The Surprise Awaiting Downsizers

Downsizing homeowners are in for a bit of sticker shock as home values continue to rise. Zillow data show home values are expected to go up another 6.5 percent over the next 12 months.

Most home's on the market have recovered their original value, and in many cases have gained more, since the housing crash. Along with economic growth and a strong job market, more Americans are wanting to buy a home. Indeed, both downsizers and first-time homebuyers are vying for the same pool of smaller homes, further driving up values. "Downsizing in both cost and square feet … doesn't necessarily happen," Missouri-based certified financial planner Michele Clark tells CNBC. "Clients are very surprised when they find this out," Clark said. According to the National Association of Realtors, downsizers aged 65 to 74 years of age selling a $270,000 home purchase a home for $250,000.

"People forget that there are additional costs to buying a house," said Peter Lazaroff, a CFP and chief investment officer at Plancorp in St. Louis. "There are closing costs, agent fees, moving expenses, repairs and furnishings." Lazaroff also said he is seeing retirees more frequently take a lump sum from their retirement account to fund the purchase of their downsized home. "They say it's not that big of a deal to make a one-time withdrawal," Lazaroff said. "But they have to take enough to cover the taxes due. "And the distribution could push them into a higher tax bracket." 

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