How to Downsize Your House: The Checklist & Process of Downsizing

“Downsize? You mean move! You want to move? We can’t move!”

At some point in your life, if you’re a homeowner, and you’ve been in your home a while, you’re likely to have a conversation with your spouse, similar to the one above. Downsizing is almost a staple of aging and the American Dream. The home that was perfect years ago for your growing family, with everybody’s stuff and everybody’s friends over all the time; it just doesn’t make sense anymore.

There’s actually a variety of reasons why a homeowner may want to downsize.

• Retirement
• Financial Benefit
• Life Change

Retirement is the most common reason why people downsize their homes. As a family ages and matures, children leave, and the couple doesn’t need such a big house anymore. Looking ahead to retirement, smaller suddenly looks better. Homeowners also downsize to gain a financial advantage.

Downsizing might result in a lower mortgage payment or a more favorable investment portfolio. It might also become advantageous, or even necessary in the event of some significant life change, such as a career change, health crisis, or a divorce.

1. What is Downsizing Your Home?

A. Physical Downsizing

There are actually two components to downsizing. One refers to the size and configuration of your current home. The way your home is physically laid out may no longer be suitable for your personal needs or your health requirements. Maybe it’s just too big. It made sense twenty years ago, when you had young children, and everybody needed plenty of space. But you’re an empty nester now, and those extra bedrooms just collect dust.

Perhaps the yard area has become a burden. Bigger yards require more maintenance, and more maintenance means more time spent riding the John Deere, and less time fishing and golfing. Maybe you have some acreage, and the land requires too much management.

If someone in the home has had a major change in their health, and can no longer get up and down stairs easily, then your three-story home, with basement, may no longer be practical. By downsizing to a single-level, ranch-style home, each family member can have ready access to all areas of the home.

Simply by moving from a multi-level home to a single-level home won’t automatically result in a smaller structure with less square footage of living space, but in most cases it probably will.

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B. Financial Downsizing

Most of the time, when you hear a homeowner bring up the subject of downsizing, they’re referring to financial downsizing. They’re talking about moving to a home with a lower market value, in order to either reduce, or perhaps completely eliminate their monthly mortgage payment.

They may also be looking to shift some of the equity they’ve built up in their home into other investment vehicles, such as an IRA. Financial downsizing is complex, with numerous moving parts, like taxes. Any plan to downsize must also include an analysis of potential tax implications.

Most homeowners who downsize, do it for a combination of both reasons. They want to gain a financial advantage, while at the same time, they also want a smaller home that is easier to maintain. This is the typical scenario for older homeowners who are looking ahead to retirement.

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2. The Process of Downsizing

The process of downsizing involves many factors. It involves a lot more considerations and decisions than you might imagine. There are decisions involving money, friends, and family. There are decisions regarding selling your current home and decisions regarding buying a new one.

There are emotional decisions about people, animals, and things. Then there are taxes and interest rates. There is so much to consider, it can become a bit overwhelming.

Perhaps the best way to gauge all of the factors and decisions involved in downsizing is with a narrative. Let’s imagine that we have a suburban couple, Joe and Elvira Walnut, who are considering downsizing.

Joe and Elvira are both in their mid-50’s, in reasonably good health, and both are physically active. Joe hates to do yardwork but loves golf and fishing. However, he has a trick knee that goes out on him occasionally. His doctor keeps telling him he’ll eventually need a knee replacement, but Joe’s been putting it off.

Elvira is an award-winning gardener, who hates to cut grass. She also suffers from periodic bouts of fatigue. Her doctors don’t know what causes it, and they think the fatigue is likely to get worse over time.

The Walnuts own a 4000 sq. foot, two-story, five-bedroom home in Northbrook, Illinois, with a basement. They purchased the suburban Chicago home twenty-five years earlier. They raised three children in the home, all now adults. Two of their children are now married with their own children.

These two families both live in the city of Chicago, about 35 miles from the Northbrook homestead. Their third child currently lives in St. Petersburg, Russia, where she studies Russian cuisine.

Joe and Elvira love their grandchildren and enjoy their periodic visits. In fact, their children occasionally drop the grandkids off for long-holiday weekends, in order to have some quality time to themselves. So, living in proximity to their kids and grandkids is an important lifestyle feature for the entire Walnut clan.

Oh, and the flamingos; almost forgot. While in college, Joe and Elvira actually met on spring break in Ft. Lauderdale. They got roaring drunk on the night they met and, in a state of youthful inebriation, stole an old pink flamingo from outside a motel.

This old flamingo led to the purchase of another, and another, and now, thirty+ years later, Joe and Elvira have the largest collection of antique pink flamingos anywhere north of the Mason Dixon line.

The point of the story is this; the flamingo collection takes up a good bit of space. How much space? The flamingos occupy half of the garage and half of the basement. The Walnuts are banking on the value of the flamingos increasing so much in the next 10 years, that they’re hoping to use the proceeds of their sale to finance their grandchildren’s college educations.

