Answer
They should be considering a 2240 square foot house.
Work Step by Step
Because the house they are looking for will be 30% smaller than the one they own now, the new house will be 100% - 30% = 70% the size of the current house.
The current house is 3200 square feet, so the new one will be:
3200 $\times$ 70% =
3200 $\times$ 0.7=
2240
They should be considering a 2240 square foot house.