To estimate how much you’ll make when you sell your home, start with what you think someone will pay for it.
Let’s say you think your home’s fair market value is $500,000. Getting that $500,000 price will require some additional expenses. You’ll need to subtract the costs of selling your home from that $500,000 figure to get an accurate picture of your net proceeds.
Here’s a simple formula to estimate the proceeds from a home sale:
Your home’s selling price – Costs to sell = Your profit
If you’re working with a real estate agent, the agent can provide you with a “seller net sheet” once you’ve finalized an agreement to list your property. That seller net sheet includes an itemized breakdown of the costs associated with selling the home. While you might never feel like you are specifically paying some of these expenses, they are indeed part of the transaction.
Costs to sell a home
The adage “It takes money to make money” rings true in the context of the real estate market. Consider all the costs associated with turning a new listing into a closed sale. Let’s continue to look at a home that will have a final sale price of $500,000:
If you’re working with a real estate agent, the agent gets paid a commission based on your transaction. The typical commission rate is 3 percent for the seller’s agent and another 3 percent for the buyer’s agent. There are some exceptions to this — some agents are willing to work for a lower commission, but you can usually expect to hand over 6 percent of the final price as a seller. On a $500,000 transaction, that means $30,000 goes to the agents involved. At this point, you have $470,000.
Selling a house is kind of like going to a formal dinner: You want to look your best. While your home’s layout works for you, you might want to invest in hiring an interior designer or a professional home stager to make the place ready to shine. According to data from HomeAdvisor, the average for a home staging service is $1,450. Of course, this cost can vary widely based on your needs, but let’s say your needs are right in the middle. Now, your earnings stand at $468,550.
The buyer typically pays for an inspection of the home before advancing the sale. Still, a seller can also pay for a pre-listing inspection before putting the home on the market to identify any areas that could cause an issue. If you opt for this service, expect to pay between $300 and $450. For example, if the inspection comes in at $375, your earnings have now decreased to $468,175.
If the pre-listing inspection turns up any issues, you might want to proactively address them to avoid a buyer’s request for any credits or concessions. For example, let’s say you discover a minor plumbing issue. If you hire a professional to address the problem and it costs $500, your potential profit is now $467,675.
If you still have a loan on the home, you’ll need to pay off your mortgage officially. Let’s say you have a balance of $150,000 remaining. Subtract the $150,000 from your bottom line, and you now have $317,675 in proceeds. However it’s important to note that some mortgage payoffs aren’t that simple. There could be a prepayment penalty, which is a fee you have to pay on the remaining amount. Additionally, if you have any other outstanding loans against the property — a home equity loan, for example — you will need to pay these off in their entirety to have a clear title.
You paid closing costs when you bought the home, but sellers pay closing costs, too. These might include attorney fees, title insurance premiums, escrow fees, and costs for recording the transaction with your local public records office. Of course, closing costs are different depending on where you live, but it’s safe to say that they’ll eat into your profit — unless you manage to get the buyer to agree to pay them. For the sake of hypotheticals, let’s say your portion of the closing costs adds up to $3,500. Your estimated net proceeds are now $314,175.
Remaining bills on the property
At closing, you’ll need to hand over additional expenses that are prorated based on your time in the property. These will include prorated property taxes, utility bills and HOA fees if the home is in a homeowners association. Again, these vary based on the home, but these are usually unavoidable expenses. Imagine in our example scenario that these add up to $1,000. Now, your net profit is $313,175.
Capital gains tax
There is a chance you could wind up having to pay taxes on the sale if you turn a profit. If you had bought this house for $125,000 and its value managed to increase to $500,000, for example, you would have quite the profit. However, if you lived in the house for at least two of the five years leading up to the sale, up to $250,000 of profit is tax-free (or $500,000 if you file your taxes jointly). If you think the sale of your home could impact your taxes, consult a tax professional to understand your obligations.
The good news: You sold your home. The not-so-good news: You have to pay to move into a new one. This is an unavoidable cost, and depending on how much stuff you have and how far you plan to move it, it could be high. If you’re moving locally, HomeAdvisor’s data pegs the cost between $600 and $1,650.
If you can’t move straight from your old place into a new one, you’ll need to find somewhere to keep all your belongings. Whether you secure a storage unit or opt for a short-term rental, be sure to account for the in-between time and its cost.
You already know you’ll pay some closing costs, but you might also pay some holding costs. That essentially means that you’ll be paying for the property throughout the closing process. In many cases, that might be another 45 days. So, if you’re ready to move— and perhaps already paying for the new place you found — an extended closing process can wind up forcing you to pay living expenses in multiple homes.