Is Downsizing the Right Choice for you in the Current Market?
Many buyers as well as sellers have found that the current market has
left them in a bit of a predicament. The rapid decline in prices as well
as interest rates have led many consumers to recognize the advantages of
buying now, but if you already own a home you are trying to sell before
buying another, it very well could be that your situation is more
complicated than you first imagined. For example, you may not be able to
afford to purchase a new home before having actually sold the old house.
Also, you may find it hard to even locate a new home to purchase as many
owners have decided to hold onto their homes rather than sell them
because they are concerned they will not be able to sell their homes for
as much given the current market conditions.
Before automatically assuming that you will have to downsize when you
sell your home, it can pay off to do some math. In spite of the current
market conditions, you may still be able to benefit. Suppose you sell
your existing home for about 20% less than what it was worth a couple of
years ago and that amounts to around $100,000 less on the sale. If you
were to purchase a home for $750,000 that was actually worth $1 million
just two years ago, you would actually be coming out $150,000 ahead in
spite of the loss you incurred on your existing home.
On the other hand, if you are planning to downsize because you do not
need as large a home or for some other reason, you could find that the
situation is not nearly as advantageous. When you sell at a loss but
purchase a home that is smaller and less expensive you may not be able
to realize a discount that is as large. Additionally, you very well
could find yourself forced to compete with buyers who are buying for the
first-time or who are interested in trading down just like yourself.
It is also important to consider that the price per square foot of a
home that is smaller is going to typically be more than the price per
square foot of a larger home, even if the homes are in the same area.
This means that you may find yourself paying more than half of what you
sell your old home for in order to purchase a home that is actually less
than half the size of the old house. Of course, you also have to take
into consideration that it still may be in your best interest to go
ahead and sell now rather than later. If average home prices in your
local area have been steadily falling, it could be that if you wait your
home will eventually sell for even less.
Ultimately, you need to take more into consideration than just the
amount that you stand to profit it you downsize now. The first thing you
need to do is stop and consider all of the reasons why you want to
downsize. Some of the most common include a house that is too big,
requires too much money and time to maintain or is situated in a
location that is inconvenient for work or for seeing family. Next,
consider all of the important reasons for remaining in the home and then
weigh the advantages as well as the disadvantages.
Performing a cost comparison is an excellent way to determine exactly
how much it will cost you to remain in your current home as well as how
much it would cost to get your existing house into optimal selling
condition, including how much you are going to have to spend to actually
sell the house. Compare that to the cost of purchasing and owning a home
that is smaller than your existing home to determine where the real
benefits lie. Consider whether the amount of money you will be saving is
really worth the benefits you will incur. Be sure to take into
consideration any tax consequences you may incur when downsizing as
well. It's usually a good idea to consult with a tax adviser to make
sure you understand all of the possible tax implications.
Whether you ultimately decide to stay in the same home or go ahead and
downsize is completely personal, but taking these factors into
consideration can help you to make an educated decision about whether
downsizing is really in your best interest in the current market.