Downsizing clients are two deals in one. You sell the big house and you buy the next one, and the two have to land on the same calendar. Most of these owners have lived in the home a long time. They carry a lot of equity, a lot of stuff and a few tax questions. Here's how I run it: define the move, price the current home, pick the next home type, then line up the dates.
The short answer
"Smaller" isn't a plan. Find out what the client wants to get rid of (stairs, yard, snow, empty rooms) and what they won't give up (garage, guest room, storage). Price the current home from this year's sales so they know their net. Search by how the next home lives, not by a label. Decide whether to sell first, buy first or tie the two together. Send tax questions to a CPA, and point them to the IRS and the county assessor for the rules.
Step by step
- Define the trade. Ask: Which rooms do you still use? Do you want daily life on one level? Who should handle snow, yard and exterior? Which trips do you still make every week?
- Price the current home first. Run a pricing report on today's comps, not what the house "used to be worth." Show the net after costs. See how to explain a CMA.
- Search by function. A ranch is a layout. A patio home is a search label, not a set maintenance deal. Lock-and-leave is marketing talk. Walk the daily route on every showing: garage to kitchen, bedroom to bath, bedroom to laundry. Count the stairs used for normal tasks, not the floors.
- Read the HOA before relying on it. "Snow included" may mean streets only. "Exterior included" may not mean the roof. Get the maintenance chart. If a 55+ community is in the mix, see 55+ community rules and costs.
- Compare the full monthly cost. A smaller home can cost more each month. Taxes, insurance, dues and metro district mills change with the address. See HOA vs metro district.
- Pick the order.
- Sell first: clear numbers and no double payment. Plan the gap, often with a rent-back written into the sale contract.
- Buy first: one move. The client must be able to carry both homes, with cash or a lender-approved bridge or equity line.
- Tie them together: a contingent offer or matched dates. Build the contract deadlines around what really has to happen.
- Flag the tax questions. Send them to a CPA with the right documents (see below).
- Plan the clean-out. Sort early. Keep, give, sell, donate. Book movers and estate sale help once the dates are firm.
The money questions to flag (not to answer)
- Capital gains. There's no special over-55 break anymore. Under the current federal rule, a seller of any age may exclude up to $250,000 of gain ($500,000 for most married couples filing jointly) if they owned and lived in the home 2 of the last 5 years. Gain above that can be taxed. Have the client find the purchase closing statement and receipts for big improvements. Rules and limits are in IRS Publication 523 and IRS Topic 701.
- Senior property tax exemption. Colorado has a senior exemption for owners 65 and older who have owned and lived in the home at least 10 years. It applies to part of the home's value and depends on state funding. Whether it carries to a new home depends on the law for that tax year. Send clients to the Colorado Division of Property Taxation and their county assessor before they close.
- Reverse mortgage for purchase. Some older buyers use one. That's a lender conversation. Don't quote terms.
A worked example (illustration only)
| Current home | Next home | |
|---|---|---|
| Mortgage payment | $0 (paid off) | $0 (cash purchase) |
| Property tax | $350/month | $420/month (includes district) |
| HOA dues | $0 | $325/month |
| Snow, yard, exterior | Owner, about $250/month | Covered by HOA |
| Monthly total | About $600 | About $745 |
Smaller house, higher monthly bill. That's fine if the client wants the trade. It's a problem if nobody showed them.
Illustration only. These numbers are made up to show the math. Real taxes and dues come from the county record and association documents for the exact home. If financing is used, a lender sets the real terms. The annual percentage rate (APR) would differ from any note rate. This is not an offer of credit. Tax rules change. Check current rules in IRS Publication 523.
How to explain it to your client
"Let's start with what you want to stop doing: the stairs, the snow, the empty rooms. Then we'll list what you're keeping. I'll get you a written value on this home so you know your number, and we'll compare the full monthly cost of the next place, not just the price. On taxes, I'll give you a short list of questions for your CPA. Then we pick the order, so you only move once if we can."
Watch-outs
- Don't give tax advice. Explain what to ask. The CPA answers.
- Don't trust labels. Ranch, patio, maintenance-free and lock-and-leave all need the floor plan and the HOA documents.
- Don't price from memory. Long-time owners remember the peak. Use this year's sales.
- Don't steer to 55+. It's one option, not a requirement. Describe homes and rules only.
- Watch the storage. Basement items have to go somewhere. Measure the big furniture before the offer.
- Rent-backs need terms. Dates, fee, deposit and condition at move-out, all in writing.
Further reading
- Downsizing in the Denver Metro on kennarealestate.com
- Capital Gains When Selling a House Over 55 on kennaluxuryrealestate.com
This is training for real estate agents. It isn't legal, tax or lending advice. Talk to an attorney or CPA. Check with your managing broker.
Questions
Should my client sell first or buy first?
It depends on their cash and comfort. Selling first gives clear numbers. Buying first means one move but two homes for a while.
Is there still an over-55 capital gains break?
No. Today's exclusion has no age test. See IRS Publication 523 and a CPA.
Does the senior property tax exemption move with them?
It depends on the current year's law. Have them call the county assessor before closing.
Is a ranch always the answer?
No. A two-story with a main-floor bedroom, bath and laundry can work too. Walk the daily route.
How early should we start?
Months before listing. Sorting, pricing and the next-home search all take time.
Brian Lee Burke is the founder of PadLeaders, a Colorado real estate broker licensed since 2003, team leader of The Kenna Group at Keller Williams DTC (formerly Kenna Real Estate Group) and the author of Mastering Real Estate and The Real Estate Playbook. More about Brian.