I'm a Realtor: 5 Ways Downsizing Can Fail to Lower Your Expenses

Homeownership is expensive, and for people hoping to cut costs, downsizing can seem like an attractive solution.

But moving into a smaller home does not always mean spending less. In some cases, the change can end up costing more over time than people expect.

MoneyLion asked real estate professionals why downsizing is not always the same as saving money. Here is what they had to say.

1. Convenience Can Come With a Higher Price Tag

Not everyone sells a home purely to save money. For some, the goal is convenience or better amenities, and those features can increase costs.

“The biggest reduction in savings I see comes from the new location pricing,” said Erik Leland, real estate broker at Realty First. “I find that when people sell a larger home to downsize they tend to want something with a higher walk score and a bit nicer neighborhood. The price per-square-foot can jump dramatically even with modest upgrades.”

2. Moving and Selling Costs Can Drain Savings

Selling a home and buying another one is only part of the financial picture. There are also the costs that come with the transition itself.

“Between the agent commission, closing costs, title and escrow fees, plus the cost of the move, sellers can burn through 8% to 10% of their sale price just making the change,” Leland said. “On a $500,000 sale, that is $40,000 to $50,000 gone off the top.”

According to Realtor.com, homeowners should keep the new property for at least 10 years to fully recover those expenses.

3. Hidden Friction Costs Can Reduce the Benefit

The typical monthly mortgage payment for people who moved in 2024 was $2,225, according to the latest available U.S. Census data. That is above the national median.

For anyone paying that much, moving into a home with a smaller mortgage can sound appealing. But so-called friction costs can quickly eat into the savings. One major example is capital gains tax.

“Downsizing is hard because a lot of times sellers have not considered all the ‘friction costs’ associated with selling and buying,” said Jeremy Stein, senior global real estate advisor at Sotheby’s International Realty. “And if you are selling a home that has appreciated since you bought (great example being older people who have lived in a home a long time), there could be a capital gain which is subject to an additional tax which can really eat into your profit.”

Capital gains tax applies when an asset such as a home is sold for a profit. There are short- and long-term capital gains, each taxed differently. According to the IRS, the highest capital gains rate is 15% for most people, depending on taxable income and filing status.

“You want to avoid ‘downsizing’ into something smaller and not ending up putting away any money because all the extra cash has gone to fees and closing costs and taxes,” Stein said.

4. Property Taxes May Not Fall the Way You Expect

Property taxes differ widely based on location and home value. If you are downsizing in hopes of shaving off a few hundred or even a few thousand dollars, you may still end up with a larger tax bill.

“In Oregon, Measure 50 caps assessed value growth at 3% per year. So, homeowners who have been in their house for 10 or 15 years are paying their taxes based on a slowly growing assessed value,” Leland said. “When they sell and buy a new place, the new property's assessed value is likely higher than what they had been paying on their old home, and the tax bill can jump significantly.”

That is only one example. Depending on your location and circumstances, you could pay more or less.

5. HOA and Condo Fees Can Offset the Savings

For people who downsize into a home with HOA or condo fees, the monthly costs can erase much of the expected savings. The U.S. Census found that for many households in the U.S., these fees exceed $500 a month.

Leland said the fees can range from about $300 to $600 even for a smaller condo or townhouse. Over one year, that adds up to $3,600 to $7,200. Over five years, that becomes $18,000 to $36,000 in costs that may not have existed before.