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Perhaps you have considered selling your current home, buying a smaller one, and using the difference to help fund your retirement. A recent article on Investopedia.com explores this approach and details the mistakes you must avoid.

Here are some of the highlights.

Overestimating Your Current Home’s Value

Many people overestimate how much their current home is actually worth because of what friends and neighbors say they received for the sale their homes. To get a realistic sense of your home’s value, visit websites like Zillow.com and Realtor.com to learn the prices of recently sold properties in your area. Online “estimators” from banks like JP Morgan Chase and Bank of America will also provide useful information. Bear in mind that prices and estimates shown on these and other sites may not take into account the specific features sought by prospective buyers. Consulting local real estate agents or independent appraisers can address this problem. You should also ask these real estate professionals about inexpensive spruce-ups that will increase your home’s curb appeal and value. Most experts agree that the cost of major renovations will not be recouped unless your home is in extremely poor condition.

Underestimating the Cost of Your New Home

You can use the online tools and real estate professionals mentioned above to get a sense of what you’ll have to pay for the type of home you want to buy. If you plan to move to a new area, such as a place you’ve always enjoyed visiting, it’s important to spend a significant amount of time there. This will give you a feel for what it’s like to actually live in the area. Renting a property for a year or so before buying may be the wisest approach.

Ignoring the Tax Implications of Your Move

Most couples are currently able to exclude up to $500,000 in gains from the sale of their home, while singles can typically exclude up to $250,000. Your tax bracket and the length of time you’ve lived in your current home could impact whether taxes will be due upon its sale. You can find detailed information about this issue in IRS Publication 523.

You should also consider factors beyond income taxes on your home’s sale, particularly if you are moving to a different state. Lower property taxes in your desired destination could be offset by higher sales and income taxes. Similarly, pensions and withdrawals from retirement accounts could be taxed at a higher rate than where you live now. A particular state’s revenue or tax department website is a good source for this important information.

Ignoring Closing Costs

If you haven’t bought or sold a home in quite a while, you may have forgotten about all of the closing costs involved. Title insurance, recording fees, legal fees… the list of miscellaneous charges can seem endless. In addition, if you use a real estate agent, commissions can be as high as 6% according to Realtor.com. In addition, don’t forget about the cost of moving your belongings to your new home.

The bottom line is this: Do your research and run the numbers carefully before downsizing. You may find ways to save a significant amount of money on your move, or perhaps you’ll realize that you should stay where you are for now.

Mr. Amoruso concentrates his practice on Elder Law, Comprehensive Estate Planning, Asset Preservation, Estate Administration and Guardianship.