A home is the largest financial investment in most people’s lifetimes, so knowing how much you might profit by selling your home is important — especially if you want to use the proceeds to buy a new home, send the kids off to college or generate income with another type of investment.
The calculations are highly personalized. How much you’re likely to pocket at the closing table is determined primarily by your current equity, outstanding mortgage balance and closing costs.
What are the net proceeds from a home selling?
Net proceeds are how much money you’ll make after you’ve accounted for all the costs associated with selling your home. Simply put, your net proceeds are your home sale price minus the mortgage payoff amount, home sale prep costs and closing costs.
The average U.S. homeowner spends $20,871 in extra or “hidden” costs related to selling a home. Your net proceeds can be impacted by many different types of costs, which should be subtracted from the sale price.
Typical costs associated with selling
To determine how much you’ll make, you first need to know the expenses that usually come with selling.
Home prep costs
Sellers often make necessary repairs or eye-catching upgrades prior to listing, with the goal of selling faster and for money. Since these investments will help you sell the home, factor them into your net proceeds. The typical seller spends roughly $6,000 completing pre-listing home improvements.
Moving costs after selling
Factor in how much it will cost to move out of your home, including things like truck rentals, professional movers, packing materials, storage and temporary housing costs.
- Local moves of under 100 miles with two movers and one truck usually cost between $80 and $100 per hour, plus an additional $25 or $50 per hour for additional movers.
- Long-distance moves (over 100 miles) range between $2,000 and $5,000 per move, plus an average of $0.50 per pound.
Mortgage payoff amount
The mortgage payoff amount is how much you still owe on your home. You should also include paying off any home equity loans or lines of credit you’ve taken against the property. If you’ve owned your home for a long time or if your home value has increased significantly, your mortgage payoff amount will be substantially lower than your sale price (which means more money in your pocket).
The inverse is also true. The less equity you have, the higher your mortgage payoff amount in relation to your sale price. Fewer than 10% of U.S. homeowners are in negative equity in their home, which is also called being underwater. This means that they owe more money than their home is worth. This figure doesn’t include homeowners who might owe just slightly less or the same amount but those who may have to bring money to the closing table due to other selling-related costs.
Closing costs and transaction fees
Seller closing costs are one of the biggest expenses in selling a home. Expect to spend 8% to 10% of the sale price on closing costs. For a home selling at the median U.S. home sale price of $230,100, that’s between $17,000 and $22,000.
The majority of that 8% to 10% goes to agent commissions, which can total 6% of the sale price, with half going to the listing agent and half going to the buyer’s agent (yes, it’s typical for the seller to cover the buyer’s agent’s commission).
“Closing costs” is an umbrella term for a wide variety of charges, taxes and fees required to close the sale of a home. Here are some of the most common expenses:
- Commissions
- Title insurance
- Transfer tax
- Escrow fees
- Prorated property taxes
- HOA fees
- Mortgage points (also called discount points)
- Attorney fees
How to calculate profit from selling a house
Once you have a grasp on the types of charges you’ll end up paying, it’s time to crunch the numbers to estimate your home sale proceeds.
1. Determine home value and potential sale price
The typical U.S. home has an estimated value of $226,300, but the value of your home may be much higher or lower depending on factors like the quality of the home, location and local market conditions. Your first step is determining the fair market value of your home. There are a few different ways to do this:
Hire a real estate agent: One of the first things a listing agent will do for you is provide a comparative market analysis (CMA), which can give you insight into an appropriate listing price.
Run the comps: Search for comparable recent sales on your own, seeking out similar homes that have sold within the last three to six months.
2. Get a loan payoff quote
Contact your lender to determine your loan payoff amount. Unlike the remaining loan balance figure you’ll find on your monthly statement, the loan payoff amount includes daily interest charges and any fees you’ll have to pay at closing. Payoff quotes are usually valid for a set number of days, no more than 30.
Ask your lender if there’s a prepayment penalty on your loan. A prepayment penalty is a fee charged by a lender that allows them to recoup some of the interest charges they’ll lose when you sell the house and close out the loan. Not all loans have a prepayment penalty, and those that do usually only apply if you sell within the first few years of buying. How lenders calculate the penalty varies. It could be a flat rate, a percentage of your loan balance or a percentage of the remaining interest you owe.
Example: Let’s say you bought your home 10 years ago for $175,000 with a 6% interest rate on a 30-year fixed mortgage and a 20% down payment of $35,000. Your current mortgage balance would be around $139,000. If you sold for the median sale price of $230,000, that leaves $91,100 for staging, repairs, closing costs, commissions and other expenses.
3. Estimate cost of staging
48% of buyers think some form of staging is important. Home staging can be as simple as decluttering, depersonalizing and cleaning or as significant as whole-home staging by a professional.
Nationally, sellers spend an average of $1,805 on staging as part of an overall $6,570 spent for all pre-sale home prep.
- Total home prep costs are highest on the West Coast: $7,840 in Sacramento, $7,755 in San Jose and $7,620 in San Francisco.
- Total home prep costs are lowest in St. Louis ($3,690), Phoenix ($4,040) and Charlotte ($4,275).
Example: Continuing with the figures from above, using the $91,100 left after paying off your loan and subtracting average home prep costs, your net profit is now $84,530.
4. Factor in needed repairs
Sellers might pay for repairs in one of three ways:
- Take care of needed repairs pre-listing.
- Take care of repairs before closing (at buyer’s request).
- Provide a credit at closing to cover the cost of repairs.
The amount you’ll end up spending depends on the repairs that need to be done on your particular home, but taking care of any major items before listing often makes the most financial sense. New mechanicals or upgrades can help make your home more appealing to buyers, which can drive more and higher offers. It also allows you full control over who completes and how much you pay for repairs, instead of letting the buyer call the shots with a dollar amount they think will cover future repairs.
Example: Buyer concessions, which are the part of the negotiation when buyers ask for a credit or discount on the sale price, typically cost 1% of the sale price, or $2,301 in our scenario. That brings your net profit down to $82,229.
5. Subtract agent commissions or marketing costs
As mentioned earlier, commissions can total 6% of the sale price, depending on how you decide to sell your home. If you opt for a discount broker, you might owe slightly less (4% to 5%), depending on the scope of their services.
You can also save on agent commission by selling for sale by owner (FSBO), but you may still have to pay 3% to the buyer’s agent. The vast majority of buyers do work with an agent, and offering them a commission makes those agents more likely to show their clients your home.
If you sell FSBO, remember that all selling-related tasks fall to you, including marketing, photography, advertising and more. You might also opt to pay an agent a few hundred dollars to get your listing on the local MLS.
Example: If you go the full-service agent route, 6% of the median U.S. home sale price of $230,100 is $13,806, bringing your net profit down to $68,423.
6. Don’t forget transaction fees
No matter how you sell your home, all sellers pay fees to sell a home, whether they end up coming out of sale proceeds or out of pocket. Seller closing costs include things like transfer taxes (in some cities and states), prorated property taxes, prorated utilities, escrow fees and a title insurance policy for the buyer. Overall, these seller closing costs can add up to 2% to 4% of the sale price, depending on where you live and the financial details of your sale.
Example: Again using the median U.S. home sale price, 2% to 4% is $4,602 to $9,204, bringing your potential profit down to $59,219, assuming your transaction costs are on the higher end at 4%.
In conclusion, the total profit for the home in this example is $59,219.