The Walnuts also have a nine-year-old beagle named Snoopy. Snoopy has put on a few pounds over the years, but he still enjoys chasing birds.

One day, Elvira brings up the prospect of downsizing to Joe. “Downsize? You mean move! You want to move? We can’t move!”

Thus, begins the Walnuts’ assessment of downsizing, and all of the implications and decisions associated with relocating. Elvira feels strongly that it may be the best option for them, going forward. So, Joe agrees to sit down and go over all of the factors they need to consider and weigh the pros and cons. Elvira hauls out a yellow pad and pen and the two of them begin to size up their options.

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3. The Walnut Family Downsizing Home Checklist

A. LOCATION

The first obvious question is; where would they move? The couple decides that considering their health and their ages, if they’re going to move, it should be into a single-story, ranch-style home. They’ll still have a basement, because every house in this part of the country has a basement.

But Elvira, who is thinking ahead, says that she’ll need the washer and dryer on the main level, as opposed to the basement. When her fatigue sets in, she has difficulty getting up and down stairs. Joe too, has good days and bad days on stairs. So, they’re looking for a ranch-style home; but where?

Joe and Elvira have been living in Northbrook for 25 years and know everybody in their neighborhood. They’ve also been active in community groups. Leaving the neighborhood is one thing, but moving away from Northbrook altogether would be even more difficult.

Joe is also thinking ahead, wondering whether or not it would make sense to try to stay right in Northbrook. Maybe they could find a single-level home in another neighborhood. Joe decides that before they go any further with their checklist, he wants to call Horace, his golfing buddy, who happens to be a licensed real estate professional.

Joe gets Horace on the phone and asks him to do a quick market evaluation of their 5-bedroom home and to send over listing details on single-level homes listed for sale in Northbrook. An hour later, Joe gets an email from Horace with all the info.

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According to Horace, the Walnut family home has a current market value of $950,000. Horace was able to find twelve current listings that matched Joe’s specs. Joe and Elvira laid the listing sheets out on the coffee table and they began to go over them. Three of them were immediately ruled out due to location.

The remaining nine were a combination of 3 to 5-bedroom houses. All of them had yards and basements. One of them was actually larger than their current 4000 sq. foot home. However, the remaining eight houses were smaller, with three of them being below 2500 sq. feet.

They discussed size and decided that 2500 sq. feet would have to be their minimum. This was, of course, partly due to the flamingos. If they devoted all of the basement space to the flamingo collection, then they could get one garage bay back, and both cars could go back into the garage.

Even with the flamingos all in the basement, they had collected so much furniture and misc. stuff over the years, that they really needed at least 2500 sq. feet. So, they ruled out the three smaller listings, and now had six to consider.

The Walnuts were somewhat surprised to discover that the six remaining listings were all listed at prices which were higher than they expected. Two of them were priced at or above their current home’s value of $950,000.

Of the remaining four, the cheapest was $790,000. Joe did some quick math in his head and realized that, after paying a 6% broker’s commission on the sale of their own house, they would only net about $893,000. With closing costs, it would be more like $880,000.

Joe and Elvira now realized that if they stayed in Northbrook and purchased the $790,000 home, they’d only net around $90,000 on the transaction. After arranging financing on the new home, their mortgage payment would not change much.

So now, the question arose, “Do we really need to stay in Northbrook?”. What would their future life look like in Northbrook? After a quick assessment, they agreed that Northbrook had changed a lot over the years. Many of their friends had moved away. Some of their other friends had made plans to move out of state when they retired.

So, maybe staying in Northbrook isn’t really all that important after all. If they found a suitable property in an area with more affordable property values, maybe they could do better financially. Retirement is looming, after all, and lowering their cost of living would definitely make things a lot easier.

However, with their children and grandchildren being right in Chicago, staying in the general area was still important to them. They could move out of Northbrook, as long as they remained close enough to Chicago.

After a lively conversation about possible areas, they both decided they should consider Fox Lake. The Fox Lake area of Northern Illinois has dozens of lakes that are great for fishing and also has lots of excellent golf courses. Joe and Elvira had spent many weekends with friends around Fox Lake over the years and had grown to like the area. And Fox Lake wasn’t very far from Northbrook, so they could drive over and see their friends any time they wanted.

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B. PRELIMINARY SEARCH

Joe got Horace back on the phone and asked him to email over some listings for single-level homes near Fox Lake. When they received the email from Horace, they were stunned. There were some gorgeous properties for sale. But what was even better was their listing prices. Home prices around Fox Lake appeared to be about a half of what they were in Northbrook.

After looking through the listings, they found one that was nearly perfect. The house was beautiful and at 2800 sq. feet, nearly as big as their current home. It had a finished basement for the flamingos, and a big pool for the grandkids when they came to visit. It also had a four-car garage and an outbuilding. It was only a little further away from Chicago than Northbrook.

