Moving to a smaller home can unlock equity—but only if you account for realtor fees, closing costs, property taxes, HOA fees, and the true cost of renting. Below is the latest picture plus a practical Net Gain Calculator Outline you can plug your own numbers into.
1) Realtor fees in 2025 (what really changed)
- After the 2024 commission settlement, buyers often sign representation agreements and negotiate compensation directly. Early 2025 data shows buyer-agent fees averaging ~2.4%, while the combined listing+buyer commission still hovers around ~5.4% on average—meaning total costs haven’t collapsed nationwide yet.
- Bottom line: fees are negotiable—especially now—so shop and negotiate. Some markets show only modest declines so far.
2) Property taxes & HOA vs. renting
- Property taxes vary dramatically by state/county; use the latest effective tax rate where you’re moving to estimate your annual bill.
- HOA fees vary by community and amenity level. Recent nationwide snapshots show typical HOAs near ~$300/month on average, though median fees on listings can be lower—variance is huge .
- Renting replaces those ownership costs with monthly rent + renter’s insurance, but you forgo principal pay-down and potential price appreciation.
3) Closing costs & taxes on the sale
- Buyer closing costs typically run ~2–5% of the purchase price (lender, title, recording, etc.). Sellers also have their own non-commission closing costs (transfer taxes, title, etc.).
- Home-sale capital gains exclusion: Up to $250,000 (single) or $500,000 (married filing jointly) of gain on a primary residence may be excluded if you meet IRS tests.
Example: Downsizing at a glance (replace with your numbers)
| Line Item | Assumption | Math | Result |
|---|---|---|---|
| Sell current home | $600,000 sale price | $600,000 | |
| Agent commissions | 5.4% combined | $600,000 × 0.054 | $32,400 |
| Seller closing costs (non-commission) | 1.0% | $600,000 × 0.01 | $6,000 |
| Mortgage payoff | $250,000 balance | — | $250,000 |
| Net sale proceeds | $600,000 − $32,400 − $6,000 − $250,000 | $311,600 | |
| Buy condo | $400,000 price | 20% down = $80,000 | — |
| Buyer closing costs | 3% | $400,000 × 0.03 | $12,000 |
| Cash needed to close | Down + costs | $92,000 | |
| Leftover cash | $311,600 − $92,000 | $219,600 | |
| Recurring owner costs | Property tax 1.0% + HOA $300/mo + insurance $1,200/yr | $4,000 + $3,600 + $1,200 | $8,800/yr |
| Mortgage (80% @ 6.5%) | $320,000 | ≈ $2,022/mo P&I | $24,264/yr |
| Annual owner total | $8,800 + $24,264 | $33,064/yr | |
| Compare to renting | $2,400/mo rent + $200/yr renter’s insurance | $28,? → $28,? (≈ $28,?00/yr)* |
*Replace with your local rent; the breakeven depends on monthly difference, expected appreciation, tax deductions, and what you earn on leftover cash.
Note: Commission %, tax rates, HOA dues, and mortgage rates vary—swap in local numbers for accuracy. Commission trends and ranges: see sections above.
Net Gain Calculator Outline (step-by-step)
- Net Sale Proceeds = Sale Price − (Realtor Fees) − Seller Closing Costs − Mortgage Payoff − Repairs/Credits.
- Tax Check = Estimate capital gains and apply $250k/$500k primary-home exclusion if eligible.
- Cash to Buy = Down Payment + Buyer Closing Costs + Prepaids (tax/insurance escrows).
- Leftover Cash = Net Sale Proceeds − Cash to Buy (invest this; note expected return).
- Annual Owner Cost = Mortgage P&I + (Property Taxes) + (HOA Fees) + Home Insurance − Tax Benefits.
- Annual Rent Cost = Rent + Renter’s Insurance + Expected Rent Inflation.
- Breakeven & Net Gain
- Monthly Delta = Owner Monthly Cost − Rent Monthly Cost.
- Breakeven Years = Upfront Costs ÷ (Rent Savings + Principal Paid + Tax Benefits − HOA/Extra Owner Costs).
- Net Gain (t years) = (Home Equity Growth + Principal Paid + Investment Return on Leftover Cash) − (Extra Owner Costs vs. Rent).
Downsizing can free up substantial equity—but only if you run the numbers. Negotiate realtor fees, verify local tax rates, budget HOA dues and closing costs, and compare the all-in owner cost with rent. Use the outline above to turn your move into a clear-eyed, net-gain decision.
FAQs
No. Offers of compensation on MLSs changed, but who pays is negotiable and varies by market and contract.