- From parking to groceries to dining out, the cost of living in a rural, suburban or urban setting can either be a relief or a burden. An experienced realtor can help you anticipate these costs and steer you towards neighborhoods that match your needs and budgetary expectations.
- Maintenance and utilities - A newer and/or smaller house should require less maintenance and have lower utility fees (based on square footage and/or energy efficiency). Your realtor can help you estimate these costs in either a single family home (with or without homeowners association fees) or in a full-service condominium, where many costs are included in the condo fees.
Calculating capital gains taxes on sales proceeds
If you anticipate a large profit from selling your home, it will behoove you to understand capital gains tax laws and plan accordingly. Where you move, what type of housing you choose, how much you spend and even how energy efficient your new home is can affect the amount of taxes Uncle Sam will demand. At its simplest, the IRS excludes capital gains of $250,000 for an individual or $500,000 if married and filing jointly. But your realtor should be able to explain the more intricate provisions in the law or recommend an expert to help you make the wisest decision.
Exploring the rent-back option
A rent-back option is a useful strategy if your home sells before you have settled on a new residence. This option may not be favorable for your buyer from a tax perspective, but your realtor can negotiate and prepare lease agreement documents and other related paperwork.
Financial options when selling your home and buying a new one are always complex. But don’t let this discourage you from considering all of the other benefits of downsizing. A great realtor can simplify the financial considerations and make sure that you are well-informed. Whether or not downsizing will result in a net gain, you can profit with a happier and simpler life.
Evaluating your home’s listing price, preparing your home for showing and marketing your home effectively are other niche activities that your realtor can assist you in. To learn more about what assistance and expertise to expect from a downsizing specialist in real estate, download “How to Choose the Right Realtor: Downsizer Edition.”