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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.


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