Nikki's Notes: We want to downsize. Is it better to sell our place before we start apartment hunting?

It ultimately depends on your financial portfolio, which will frame all subsequent decisions. The key objective is determining whether you can afford to buy a new apartment before selling your current place.

Will you need the proceeds from the sale for the down payment? If you still have a mortgage, you may also need to sell before qualifying for a new mortgage or being approved by a co-op or condo board.

The best place to begin is by accounting for all assets and debts, including the estimated value of your current home. 

"I tend to use REBNY’s financial statement to guide this initial conversation," says Nikki Beauchamp, a broker at Sotheby's International Realty with over two decades of experience representing buyers and sellers in New York City. This disclosure form by the Real Estate Board of New York is generally required when submitting an offer on a co-op and more recently other types of properties.

Be sure to consider any upcoming financial commitments, such as a big vacation or a family wedding, in the overall equation.

Why you may want to sell first, even if you don't have to 

"If the numbers show that you don't have to sell, it makes things less complicated—you can act without having your offer be contingent on selling, and you won't be in flux while waiting for the proceeds from the sale," Beauchamp says.

Sometimes, the numbers are not so clear-cut. In these cases, Beauchamp pulls from REBNY’s statement to create a purchase cost analysis. "This allows us to play with different scenarios to quickly see how selling your apartment impacts your post-closing liquidity, which is very important when buying a co-op," she says.

For example, you may be able to buy a more expensive place—especially if you have your eye on a luxe new-construction condo with all the desirable amenities. 

Likewise, when purchasing a co-op, keeping your existing property will impact the all-important debt-to-income ratio, which can be a dealbreaker—especially if your current co-op doesn't allow subletting.

"That could be a sticky wicket in that you would be carrying two mortgages and maintenance fees and not have the potential rental income to help offset those costs," Beauchamp says. 

Beauchamp also points to a recent situation in which clients were paying cash for a small one-bedroom co-op. "The board got very granular about their debt-to-income ratio, even though they had no mortgages on their other properties, had about $40 million in assets, and the rental income covered the tax liabilities" she explains.

While this is an extreme example, it shows how unpredictable co-op boards can be and the importance of being prepared to explain your broader financial picture. 

Finally, bringing down the share of your income spent on housing can dramatically improve how a board views your financial picture, especially if your downscaling mode is tied to a potential retirement.

What if you must sell before buying?

Then, the timeline becomes the key issue. The first step is to prepare your current place for listing, and ideally, you can use this prep time to get reacquainted with the market.

"Once you've decided to put your place on the market, you should start thinking seriously about what you want to buy to minimize the time spent in an interim rental, or we may be able to daisy-chain the transactions so you can move directly into the new place," Beauchamp says.

Let's say you are lucky enough to have two strong offers, but buyer A wants to close right away, while buyer B is more flexible or open to post-closing occupancy. All things being equal, you are likely to go with buyer B.

If buyer A makes a substantially higher offer, however, that's a different conversation—it would be worth living in a hotel or short-term rental for a month or so.

"This is why it's so important to start the second part of the process sooner rather than later," Beauchamp says. She typically suggests spending at least one or two days viewing listings (preferably in person) to understand what's available.

What if you don't see anything you like on the market? 

"I tell people all the time it's okay to fall back in love with your home and decide not to move, but I would appreciate it if you would decide this before we start bringing in the associated professionals—photographer, videographer, etc.—and paying to create the marketing collateral," Beauchamp says. "Going deep into the numbers early on allows us to have these conversations continually." 
 
She also encourages exploring what is driving your desire to downsize. Will you only be in the city for a few months each year? A pied-à-terre may be a feasible solution. Is this an intermediate step to moving into an independent living community? Maybe renting is an easier alternative. Or perhaps you'd rather age in place and find an apartment with a separate bedroom for future live-in care.

"All these conversations resemble the ones we had when we were young and buying for the first time," Beauchamp says. "And they all come down to the numbers."

Nikki Beauchamp is a multilingual real estate advisor at Sotheby’s International Realty with over two decades of experience representing buyers and sellers in New York City and globally. Known for her data-driven approach and market expertise, she provides clients with valuable insights to make informed decisions. Beauchamp is an active member of the Real Estate Board of New York, currently serving as co-chair of the New York Residential Specialist executive committee. To submit a question for this column click here. To reach Nikki call (212) 606-4152 or contact her via her website.