How to Avoid Four Costly Mistakes When Downsizing

 

You are at that moment in your life and you are seriously thinking about downsizing.  The home you currently live in is too much for you to care for and the need for such a large house is no longer necessary.  Why not downsize into a more "resident friendly" home.

Here are four things for you to consider before downsizing that could mean more money in your pocket at the closing table.

1. Don't overstate your home's worth. Let us be honest when we think about the sale value of our home, we have the tendency to "overestimate".  This can lead to frustration and disappointment when we find that buyers are not chomping at the bite to purchase our home.

You can obtain information on the value of homes in your neighborhood by visiting Zillow, Redfin, Realtor.com.  These sites offer information on the properties that are currently for sale and allow you to determine a "priced to sell" value for your home.  You can also work with a real estate agent or hire an appraiser to determine the current comparative price for your home.

2. What will your new home cost? The answer to that question will be determined by your desired destination. Whether you are moving down the street, across town or to another country - do your homework.  Utilize some of the same resources above to help you understand the cost of securing a new home.  Remember, if moving to another country take into consideration the currency exchange rate. 

3. What are the tax implications for you following the sale of your home?  Simple answer and perhaps the most direct - talk with your financial advisor, CPA, or tax attorney. Remember, if you relocate outside the US, there may be restrictions on the amount of money you can transfer. 

Do not be blindsided by the "tax man" and get the answer you need before you sell.  There may be tax advantages for you if you stay in your home you were unaware of at the time you wanted to sell.

4. Know your closing cost estimate before you sell.  Here is the point where you need an attorney or real estate agent to help provide that answer.  You want to know what it will cost you to close the deal and the exact amount of funds you will have for your future needs.  Remember: your asking price and the final sale price of your home may differ.   Also, the amount of money you outlay for your part of the closing expenses may move up or down as you and the new buyer negotiate terms of the sale.

Takeaways:

1. Be an educated seller as to the current value of your home.

2. Be street smart about the cost of the neighborhood you plan to move into.

3. Make the tax man your friend before the sale.

4. Have a clear estimate in mind or on paper of your closing costs and the proceeds of your sale.