10 Things You Should Know About Selling Your Home to Downsize in Retirement

two older people next to house for sale sign

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Kay and Jim Schlembach could be considered America’s poster children for downsizing. After a career at ExxonMobil in Houston, Jim retired at age 62, and the couple bought a 3,200-square-foot contemporary on a wooded lot in Clifton Park, N.Y., near Albany.

It was a big house to entertain their kids and grandkids. But the Schlembachs had a strict 10-year timeline. Now at ages 62 and 72, respectively, Kay and Jim have decided to downsize to their 850-square-foot condo in Richmond, Va.

“We made the decision that we were not going to be a burden to our children and that we would take care of our aging process and living arrangements,” says Kay. “These are hard conversations to have. America doesn’t deal with death very well, and aging is difficult.’’

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The Schlembachs put their home on the market in March. The open house brought more than 200 visitors, and within three days, they had received 10 offers — all for well above the asking price of $600,000. Eight days later, they were under contract for more than $700,000.

The Schlembachs may be among the most proactive downsizers in America, but they’re not alone. According to the National Association of Realtors, baby boomers are on the move. They are the largest group of both home sellers and buyers in the country.

Finding a smaller dwelling that checks all the boxes — geographically, financially, emotionally, and physically — is a smart thing to do. But first, you have to sell.

Here’s some of what you need to know:

1. Know what your home is worth

Homeowners can get a basic understanding of what their home is worth by tooling around on Zillow, Realtor.com, and other online sites that have estimator tools. But it’s also wise to consult with at least two or three local real estate agents.

And don’t go with your cousin’s friend who just got her real estate license. The Schlembachs had a checklist and insisted on “a seasoned and responsive broker, with extensive knowledge of our local market conditions, solid comps, optimal listing timing, pricing based on data-driven dollars per square foot, days on market, and technological aspects such as photography, staging and Internet exposure.’’

2. Hire a real estate agent

About 10% of homeowners in 2021 sold their homes without a real estate broker. That saved these sellers about 5% or 6%, which is the rate of commission most real estate agents charge.

But selling your own home can be a lot of work and stress and might not generate the best price. The best agents have expertise in local housing market trends and can generally generate higher prices because of their market knowledge. Plus, there’s a lot of paperwork between the legal contract and contingencies of sale, like inspections, compensation for defects and disputes that can arise en route to closing. Some states require one or both parties to have an attorney.

3. Negotiate the commission rate

An older couple sign paperwork at a real estate agent's office.

Savvy sellers should have a frank discussion with any agent they interview. Real estate commissions have always been negotiable, but sellers rarely had much opportunity to haggle.

That’s changing rapidly. In October the realtors’ association and several brokerages were hit with a $1.8 billion judgment in a class-action antitrust suit that said commissions were artificially high. Then, in March, the association reached a nationwide, $418 million settlement of claims that the industry conspired to keep commissions high.

The settlement, which is pending approval, promises to change the way real estate commissions are paid. Realtors agreed, for example, to stop requiring sellers to pay buyers agents’ commissions. The changes are expected to go into effect in July. As many as 50 million recent home sellers may receive compensation after the settlement is approved.

4. Understand the housing market

Demand for properties is high. Mortgage rates are down from their October 2023 peak. But low inventory and higher prices are putting baby boomers on a collision course with their desire to make a move to something smaller, cheaper or easier to manage.

In February, Federal Reserve Chairman Jerome Powell said he believes the U.S. housing market is undersupplied and will remain so for years. That should concern downsizers who are hoping to trade what they have for something better, only to find market conditions discouraging.

“My advice would be for people looking to downsize is to really do their research on the impact this decision would have. With the current situation of the real estate market, the downsized property may be significantly more expensive in not only price, but also in taxes, HOA fees, interest rate, etc,’’ says Andrew Petersen, an agent in Pompano Beach, Fla.

5. Declutter, donate, throw away

Stop asking your kids if they want Aunt Emma’s old China. (They don’t.) Specialists can help manage all aspects of decluttering and downsizing, starting with the National Association of Senior & Specialty Move Managers.

Barbara Feldman, a relocation specialist in Manhasset, N.Y., has been helping clients since 2007. She’s seen it all and her advice after helping folks downsize — or “right size” — is simple: “Downsize now!”

“We buy too much and keep too much,” says Feldman. “My advice is that if I have something and I can replace it in 20 minutes for less than $20, let it go.”

6. Stage your home

Sellers need to maximize all the assets of their homes and minimize any feature that will cause buyers to balk. In a time when most sellers have amassed equity in their homes, spending a little to wow buyers is a smart investment in your quest to successfully downsize.

“Staging helps the purchaser visually see the potential of the home and leads to an emotional buy,” says Manhattan interior designer Ronnie Rosenberg. “It also usually brings in a higher price and a quicker sale.’’

7. Downsize earlier rather than later

"Downsizing has a much better chance of being a success when it’s a choice,” says Feldman. A majority of her clients are between the ages of 70 and 80 and by this point, she says, the need to move is more of a “mandate” than a conscious decision.

“It’s daunting for so many people, emotionally and physically.” she says. “They’re experiencing a loss of independence and they express that. They say ‘I used to be able to do this but now I can’t.’ ”

8. Know your home’s cost basis

Homeowners sitting on a lot of equity may feel like they’ve hit the lottery. But records and invoices for all the repairs and upgrades tell a different story about what your home cost.

For tax purposes, a home improvement is any expense that materially adds to the value of your home, significantly prolongs its useful life or adapts it to new uses. Documenting these items can reduce your capital gains exposure and, for buyers, demonstrate the investment you’ve made in the home, helping to justify the list price.

9. Consider the tax implications

An older couple look over paperwork while sitting at a table together with a laptop.

If you’ve lived in your house for 20 or 30 years, you may be in for a shock when you sell it. A tax shock, that is, as you may be facing capital gain tax on any profit over $500,000 (for married couples). The cost of selling can be significant, says fee-only financial adviser David Wattenbarger in Chattanooga, Tenn.

On the other hand, selling may not be the best alternative from a tax perspective. “A highly appreciated property left to an heir may qualify for a ‘step up’ in basis at the death of the owner, which could avoid the realization of a capital gain,’’ says Wattenbarger.

10. And there will be plenty of costs you weren’t expecting

Downsizing usually coincides with a move to a new neighborhood or 55-plus development with greater amenities, especially in warmer states with cheaper taxes. Think Florida. But the residents of the Sunshine State are seeing skyrocketing insurance and association fees along with higher home prices.

Warm weather and no income tax come with a hefty price tag. “I find most people are surprised not only at how expensive property is in South Florida, but also the cost of property taxes and insurance,” says Petersen, the agent in Pompano Beach. “They can be significant enough to offset those other benefits.’’

Note: This item first appeared in Kiplinger’s Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

Laura Vecsey is a former sports and political columnist for major daily newspapers in Seattle, Baltimore, Albany NY and Harrisburg PA. She has also done extensive writing about real estate with Zillow, StreetEasy, Keller Williams and eXp Realty. She has contributed to numerous news publications (The New York Times, The Guardian, AARP, DC Report) and is a licensed real estate agent in Saratoga Springs, NY.