Relevance of Closing Costs on Downsizing Decision

[brett]

As long as there is no financial burden I am not certain why operating costs would be of paramount importance in your decision. Closing costs certainly would not, and did not, deter us from make a decision a decision to sell/move.

The resulting decrease in operating costs were really just icing on the cake for us.

We had a desire to move, a desire to downsize, and a huge desire to change our lifestyle. Those were the driving factors. The costs involved in the transaction were only a consideration once we made the decision. The decision to move, and where we moved simply fell out of those parameters. So we did it and for us it turned out to be a great decision.

 

[MarieIG]

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I'm starting to realize much of what you say, RobbieB. I don't think the operating costs will be that much lower, and we like where are now, (both the subdivision and the state) so we would only move a few miles away anyway. I'm thinking that we need more compelling reasons to move, and I believe DW is on board as well.

We've decided to re-assess in a few years when our feelings may be different. We are also trying to decide if we want to be in a retirement community as well (instead of our current typical SFH community).

Yeah, I think RobbieB hit the nail on the head.

 

[Gotadimple]

I came up with $40K based on the following. I admit I have included fix-up costs in this, although fix-up costs are not typically called "closing costs"

Realtor commissions @ 6%........$27K
Seller paid closing costs* @1%.....$5K
Costs to ready home for sale.......$8K

We may be able to negotiate a little on the realtor commissions, but I do believe paying for a good realtor would get us top dollar and a quick sale.

*Escrow fees, recording fees, title insurance.

Trooper,
If you will be buying a replacement home in the same area, use the same realtor. There are commission on two sales: the realtor may reduce his/her commission because they are getting two commissions. This happened for me when I bought my current place, she dropped the selling commission on my old home by 1% because I was using her in a new home search and purchase.

- Rita

 

[Another Reader]

I would like to sell and get out of the overcrowded Bay Area and move to a newer house with less upkeep. The tax on the huge capital gains from this house and from moving up from the starter home when you could defer the gain is not palatable. Commission is 4.5 percent typically because the values are in the low mid- million range, but selling expenses would still be around $80k, and I would have to spend another $100k plus to do the deferred maintenance and updates for top dollar. Not willing to spend close to $350k to do it.

And "experts" wonder why baby boomers are not selling in HCOL areas...

 

[daylatedollarshort]

I would like to sell and get out of the overcrowded Bay Area and move to a newer house with less upkeep. The tax on the huge capital gains from this house and from moving up from the starter home when you could defer the gain is not palatable. Commission is 4.5 percent typically because the values are in the low mid- million range, but selling expenses would still be around $80k, and I would have to spend another $100k plus to do the deferred maintenance and updates for top dollar. Not willing to spend close to $350k to do it.

And "experts" wonder why baby boomers are not selling in HCOL areas...

I've never been that interested in being a landlord, it just isn't my area of expertise compared to doing tech type work. But the more prices rise and Prop 13 keeps property taxes low, it seems for those reasons it might make the most financial sense instead of selling to keep the house, rent it out and for us maybe one of our kids would want it once they are older.

 

[athena53]

DH and I had a more-expensive-than-expected downsizing 2 years ago and I don't regret it. Savings on utilities, property taxes and the mortgage payment add up to over $5,000/year.

There were some other non-financial criteria: no pool (it was getting to be too much work to maintain) and all the major living spaces on one floor. DH's health was deteriorating and we needed a spare BR on the main floor with the Master BR since occasionally DH needed a place to hang out when he couldn't sleep and stairs were becoming difficult for him to navigate. I was also concerned that as more baby boomers decided that garden-variety McMansions no longer served their needs, the market would be glutted with them. There's less to maintain. I can keep the new house clean without too much work- the old place had 5 bedrooms, 5 bathrooms and a finished basement. My current lawn is bigger and built into the side of a hill so I may need to farm that out at some point but at least I can keep the house clean and don't have a pool to maintain.

The whole selling-and-buying process was hugely disruptive. Our house was shown 40 times. We had to be out each time. We probably drove by dozens of houses on our own to narrow down buying choices, then visited maybe half of them with our realtor. During the move we had a heck of a time getting the packers to load everything (they kept missing stuff in closets), spent a week in a motel between closings and then had to unpack at the other end. Now imagine doing that when you're old, less-mobile and maybe not quite as mentally sharp as you used to be. (DH was 76.)

(The list keeps growing!)

I'm also happy to have less of my net worth tied up in a house; this market is pretty stable so it wasn't a sure-thing investment. We sold the last place for less than what we'd paid when accounting for many substantial improvements (enclosing back porch to make a sunroom, granite countertops, scraping off popcorn ceilings, bamboo floors replacing ugly kitchen linoleum).

Are you counting some of the "pre-paid" items in your closing costs? I know it would be a small part of the $40K but items such as paying property taxes and a year of homeowner's insurance in advance will be somewhat offset by a credit for taxes you paid on the house you're selling and a pro-rata refund on the homeowners' insurance on the old place.

 

[akck]

I've noticed the ads for those kind of realtors and they certainly seem worth considering. But then that is only saving less than 3% after the flat fee and the other realtors may not want to promote a flat fee realtor home for sale. We'll probably just do like a lot of our neighbors and let the adult kids deal with the house after they've moved us into some kind of assisted living place.

Our son used a flat fee realtor to sell his first house recently. He elected to pay the buyer realator 3% to encourage them to show the house. Paid his realtor $1,000 fee, saving about $9,000. One thing to be aware of is that you likely have to hound your realtor to get everything done. This includes closing tasks. Many documents had to be sent back next day air because they weren’t forwarded timely.

He likely would use one again because he knows the pitfalls.

 

[JVan]

Don’t make a decision this big just out of the gate. Wait until you’re settled into your new lifestyle. Start by learning more about RE in your neighborhood. What are the prices of sold properties in your area comparable to your home? Is your location desirable? This will tell you the amount you may receive and how quick it will sell. Talk to your neighbors, they may know someone who would be interested in your home which would eliminate some expense. Learning more will help you make the right decisions.

 

[RunningBum]

IMO if you can limit the # of real estate transactions, you'll come out better. If you've got other reasons to downsize, do it, but not to save money unless you think you're really moving to your final house (before any kind of assisted living). Especially if you're only going to slightly downsize.