Selling the family home can often be a game of emotional battleships but it is also a matter of timing. The family home is steeped in memories and this can be the biggest hurdle to jump when making the decision to downsize. However, timing can play an important role in helping older homeowners (and their adult children) avoid the minefield of financial and emotional concerns that stop them selling their family home at the best possible time.
Constraints on selling the family home
The two big factors that stop many from selling their family home are emotional and financial.
Those who are post-retirement often face some major financial hurdles that deter them from selling the family home.
- After selling, pensioners may lose some (if not all) of their age pension as the family home, or your Permanent Place of Residence (PPOR), is exempt from the pension assets test while the equity unlocked when selling the house is not.
- Pensioners are also taxed for the cash released upon selling the house.
- Those selling the family home need to buy elsewhere, which demands all the upfront costs of moving, including the dreaded stamp duty tax. This can be in the tens of thousands for the average Sydney home, not including real estate agent and legal fees.
- Downsizers are often encouraged by society to move into high density living (apartments). However, the desire and expectation to maintain a quality of life sometimes puts pressure on retirees to sell the family home and move into high-end apartments. These apartments then come with high strata fees, which can be a significant drain on resources and essentially take away the financial freedom of retirees as they are bound to pay fees regardless of their financial situation.
- There is the basic emotional effect of leaving the family home. Packing, moving and sorting through a life time of possessions can be something many homeowners put off until the above financial constraints move in.
- Many ageing homeowners wish to age in a place that is familiar to them, where they have friends and family nearby and are used to the local amenities and shops.
- The wish to remain in the same area/neighbourhood can restrict what smaller properties are available to them, which stops them from making the move from the family home and downsizing.
The only real way to avoid becoming weighed down by any or all of these constraints is to make the decision to sell the family home sooner rather than later. Selling earlier opens up downsizing opportunities as you have more time which usually means more financial freedom. The 2017 Federal budget did open up more opportunities for retirees, however, when it revealed plans for those over 65 to put the proceeds of the sale of the family home (as long as you have owned it for at least 10 years) into super, at a maximum of $300,000 per person. This can be an effective way to avoid many of the tax headaches that come with selling a home at such a financially important part of your life.
It is true that demographics will continue to change in the next 25 years so that the idea of downsizing will no longer be relevant in the same way, as many homeowners will still be paying off mortgages as a result of getting into the market later in their lives. It will therefor become harder to move around within the market as finances become more intertwined with mortgages later in life, which is all the more reason to be aware of when the best time to sell suits your financial situation.
Alternatives to selling the family home
A growing trend and realistic option for an ageing population is co-housing for retirees. There are a range of tax, administrative and lifestyle considerations to make when entering into a co-op style of accommodation, but it can take away much of the financial stress of owning a home by yourself, while solving many of the lifestyle/health concerns of an ageing population.
Another option is to keep the family home and use it in a variety of ways, for instance renting out a room, refinancing and building separate living quarters with the children or taking out a reverse mortgage. All of these options will have an effect on your pension asset test so it is worthwhile consulting a financial adviser/accountant.
Find out whether home staging is for you during the open for inspection process.