Downsizing: How to Find the Right Smaller Home

After a long and difficult debate, we recently decided to downsize our home. Even as we went through a process to sell our house fast we constantly second-guessed ourselves. Only finding the right smaller home would make the choice work. In this post, I’ll describe how we did exactly that.

1. Be Clear About What is Important to You

As with all good decision-making, knowing your goals is critical to getting the results you want. Take the time to determine what you need in your smaller home. If you’re single, talk through it with a trusted friend. If a couple, spend significant amounts of time discussing it.

In our case, we’d already created our list of Pros and Cons to Downsizing. This helped us reach the initial decision, but it was also a huge help in this phase. By looking at what we considered cons, we knew the losses we would feel. It was important that our new home eliminated or minimized the cons.

In addition to minimizing the downsides, our new place needed to confirm all the pros we’d listed.

Your needs may be different, but make sure you take the time to fully understand what those needs are.

2. Know Your Budget

Hey, this is a finance blog so you knew this would be near the top! It’s likely that at least some of the reason you are downsizing is financial. For us, it was a huge part.

No – not because we desperately needed a certain amount of money. (The most common response when we tell someone we are moving is “Are you in financial trouble?”) Instead, if done right, downsizing would help us accelerate our path to financial independence.

The goal was to move to a smaller home and have no mortgage payment, and reduced property taxes. Our budget was defined by the equity we’d pull out of our larger home.

Whatever your needs, make sure you start the process with a clear budget in mind. This will help you both narrow down your options and prevent you from talking yourself into buying more house than you need.

3. Create a List of Criteria

This may sound redundant to #1 but isn’t. In this step, you want to create a clear list of exactly what you’re looking for in a smaller house. Be as specific as possible. This list will be critical in your search!

Perfect specificity is great, but if you want to give yourself options, and are truly willing to flex, then a range can be useful. For example do you need exactly 3 bedrooms and 3 bathrooms or would “3+ bedrooms and 2+ bathrooms” be alright?

With some criteria, you may have a strong preference but would be willing to flex if your other needs were met. Try to capture this in your list, too. The clearer you can be up front, the more likely you are to find the right place.

Here’s the list we came up with for our smaller house criteria:

Our List

I share this list as an example, not suggestions for you personally. Go through steps 1 and 2 to ensure you’ll get what you want!

• 2+ bedrooms and 2 bathrooms. We know that our life patterns require this.
• Separated space. Speaking of life patterns, we know that it’s useful for us if we can work in separate spaces. A two-level place would accomplish this nicely. But, we’d be open to a single-level if it had a work area separate from the main area.
• Greenspace on one side or height with a view. We’d love both, but would accept one. This has to do with my need to not feel surrounded and was an important criteria. It was also the thing we most feared losing by leaving our current home.
• East side of our metro area. We were moving out of the central area. Moving east would allow us to stay with roughly the same commute for work. Going west would extend the commute. Conveniently, housing is also cheaper on the east side.
• Walkable to restaurants and a coffee shop. We didn’t need a fully walkable location, but wanted access to at least a few places to “stroll.”
• Detached home > End unit townhouse > interior condo. We were somewhat flexible about a house or a condo, but had a clear order of preference.
• ~1000 square feet. I know this is a lot for some, but we were downsizing from almost 2800. We could go smaller but were wary of feeling cramped. This was a guideline, not a hard limit.
• Budget of $XXX,000 if all criteria are met. Every compromise results in a lower budget. (The numbers don’t actually matter since housing costs vary so widely by location. But insert your personal number!)

4. Work With a Realtor

Yes, there is a lot of debate about the worth of realtors. I think for a buyer it’s an easier choice than for a seller. In most cases, the seller pays both commissions.

Even with the rise of Zillow and Redfin, an agent has access to more information than a layperson. They also know other realtors and can provide information you may not find on your own.

For these reasons, we went with a buyer’s agent. We used the same agent for both buying and listing. She had accepted a very reasonable 1.5% listing commission, so we had no problem giving her an additional commision on purchase. I’ve been told that sometime you can negotiate lower commissions by agreeing to this arrangement. We were already on the low end.

Now is when your clear list of criteria really becomes powerful! We handed it straight to our agent so she would provide us listings as close to our needs as possible.

Know that you’ll need to do some training here. We were clear when listings came to us that didn’t meet our needs and asked not to receive anymore. In particular, this happened with location and price. We had to be clear that our top end was our top end, and that we weren’t flexible on location.

Within a few days, we were visiting potential homes that met most of our criteria.

5. Visit Possible Homes and Adjust Criteria

The visit part is obvious. Start looking at potential homes! In the ideal world, you’ll find your new home instantly. I wish this for you.

It wasn’t the case for us. We’re not nitpicky about things like cosmetic details and need for repairs, but are very particular about how a home and neighborhood “feels” to us.

Re-prioritizing your criteria or finding additional criteria to add to the list is an important step as well! For example, we visited one property that had potential. As we were discussing it, TFI realized that the lack of air conditioning was a deal-breaker for her and tipped it into not-worth-considering. It wasn’t for me, but it was such a strongly held opinion for her that we added it to the list.

• Air conditioning (or the ability to add and stay in budget)

Additionally, we refined our location further.

• Walkable distance to (a certain area)

Use viewings to refine your criteria and increase the chances that you’ll get the right smaller home!

6. If Possible, Do Your Own Searching Too

I know, I know. I talked all about how a realtor will have access to information that you won’t. This is true!

However, it’s also true that an increasing number of people are attempting to work outside the traditional selling channels. Sometimes they know how to use current technology. Other times they do not.

As we got clearer about our criteria, we narrowed in on a possible location. It was close enough that about once a week I’d just drive through the area to see if I noticed any potential new homes. I also scanned Zillow for For Sale by Owner listings. Sometimes these appear on RMLS, sometimes they do not.

Doing this, we found three different listings that met most of our criteria. Two were for sale outside the normal channels, and one was up but hadn’t been listed properly by the seller’s agent. Our realtor was then able to find more information and arrange showings.

Our Surprise Decision

Using this process, we found our new home in four weeks of searching. It instantly switched us from being reluctant sellers of our large home to impatient and excited to move into our new smaller home.

The biggest surprise – we’ve decided to rent! During the search, we narrowed in on an ideal location. It was a very small area and was unlikely that something would come up for sale in the time we had available. (Remember, our house was already under contract)

I followed my own advice and did my own online searching every once in awhile. During this search, I happened to notice a new listing on Zillow. It was exactly in the area we wanted and met all but one of our criteria perfectly! Unfortunately, it was for rent not sale.

Ownership is important to both of us. It provides us with a sense of control and security. Yet, this was such an ideal property that we decided to go look.

And we loved it.

After a healthy debate, we decided to go the rental route. We’ll get to test the new area, experiment with being renters, and retain maximum flexibility. We may buy if the perfect property comes up in the future, or simply rent until we retire and decide our long term plans.

On the financial side, we’ll use the equity to invest and our monthly housing costs will still be significantly reduced!

(Update: We are moving back into our rental property! But it wasn’t because we didn’t love this place. The process works! You can also see how much we saved in monthly housing expenses by making these choices.)

You Will Find the Right Smaller Home

If you follow these steps and allow yourself time, you will find a smaller home that is right for you. Hopefully, as in our case, downsizing will become a completely positive choice!

1. Be Clear About What Is Important to You
2. Know Your Budget
3. Create A List of Criteria
4. Work With a Realtor
5. Visit Potential Homes and Adjust Your Criteria
6. If Possible, Search on Your Own Too
7. Find Your Smaller Home!