The True Cost of Downsizing
In the midst of the booming real estate market in Canada, many Canadians are entertaining the idea of Downsizing. In order to sell their homes at a high value and purchase a smaller home or condo at a lower price.
Is Downsizing the way to go? What are the costs associated with downsizing? The truth is, there are many costs to downsizing, and not all of them are obvious.
Canadians have many reasons to downsize. Including:
- Less house to upkeep
- Move closer to loved ones
- Spending the winter in a warmer place, therefore they don’t live in their home year round
- Getting equity out of their home to help fund retirement
Costs to sell your home
Let’s break down the more obvious costs of downsizing so that you can weigh the financial pros and cons.
Keep in mind that the example below is for illustration purposes only. There may be other expenses not mentioned, but the key expenses are highlighted.
Let’s use the example of a home that will sell for $1,000,000. The home still carries a $200,000 Mortgage, which would equate to a net amount of $800,000. However, there are costs that you must deduct from the total sale that can eat into you lump sum.
- Realtor commission - In Vancouver, the standard realtor rate is 7% on the first $100,000, and 3% on the remainder. In this example of a $1,000,000 home, you would need to pay the realtor $34,000 plus GST $1,700
- Closing costs and legal fees – Approximately $1,500
- Miscellaneous costs - $1000
- An approximate cost of selling your home - $38,200
In addition to these reasons, these are some other costs that are associated with downsizing:
- Getting Your place ready to Sell – Fresh coat of paint, minor repairs, kitchen/bathroom renovations, roof repairs and maybe even the cost to stage the home.
- The cost to part with old furniture – When you downsize, you typically have to get rid of furniture, books, and other items that take up space. You may even decide to keep the items in a storage unit, which can cost money monthly.
Costs to buy your downsized home
There are also costs associated with buying your new downsized home. If you intend to purchase a smaller home (semi-detached, townhouse, or condo), most of the money you earn from the sale of your home will go towards the purchase of your new downsized home.
Here is an example of the expenses you may incur when you purchase your downsized home:
Let’s use the example of a condo with a cost of $500,000.
- Land transfer tax in BC for a $500,000 property is $ 8,000 to 9,000
- Title insurance and legal fees – Approximately $1,500
- Moving costs – Approximately $2,000
- There may be a property tax adjustment – This would depend on when the seller paid the property tax and when the buyer takes possession of the condo. In most cases, the buyer will have to pay the seller the difference depending on when they took possession of the property.
- Purchase of new furniture to fit a smaller condo – Approximately $10,000 - $15,000
- Monthly maintenance fee for condo living – Approximately $250
- This is an additional approximate cost of $27, 750
The total cost of downsizing from a $1,000,000 home to a $500,000 condo would cost approximately $66,000. This is not including all of the other costs listed above. This is the reality of downsizing. It isn’t as clear cut as the selling value of your home minus the buying costs of your downsized home. Although there is a return, the process of buying and selling has the added costs that can make or break your decision to move.
If you are in need of extra cash to help with life expenses or to help you prepare for your retirement, our experienced Mortgage Advisors are always looking to save you money. If downsizing is something that you are thinking about, we can help with that too. With up to date market information, and our overall knowledge of the industry Client First Mortgage Solutions should be your first choice. We will provide you with all of the information needed for you to make the decision that best suits your needs. Call us today.
Original Article – Dominion Lending Centre - September 2017