How to Figure out Net Profits from House Sale
Every diligent real estate agent I know prepares a net sheet for the seller when signing a listing agreement or presenting a comparative market analysis. Because the second question on sellers' minds -- right after real estate commission negotiation -- is how much the seller will net. Home sellers expect a reasonable response to: What is the seller's net profit?
To figure a seller's net profit, you need to have access to the expenses of sale and have your agent compute two net sheets. The first net sheet is based on receiving full list price. The second net sheet is figured on receiving the median sales price of similar homes in the neighborhood. This way sellers can look at a range of net profit numbers.
Closing Statement Debits and Credits
- Seller's Closing Statements: A seller's closing statement, not to be confused with a HUD-1, is a balancing of credits and debits. A credit, for example, is the sales price amount, because that is the amount the seller receives. Debits involve all the costs of sale associated with home selling. Other credits may appear such as prepaid property taxes, which will be prorated, returning to the seller that portion which has been paid in advance for the time period the seller does not own the home. If sellers are selling without equity, the check the seller brings in to close will be shown as a credit on the closing statement. Absent of seller credits, apart from the sales price, the bottom-line totals of both debits and credits will equal the sales price.
- Buyer's Closing Statements: Buyers, on the other hand, receive a closing statement showing the sales price as a debit, because that is the amount the buyer owes. If the buyer will be paying a tax bill that covers a portion of the time the seller has occupied the property, that amount will show up as a credit to the buyer (and a debit to the seller).
Seller's Closing Statement Debits
The following fees are considered debits to the seller and charged against the sales price. Because a seller's expenses of sale can vary from state to state, county to county and city to city, the example shown is based on a sample closing statement for a seller in Sacramento, CA. Your actual fees may vary. Third-party fees such as those for title policies, escrow companies or real estate commissions will depend on the vendor selected.
- Escrow. These fees can include a basic escrow handling charge, document preparation fee, and notary fee.
- Recording. Fees to record the property deed in the public record and any other documents required to clear title.
- Transfer Fees. The city of Sacramento charges .275% of 1% of the sales price and, although negotiable, the seller generally pays it.
- Documentary Transfer Tax to the County. This California fee is computed at 55 cents per $500 of the sales price, on full cash transactions. Note: It is not $1.10 per thousand.
- Pest Inspections. The cost to obtain a pest inspection.
- Pest Completion. The cost of work required to issue a clear pest report.
- Natural Hazard Disclosure. A geological and environmental report.
- Home Warranty. Cost of one-year home warranty plan for the buyer.
- Roof Certification. Fee for certifying the roof for 2 to 3 years.
- Repairs. Contractor invoices or buyer credit for request for repair work.
- Buyers Closing Cost Credit. Negotiable sum agreed upon in purchase contract to pay for buyer's closing costs.
- Other Buyer Credits. These can include mortgage buydowns or other fees paid on the buyer's behalf as part of the purchase contract.
- Utility, if applicable. Carmichael Water District, in CA, for example, sends water bills to escrow. In some states, water bills "run with the property" and are not reported to title or escrow, so check to see they are paid.
- Real Property Taxes. Prorata portion is due if the taxes have not yet been paid.
- Homeowner Association Fees. These can include a document preparation charge, as well as a pro-rata portion of monthly homeowner association dues not yet paid.
- Real Estate Commissions. Payment to listing and buyer's brokers.
- Transaction Coordinator. Fee paid to individual/company handling the transaction's paperwork and seller disclosures.
- Loan Payoffs. The beneficiary demand sets forth the amount due to pay the existing loan(s) in entirety.
- Title. Title policy fee paid for the buyer's owner's title policy.
- Delivery or Courier. Expenses for shipping or transporting documents.
- Wire. This fee is paid to the entity for wiring the seller's net profits to the seller's bank.
Net Profit Due the Seller
First, add up all the charges to determine the total amount of debits. Then add the sales price to the credit prorations. Subtract the credit from the debit. The balance left over is the seller's net profit of the sale.
Providing the seller has sufficient equity, the net profit amount, added to the total debits, will equal the bottom-line credit. This is why the total debit will always equal the total credit on a seller's closing statement.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.