And the best part; it was listed for $545,000. The only problem with this property, if you want to call if a problem, is that it was situated on a five-acre lot. About half of the acreages were in evergreen trees, but the other half was lawn.

Joe and Elvira weighed the pros and cons of a five-acre lot. Snoopy would have lots of room to go out and chase birds. Elvira would have plenty of space for a big garden. And with all the money they’d save by downsizing to a lower priced home, they could just hire a landscaping company to look after the big lawn.

The couple realized that this particular listing might sell before they were ready to make an offer, but they decided that Fox Lake was going to be their designated area. Joe got Horace back on the phone and asked him to come over and help crunch some numbers.

C. THE NUMBERS

It turns out that the numbers looked pretty good. If Joe and Elvira could net $880,000 on the sale of their existing home, and could buy a home in Fox Lake for around $500,000, they would realize a $380,000 gain on the transaction.

Since their mortgage on the Northbrook home only had a $200,000 outstanding balance, they would walk away from the transaction with $180,000 cash and no mortgage payment. They decided they’d add the $180,000 to their retirement account. In ten years, when they were ready to retire, the $180,000 would be twice that much.

Joe asked Horace about taxes and Horace smiled as he explained that the Walnuts would have no capital gains tax on the proceeds of the sale, since their home was their primary residence, and they’d been in it for a long time. He also pointed out that their property taxes in Fox Lake would only be about a third of what they were currently paying.

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D. CONSIDERATIONS

Then Horace asked the couple if they’d thought everything through. What about their children? It would probably be a good idea to get their input on the move. Sometimes people are attached to their childhood homes, and they prefer to keep the property in the family.

Joe and Elvira agreed that there was no need to keep the house in the family. When the two of them passed, the three children would most likely sell the house and split the proceeds. But they agreed that the children should be kept in the loop.

Horace then asked them about senior housing. There were some over-55 housing developments in the Fox Lake area, and maybe they should consider one of them. The couple thought that was a good idea and decided they would consider over-55 listings. Then Horace asked about lifestyle, reminding them that their lifestyle in Fox Lake would be much different than Northbrook.

By this time, both Joe and Elvira had pretty much concluded that their new lifestyle in Fox Lake would probably be superior to the one they had now, which after 25 years, had become a bit stale.

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E. LISTING THE FAMILY HOMESTEAD

So, Horace pulled out a blank listing agreement form, and before the sun had set, the Walnut family home was posted on MLS, at $975,000.

The Walnuts woke up the following morning to the realization of what they had done. They were moving. The stress of moving, and preparing to move, suddenly hit them. Elvira got out her yellow pad and they began listing all of the things they needed to do.

a) Organizing – The first, and most obvious thing to consider, was what to do with all of their stuff? They had things that they loved, and could never part with, and they had other things that probably needed to be replaced, or just tossed. They decided that they’d go through the house, room by room, and decide each item’s fate. They broke it down into four categories.

• Things that they wanted to keep – went into an extra bedroom
• Things that they would try to sell in a yard sale – went into the garage
• Things that they would donate – went outside onto the patio
• Things that needed to go into the dumpster – went outside onto the patio

They began organizing everything. The couple realized that all of this organizing was going to take some time, so they didn’t rush it. The process actually turned out to be somewhat emotional, since every item they considered had some kind of nostalgia attached to it. As they went through everything, they both realized that this was something that needed to be done anyway, and probably should have been done a long time ago.

b) Repairs – The Walnut home had been well-maintained over the years, but there were some little issues here and there. They listed the projects to be addressed.

• The gutters needed to be cleaned out and repaired
• The kitchen and bath both needed to be painted
• The hardwood floor in the den needed to be refinished
• An old stump on the front lawn needed to be removed

Joe got on the phone and made arrangements to have the work done.

F. THE WALNUT’S NEW LAKEFRONT HOME

Four weeks later, they got a good offer on their home and the property went into escrow. With the house in escrow, they put all of their attention into finding a property near Fox Lake. All of their preparation paid off, and the property search was fairly simple.

They closed on a 3-bedroom home for $510,000, with a 3-car garage, basement, and large storage shed. The 5-acre property also had a lakefront and dock for their boat. Actually, they didn’t own a boat yet; but soon would.

4. Downsizing Bliss

Downsizing can lead to happiness and satisfaction with the decision, or it can lead to frustration and regret. It can result in financial gain or financial loss. The key to successful downsizing is preparation and thinking every detail through, thoroughly. It is not a decision to be taken lightly, nor a process to be entered into, if unprepared.

With respect to those looking toward retirement, everyone needs to be realistic about life, and the fact that everyone’s health declines with age. We all need to ask ourselves, “In what way is my health most likely to decline?”, and “Is this downsizing decision, and the changes that come along with it, truly realistic, given my health history?”