Selling a family home after decades of memories can be an emotional step. However, downsizing the family home can be a sensible step for various reasons. If you are considering such a step, it is critical to get the legal side of things correct in order to support a lifetime of savings.
Key takeaways
Downsizing involves the sale of your existing property and the purchase of a new property.
There are defined steps parties can follow to complete conveyancing on your property sale.
Purchasing your new home has its own important conveyancing steps.
The timing of transactions can be important when moving between properties.
Eligible spouses may contribute some of their sale proceeds to their superannuation.
Downsizing can have consequences for Centrelink entitlements.
Why downsize?
There are many reasons why people decide to sell their family home and move into a smaller property. These could include:
A smaller home generally reduces household expenses.
It can free up equity and improve your cash flow, boost your retirement savings, and improve your financial position.
Home downsizing may result in less space. But that can also mean less home maintenance. This can make life easier as you get older.
Downsizing options
Some common downsizing options parties consider include:
Units for a compact space that is close to urban amenities.
Retirement villages for a social atmosphere and a pleasant retirement lifestyle.
Townhouses when they are not ready for apartment living, but like space for guests.
Renting temporarily to free up time to assess permanent options.
Country homes for lower property costs and peace and quiet.
What downsizing the family home involves legally
Moving to a new property involves two transactions. You have to sell your existing home and buy a new home. Each of these transactions incurs its own fees and settlement requirements. These matters are technically separate. But they are often practically connected because the funds from the sale may fund the purchase of the next property.
How conveyancing works when you downsize
Dealing with one property transaction can be complicated enough. Handling two transactions might seem overwhelming. However, there is a set of clear steps for the sale and purchase side of the journey. An effective conveyancer will manage the paperwork and keep each transaction on schedule.
Selling the existing home
A conveyancer or solicitor should be included early in the process. They can assist sellers in New South Wales (NSW) to prepare a contract of sale before putting their house on the market. The contract has to cover specific information about the property. It involves crucial details of the transaction, such as:
The purchase price.
The settlement date.
Any special conditions.
Each party’s legal obligations.
Common supporting documents that are typically needed for the contract include:
Zoning certificate.
Drainage diagram.
Title search showing your ownership of the property.
Documents detailing any encumbrances.
Certificate of compliance for any swimming pools.
Documentation explaining any outstanding land tax.
Once contracts have been exchanged, there is a standard cooling-off period of five business days. The buyer may withdraw from the agreement during this time by giving written notice, though a forfeiture of 0.25% of the purchase price generally applies. Your conveyancer can keep track of the cooling-off timeframe so you know when the contract becomes binding.
The settlement process takes about 1.5 to 3 months, depending on the situation. Your conveyancer may help complete the following matters by the settlement date:
Speak with your lender to discharge your mortgage.
Check that all obligations under the contract have been fulfilled.
Calculate adjustments in the contract of sale for issues such as utility bills and council rates.
Manage the exchange of funds and settlement documentation through online lodgment.
Purchasing a smaller home
Once you have found the right property to move to, you will go through the settlement process from the other side. Once contracts are exchanged, your conveyancer may review the document and advise you about what your obligations will be before you sign.
A conveyancer will perform important title searches to check whether there are any issues that could impact your ownership, such as easements or restrictions. If you are downsizing to a townhouse or unit, you may review the strata report to see any potential issues with the strata scheme and mandatory strata levies (also known as body corporate fees).
By the settlement date, your conveyancer can:
Check that the seller’s mortgage has been discharged.
Determine whether there are any remaining title issues.
Make sure that all contractual obligations have been met.
Register your ownership with NSW Land Registry Services.
Make adjustments for applicable rates and levies.
Timing your sale and your purchase
It can be important to align the sale of your previous property with the purchase of your new place. The most common method to achieve this is a simultaneous settlement. This is where both settlements occur on the same date. The sale proceeds from selling your family home will directly fund the next property.
Since both settlements are legally connected, any delays in one are going to impact the other. Working with a conveyancer is crucial so the transition goes smoothly. Here are some tips:
Decluttering months before settlement can make moving more manageable.
Have a backup plan in case there are unforeseen issues. This may involve having temporary accommodation available or securing a bridging loan.
Work with your bank and conveyancer so the funds are available on time.
Organise the discharge of your mortgage early.
Maintain clear communication between all parties.
The conveyancing costs involved
There can be various costs associated with the conveyancing process, both when selling and buying. Here are some common costs you may face:
Legal fee. Conveyancers may charge a fixed rate for their legal fees. Bateys Law Firm offers a fixed fee of $3,300, including GST, for each transaction.
Additional costs. You can also pay for PEXA fees, title and property searches, and disbursements. This may come to around $1,200 to $2,000 on average.
Transfer duty. Also known as stamp duty, this is a tax you generally have to pay when you purchase a property. It is calculated on a sliding scale based on the dutiable value of the property. Check with Revenue NSW for the current thresholds.
Agent’s fees. Real estate agents may take a commission and charge for other costs, such as photography and online ads, to improve sale prospects.
The downsizer contribution
Downsizer super contributions can help older parties boost their retirement savings by allowing them to contribute up to $300,000 into their super fund from the sale of their home. This is subject to the following eligibility criteria:
You are aged 55 years or older when you make the contribution. This is down from 60 as of 1 January 2023.
You owned the house for more than 10 years. If only one spouse owns the home, the other spouse may still be eligible to make a contribution. But they must meet the other criteria.
The sale qualifies for the main residence CGT exemption.
The house is in Australia and is not a caravan, mobile home, or houseboat.
You have not made a downsizer contribution before.
The contribution is made within 90 days of receiving the proceeds.
The contributions will be added to your total superannuation balance when it is calculated at the end of the financial year. It should be noted that government benefits, such as an age pension, may be affected. Refer to the Services Australia website for more information.
Centrelink and the age pension
The family home is generally exempt from income and assets tests in Centrelink assessments. However, the proceeds of a house sale could affect your entitlements. Depending on how you use the proceeds, you may be able to avoid being penalised.
Centrelink provides a grace period of 2 years after selling a property before reassessing your eligibility for entitlements, such as the age pension. If the full proceeds are put into a new home within 2 years, your age pension may not be affected. However, any surplus funds could have an impact, depending on your situation. You may wish to get financial advice from a professional to understand how downsizing may impact your circumstances.
A conveyancer with knowledge of the local South West Sydney property market can help keep your sale and purchase on track. Using one conveyancer for both transactions may simplify matters and reduce the chance of mistakes. You can read how Bateys Law Firm assists with downsizing property matters on the downsizing property page.
Conclusion
Many parties consider selling their current home and moving into a more manageable property. It is important to approach the conveyancing process carefully so you can make the transition without too much disruption. While there may be potential benefits to downsizing, it can also affect certain entitlements. Speaking with a conveyancer can help you assess how downsizing could benefit you.
Are you looking to relocate to a smaller property?
Bateys Law Firm has provided conveyancing services in South West Sydney for over a decade. Our downsizing property conveyancing page explains how we help with sales and purchases. Contact us to begin your downsizing journey.
Disclaimer: This article provides general information only. It is not legal advice. Outcomes depend on your circumstances. You should speak with a solicitor before making decisions about your matter.
