Right-sizing… doing it right

We often work with down-sizers… empty nesters… or more commonly termed “right-sizers”. Typically this demographic is older, the kids have moved out long ago and their focus is on lifestyle. Specifically, they are determined to introduce more convenience, less maintenance and increased pedestrian amenity to their life.

The term “right-sizer” refers to a growing number of retirees who don’t necessarily seek a more modest home. Some select larger dwellings, others move closer in to the city, and many select a higher value dwelling than the one they are leaving. Whether it be superannuation, cashing in investments, inheritance, or life savings, we see a lot of upgrade activity in this segment of the Australian property market, and this also includes off-shore expats who plan their imminent return.

Simply put, though “right-sizing” is all about getting it right.

As exciting as it sounds, planning the adventure takes a lot of effort, as does executing it. From navigating the client’s wish-list to managing the buy/sell process in perfect synchronisation, factoring in future needs and managing the buying and selling costs, there is a lot to engineer.

The first, and most important step is to establish a good strategy. The magic quadrant is vital in this context, as it helps buyers with their hierarchy of needs, pinpointing which are most critical versus those that are flexible.

The brief must be realistic and feasible before the right-sizer can move forward with executing their plans. To cross-check the feasibility of the brief, the magic quadrant priorities must be tested. This exercise takes commitment but it’s not difficult.

The second obstacle relates to the sale timing. Nobody wants to be seeking temporary accommodation, particularly a mature aged vendor with decades of accumulated belongings. However, pending the market forces at the time, a right-sizer will need to consider whether they sell first, (and buy second), or buy first, (and sell second). A lot of considerations will determine the order of events, including;

• Their ability to fund a purchase that does not depend on the sale proceeds of their current home,
• Their ability to bridge the sale, (ie. the availability of a bridging loan or borrowed funds),
• The ‘fussiness’ of their brief,
• The saleability of their current home,
• Specific tax-trigger dates,
• Personal need to be in their new home by a certain date,
• Level of concern about a seller’s or buyer’s market eroding their equity position.

The latter point is a significant one in this current market for a lot of right-sizers. Aside from lockdown woes, our aggressive seller’s market has been a challenge for many purchasers who have feared being priced out of the suburbs that they could have afforded in previous months. For a right-sizer who is managing the trade in different markets, achieving a precisely timed move is much more challenging when market conditions are not balanced.

Being prepared to list a home on the market before going shopping is essential for some right-sizers.

An important tip for a right-sizer who is concerned about committing to a purchase when their sale contract on their current property is not unconditional is to consider a condition in their offer; such as “This offer for Property A is subject to and conditional upon the unconditional sale of Property B”.

The third consideration requires arrangement of a deposit and careful budgeting of all of the buying and selling costs. Overlooking these duties and fees will result in upset if not calculated and apportioned carefully.

• Selling costs for the current home. This includes agent fees, advertising, legal fees for contract preparation and settlement, staging, photography, floor planning, gardening, and any improvements.
• Tax. Some home sales will trigger a tax event pending the accountant’s set up. Every right-sizer should speak with their accountant or financial planner before signing any contracts.
• Buying costs for the new home. Stamp duty is the big cost, but other costs such as legal fees, adjustments, any land tax obligations and bank related fees (such as valuation and loan establishment fees) must be considered too. Some buyers may use the services of a Buyer’s Agent also. To understand more about Victorian Land Stamp Duty, an online calculator can be found on the State Revenue Office website.

Many right-sizers move from a freehold dwelling into a strata subdivision, and in most cases the latter attracts an ongoing obligation in the form of Owner’s Corporation fees. The right-sizer must understand the costs, including any possible special levies. In their retirement years, these costs have to be forecasted and managed.

Next involves the logistics of the move, from arranging a garage sale to navigating the packing and removalists. A handy tip for right-sizers is to try to arrange a license agreement for pre-settlement access to the new purchase. Whether it be days, weeks or months, this added bonus can make an enormous difference and will certainly alleviate stress levels for the right-sizer. A license agreement is effectively a legally binding arrangement that is specific to the purchaser’s situation. It is usually drafted by a legal representative and enables the purchaser to move in, (or have access) to the property prior to settlement. License agreement costs are typically a few hundred dollars and are usually borne by the purchaser.

Last but not least… it’s important to remember that right-sizing usually spells significant change and a bit of upheaval at the start. Buyers need to allow themselves time to take stock of their exciting new chapter, and they should acknowledge that right-sizing is a big task, and one that will naturally create mixed-emotions initially.

Embracing the change and thriving in the new surrounds is the special part.