Real estate agents have noted an increasing number of empty nesters circulating through Sunday open houses. About one-third of the visitors at one open house were middle-aged or older folks who were investigating the possibility of trading down to a smaller home. The unique characteristics of this home were it’s location close to shops and cafes, and it’s one-level, level-in layout.
The motivating factors for many trade-down buyers are reducing the cost of home ownership, living in a more user-friendly home, and having money left over to help fund retirement. Often the ideal home is smaller and has fewer levels than the current home, is in a safe location and is convenient to shops and transportation.
In some areas, finding a suitable home is more difficult than you might imagine. One problem is that move-down buyers often find themselves in competition with first-time buyers. In general, there’s usually more demand for lower-priced, smaller homes that there is for higher-priced homes. When the demand exceeds the supply, prices tend to rise.
Some trade-down buyers are unpleasantly surprised to find that they have to pay more per square foot for a smaller home in their area than they would for a larger one.
One buyer, who anticipated selling her 3,600-square-foot home for $1.4 million, was discouraged when she realized she’d have to pay more than $800,000 for a house half the size.
The question of whether to buy or sell first plagues trade-down buyers just as it does repeat home buyers. If you buy first, there’s no anxiety about where you’ll live, but you worry about selling your old home. If you sell first, you know exactly how much money you have to work with, but you worry about finding a new home.
Fortunately, many senior homeowners are in a good position financially to buy the trade-down house first. One strategy that works for homeowners who have benefited from years of appreciation is to take out an equity loan on their current home to help fund the purchase of the new home.
Given that it’s not always easy to find a suitable trade-down home, most senior sellers feel uncomfortable selling first. If finances won’t permit, an alternative is to sell, put the proceeds in the bank, and furniture in storage, and live in an interim rental until the right house comes along.
HOUSE HUNTING: Whatever strategy you use, the process will be much more manageable if you start preparing for your move in advance. After living in one home for years, sometimes decades, you’re bound to have accumulated far more possessions than you need. Your house could also have been used as a storage depot for relatives’ belongings. The time to start ridding yourself of this burden is when you first start thinking about making a move. A fringe benefit of paring down early is that your home will show much better when it’s on the market.
Many people are paralyzed by the thought of moving out of a home that they’ve lived in comfortably for many years. If you’re having trouble figuring out how you’ll ever manage to get out of your house, hire someone to help you. There are people who specialize in helping others organize and plan their move. Your real estate agent is a good resource of information about people who can help you make the move.
THE CLOSING: As difficult as it might be to let go and move in, there is a considerable tax advantage for homeowners who have years of equity buildup. The IRS allows homeowners a tax-free gain when they sell a primary residence that they have occupied for two of the last five years (up to $500,000 for a married couple filing jointly; $250,000 for a single taxpayer).
Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.
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