Benefits of Downsizing Your Home

There comes a time when a big house with lots of stuff becomes too much, making downsizing a tantalizing option.

Tangible benefits are easy to see -- likely a smaller mortgage, lower utilities and property insurance among other potential benefits. Intangible benefits include less upkeep and more freedom to do things not tied to possessions.

Downsizing isn't easy because it also means reducing stuff and changing a mindset to living in a smaller place. Furthermore, moving brings its own financial considerations, real estate and financial experts say. Even so, reducing space can be a positive lifestyle choice.

Bucking the big-house trend. According to the Census Bureau, the average size of new houses built in the U.S. in 2015 was an all-time high of 2,687 square feet, with the median new-house size at a new record 2,467 square feet. That's up about 1,000 square feet for both measurements since 1973, the earliest data available from the department.

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Houses that big cost a lot. Greg McBride, chief financial analyst at in Palm Beach Gardens, Florida, says there are several financial benefits to downsizing, from reducing or even eliminating a mortgage payment, possible lower property taxes, lower property insurance, to reduced utility costs.

Many of the people who downsize are older people, says Christopher Mundy, real estate broker and life transition specialist at @properties in Chicago. "The large homes, the McMansions, don't meet their lifestyle anymore," he says.

Much of it is wasted space. It's not unusual that families spend 80 percent of their lives in 20 percent of the house, Mundy says.

Americans have acquired a lot of stuff to fill that space, says Matt Parker, Seattle-based real estate agent and author of "Real Estate Smart." According to "Life at Home in the 21st Century," a book written in by four UCLA archaeologists and anthropologists, Americans have between 500 to 1,000 items in each room of their home, he says.

Parker says having so much stuff sometimes leads to anxiety and that can trigger action to downsize.

Downsizing correctly. People who want to move should think about where they spend most of their time and not to get caught up in square footage. "Square footage is a number; a floor plan is a reality," he says.

Homes with eight-foot ceilings and small rooms can feel crowded, even if there is a lot of square footage, whereas homes with open floor plans, nine-foot ceilings and large windows may feel much larger, he says.

The key to a comfortable smaller home is making sure the kitchen and the adjoining room are large, open and bright, he says.

"That's where we spend 80 percent of our waking hours or more," Parker says. "We don't use our master suite, or bedrooms. We eat in the kitchen, we do our homework in the kitchen. We argue in the kitchen."

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Lindsay Gaskins, chief executive officer and cofounder of Chicago-based All In Order, who works with real estate agents and homeowners to reduce possessions, says the emotional attachment to things makes decluttering difficult.

Start by categorizing items, she says. Because stuff is usually strewn around the home, take photos and group the pictures into categories to see what's there. Once people have like items together, it's easier to see and make better decisions. By photographing objects, stuff can remain in place, which can reduce the initial anxiety of making the decision of what to keep and what to eliminate.

When downsizing, think about the market value of pieces, she said.

"We may or may not remember how much we spent on items. We may or may not remember how long ago we bought the item, but it's in our memory. Say it's a kitchen table we spent $2,000 on. That's our last reference point," she said.

Rather than thinking of that figure, research the piece's current donation or resale value. That helps to change the mindset, Gaskins says. People can do this on their own, or hire a firm. Having the pictures and the market value together helps with decision-making on what to let go.

"It grounds them in, OK, if I get rid of this table, this is how much I'm going to get for a donation valuation," Gaskins says. "We can also identify how much that item is currently selling for."

Other factors to consider. Downsizing can free up the equity that's locked in a home, says McBride, and improve a household's cash flow.

"You can invest it, put in the bank, use it to pay the bills in retirement or semi-retirement," he says.

While there are many upsides to downsizing, there can be some hidden costs, he says. Homeowners who live in areas where property taxes are capped might not see lower taxes when they move, especially if they live in an area where homes have seen a lot of price appreciation.

McBride says most people who live areas where property taxes are capped and have resided in their homes for a while likely realize their taxes are low. However, when they move, they may be surprised at the magnitude of the difference in property tax rates, so that's something to keep in mind.

Be aware of transaction costs of selling a home and buying a new one, he says, which could be several thousands of dollars. While these costs aren't hidden, people tend to overlook them. It may take some time for people to recoup those costs.

"While you might have had a reduction in the expenses you explicitly pay each month, you incurred significant implicit costs through the transaction," he says.

Hidden cost factors aside, ultimately downsizing is a lifestyle decision, he says.

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"The kids are out of the house, so you don't need as big a place. You might have physical limitations or mobility restrictions," McBride says. "There's taking care of a big yard, climbing up on the roof to clean out the gutters. These are things you can live without."

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