When is the Best Time to Downsize?
The kids have left and the house is too big for you now. Besides, it's a lot of work keeping the big yard looking good and managing all of the maintenance that is necessary to keep a big house in good repair. You're thinking it may be time to make a change. Maybe move into a condo or a smaller house. The thought can be overwhelming. But, you really want to do something about the situation. How do you know when it's time to downsize your house?
The Best Time is When You're Ready
The best time to downsize is when you're ready. Period. Although there may be some advantages to downsizing in a market that is favorable to sellers, overall, whether the market is a seller's, buyer's, or neutral one doesn't make much difference. If you sell your existing home in a seller's market you would have more cash in your hand at the end of the day, but on the other hand, the smaller house or condo you purchase would have a higher selling price.
Obviously, the best of both worlds would be to sell your existing home in a seller's market and then purchase your new, smaller home in a buyer's market in another location. Regardless what kind of a market you sell or buy in, it is possible to own a free-and-clear smaller home. Since you really can't time the market, you can choose when you want to downsize and that's the perfect time to do it.
Why The Markets Don't Matter Too Much
In the marketplace, in a neutral market, your $400,000 house that has a mortgage of $200,000 on it sells leaving net proceeds at $200,000 (not including closing costs). If you find a smaller house for $200,000 then you break even.
In a seller's market prices may go up by 10%, putting the value of the house at $440,000 and the value of the smaller house at $220,000 leaving $20,000 cash in hand at the end of the deal. Conversely, in a buyer's market the prices may fall by 10%, putting the value of the house at $360,000 and the new house at $180,000. You have to come up with $20,000 to carry the deal.
Obviously, the best of both worlds would be to sell your existing home in a seller's market and then purchase your new, smaller home in a buyer's market in another location. Regardless what kind of a market you sell or buy in, it is possible to own a smaller house free and clear. Since you really can't time the market, you can choose when you want to downsize and that's the perfect time to do it.
One Agent or Two?
The next question might be whether you should buy first then sell or the other way around and if you need two agents to get the job done. We'll address the second half of the question first. Although it shouldn't happen, often agents in a particular area shun agents from outside that area. However, if your house is easy to price and very saleable, and the agent has contacts in the area, it doesn't really matter where the agent is located - so the same agent could handle both transactions.
Sell First or Buy First?
Should you sell first or buy first? There is no shortage of agents who will advise you to buy first then sell. However, that is not usually a good move for you. It is for the agent, though, because if you buy first, then you'll need to sell and the agent gets the benefit of two sales - and it could cost you a lot of money. If you decide to sell first then buy and your home doesn't sell, or the offers you get are very low and you don't accept any of them, then the agent doesn't earn a commission. There are some contingencies - like having to sell or buying in a buyer's market. But, overall, it is just better to sell first and then buy. It's a lot less emotional stress.
