How to Figure Out Net Profits from a House Sale
Calculations for Figuring a Seller's Profit
The first question on most home sellers' minds is how much they'll net from the sale. Pin down the expenses of sale and have your agent compute two net sheets for you so you can figure your net profit. The first should be based on receiving the full list price. The second is figured on receiving the median sales price of similar homes in the neighborhood. Doing both gives you a range of net profit numbers.
Sellers' Closing Statement Debits and Credits
A seller's closing statement, not to be confused with a HUD-1, is a balancing of credits and debits.
An example of a credit would be the sales price amount. Other credits might appear, such as prepaid property taxes that will be prorated, returning to the seller that portion which has been paid in advance for the time period the seller doesn't own the home.
The check the seller brings to closing will be shown as a credit on the closing statement when sellers are selling without equity.
Absent seller credits and apart from the sales price, the bottom-line totals of both debits and credits should equal the sales price.
Buyers' Closing Statement Debits and Credits
Buyers receive a closing statement showing the sales price as a debit because that's the amount the buyer owes. If the buyer is 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 as well, and as a debit to the seller.
Typical Seller's Closing Statement Debits
The following fees are considered debits to the seller. They're charged against the sales price. A seller's expenses can vary from state to state, and even from county to county or city to city. Third-party fees such as those for title policies, escrow companies, or real estate commissions will depend on the vendor selected.
- Escrow fees: These fees can include a basic escrow handling charge, a document preparation fee, and a notary fee.
- Recording fees: There are fees to record the property deed in the public record, as well as any other documents that are required to clear title.
- Transfer fees: These are typically a very small percentage of the sales price. The seller generally pays them, although this is negotiable.
- Documentary transfer tax to the county: Not all states and jurisdictions charge this tax, and the rates can vary. It's computed at 55 cents per $500 of the sales price on full cash transactions in California.
- Pest inspections: The cost to obtain a pest inspection prior to closing will typically be considered a debit, as is any work required to issue a clear pest report.
- Natural hazard disclosure: This is a geological and environmental report, and the seller must pay for it in most states.
- Home warranty: Some states require that you pay the cost of a one-year home warranty plan for the buyer.
- Roof certification: There's typically a fee for certifying the roof for two to three years.
- Repairs: This can include contractor invoices or a buyer credit for a request for repair work.
- Buyers' closing cost credit: This is a negotiable sum sometimes agreed upon in the purchase contract to pay for some or all of the 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.
- Utilities, if applicable: Water bills "run with the property" in some states, and they're not always reported to title or escrow. Check to make sure they're paid.
- Real property taxes: A pro rata portion is due if the taxes haven't 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 that haven't yet been paid.
- Real estate commissions: These are compensation to the listing and buyer's brokers.
- Transaction coordinator: A fee is paid to the individual or company handling the transaction's paperwork and seller disclosures.
- Loan payoffs: The beneficiary demand sets forth the amount due to pay off any and all existing loans.
- Title policy: This fee is paid for the buyer's owner's title policy.
- Delivery or courier: This includes expenses for shipping or transporting documents.
- Wire: A fee is paid to the entity that's wiring the seller's net profits to the seller's bank.
You might also have some out-of-pocket costs along the way, which technically should be accounted for to calculate your absolute net profit. These might include costs for staging or sprucing up your home for showings or refreshments you might provide for an open house.
They won't appear on your closing statement, but you spent the money all the same.
Net Profit Due to the Seller
First, add up all the charges to determine the total amount of the debits. Then, add the sales price to the credit prorations. Finally, subtract the credit from the debit. The balance left over is the seller's net profit on the sale.
When added to the total debits, the net profit amount should equal the bottom-line credit, providing that the seller has sufficient equity.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.