Calculations for Figuring a Seller's Profit

The first question on most sellers' minds when they put their homes on the market is how much they'll net in sale profits. The equation—if not the details—is relatively simple.

Pin down the expenses of sale and have your agent compute two net sheets for you so you can figure out your net profit. The first sheet should be based on receiving the full list price, and the second should be figured on receiving the median sales price of similar homes in the neighborhood.

Doing both gives you a range of net profit numbers, and this is a more realistic goal than going only with the expectation that you'll receive top dollar.

Key Takeaways

• Your net sale profits are the amount you receive after home sale expenses have been deducted and credits have been added. 
• Your real estate agent can give you a projection of your net profits based on your list price and median sales prices of similar homes in your area. 
• Sellers are typically responsible for several fees, including escrow costs, recording fees, transfer fees, and the cost of any necessary repairs.

The Sellers' Closing Statement

A seller's closing statement details a balance of credits and debits. An example of a credit would be the sales price amount. Other credits might appear, too, such as prepaid property taxes that will be prorated or returned to the seller if a portion has been paid in advance for the time period when the seller will no longer own the home.

The check the seller brings to the closing table will be shown as a credit on the closing statement when sellers are selling without equity.

Note

Absent seller credits and apart from the sales price, the bottom-line totals of both debits and credits should equal the sales price. Buyers sometimes negotiate with sellers for credits against closing costs, but this typically comes with a more significant purchase price so it can be something of a wash.

The Buyers' Closing Statement

Buyers receive a closing statement showing the sales price as a debit because that's the amount the buyer owes. That amount will show up as a credit to the buyer as well, and as a debit to the seller, if the buyer is paying a tax bill that covers a portion of the time the seller has occupied the property.

Typical Seller's Closing Statement Debits

Several fees are usually considered debits to the seller. They're charged against the sales price. Sellers' expenses can vary from state to state, and even from county to county or from city to city:

• Escrow fees can include a basic escrow handling charge, a document preparation fee, and a notary fee.
• Recording fees are paid to record the property deed in the public record, as well as any other documents that are required to clear title.
• Transfer fees are typically a very small percentage of the sales price. The seller generally pays them. This is often negotiable, although some states, such as New Jersey, require that the seller must pay these fees.2
• A documentary transfer tax to the county is required in some areas. It's computed at 55 cents per $500 of the sales price on full cash transactions in California, but not all states and jurisdictions charge this tax, and the rates can vary.3
• Pest inspections are performed prior to closing and will typically be considered a debit, as is any work required to issue a clear pest report. Pest inspections are required by many lenders and by some states.4
• A natural hazard disclosure is a geological and environmental report, and the seller must pay for it in most states.
• Some states require that you pay the cost of a one-year home warranty plan for the buyer.
• There's typically a fee for certifying the roof for two to three years.
• The cost of any necessary repairs can include contractor invoices, or a buyer credit for a request for repair work. Some buyers can go overboard with their demands and sellers are generally not required to make or pay for them.5
• The buyers' closing cost credit 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 can include mortgage buydowns or other fees paid on the buyer's behalf as part of the purchase contract.
• Water bills "run with the property" in some states, and they're not always reported to title or escrow. Check to make sure that they're paid.
• Real property taxes are a pro-rata portion that comes due if the taxes haven't yet been paid.
• Homeowner association fees 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 are compensation shared by the listing and buyer's brokers and agents. They typically total from 5% to 6% of the sales price.6
• A fee is customarily paid to the individual or company handling the transaction's paperwork and seller disclosures.
• The beneficiary demand sets forth the amount due to pay off any and all existing loans.
• A title policy fee is paid for the buyer's owner's title policy.
• Delivery or courier costs include expenses for shipping or transporting documents.
• A fee is also paid to the entity that's wiring the seller's net profits to the seller's bank.

Note

Third-party fees such as those for title policies, escrow companies, or real estate commissions will depend on the vendor selected and local custom.

Out-of-Pocket Costs

You might also have some out-of-pocket costs along the way as well, and these should technically be included to calculate your absolute net profit. They might include costs for staging or sprucing up your home for showings, or refreshments that you might provide for an open house.

Note

Out-of-pocket expenses won't appear on your closing statement, but you spent the money all the same.

Net Profit Calculations

First, add up all the charges to determine the total amount of the debits. Then add the sales price to the credit pro-rations. Finally, subtract the debit column from the credit column. The remaining balance is the seller's net profit on the sale.

The net profit amount should equal the bottom-line credit when it's added to the total debits, provided that the seller has sufficient equity.

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