Net proceeds: How much do you really make when you sell your house?

When listing a home on the market, the amount of money you’ll ultimately pocket from the sale is often top of mind. The money a home seller keeps after all fees, commissions, closing costs and other expenses have been paid is referred to as net proceeds.

The exact amount of net proceeds a seller might earn is hard to calculate until an offer has been accepted. It is possible, however, to get a general idea of what your proceeds will be from the sale of your house.

What are net proceeds in real estate?

As the name implies, net proceeds are the money a homeowner walks away with — or nets — after the sale of the property. The amount of proceeds a seller receives is usually less than the home’s actual sale price because of the expenses involved in selling a home, especially if there’s still a mortgage to be paid off.

“Net proceeds is the amount of money a home seller will receive after deducting all of the costs of a sale,” says Ralph DiBugnara, president of Home Qualified and Vice President of mortgage lender Cardinal Financial.

The costs associated with a home sale typically include agent commissions, title insurance, attorney fees and escrow fees. Depending on where the property is located, there may also be property taxes and transfer taxes to be paid.

Another big factor that can eat into the net proceeds is the payoff balance on the mortgage. If money is still owed on the mortgage, that balance is generally paid with funds from the sale of the home.

One important note: Net proceeds are not the same as profit.

“Net proceeds are what you walk away with after all mortgages, liens and transaction costs are paid,” McBride says. “The proceeds include your down payment and any principal repaid, which do not represent profit.”

How to calculate net proceeds

The simplest way to calculate net proceeds is to deduct all of the seller’s closing costs, expenses and the mortgage balance from the final sale price of the home. Generally, you can expect to pay between 7 percent and 10 percent of your home’s value in fees and commissions.

To get a truer sense of net proceeds, however, you may also want to factor in some of the additional expenses associated with selling your home. That may mean including the cost of any repairs or improvements made to the home before listing, as well as the costs of staging your home. All of these fees eat away at the net proceeds earned from a home sale.

Net proceeds example

Here’s an example from DiBugnara of the net proceeds resulting from a home sale:

Net proceeds and taxes

Depending on the type of property you sold and what your plan is for the money earned, your net proceeds may trigger a tax event, says DiBugnara. The impact to your taxes will depend on many factors, including your tax bracket, marital status, how long you’ve owned the house and whether it was your primary residence.

Current laws allow the first $250,000 in profit for single filers, or the first $500,000 for those married and filing taxes jointly, to be excluded from impacting your tax liabilities. To qualify for this exclusion, the IRS stipulates that you must have lived in the home as your primary residence for a period of time that amounts to two years out of five years. Profits above and beyond that may be taxed as long-term capital gains.

You may however, be able to avoid being taxed if you use the profit from the sale to buy a new home. “If profit from the sale of the home, meaning the difference between what it cost you to buy it and what you sold it for, is invested back into another home, then in most cases you can avoid capital gains tax,” says DiBugnara. “Keep in mind that this reinvestment must be completed in a certain amount of time, usually 90 days to six months at most.”

How the way you sell affects your net proceeds

The net proceeds resulting from the sale of a home can vary significantly based on how you choose to sell the property. Selling options include working with a traditional real estate agent or broker, selling on your own through a “for sale by owner” transaction or selling to a company that buys houses for cash or an iBuyer.

“Net proceeds can be impacted by how you sell your home because the costs of selling it can be different,” says DiBugnara. “For instance, if you sell a home on your own, compared to using a real estate agent, it could cost you less in expenses, making your net proceeds higher.”

• FSBO sales: A for sale by owner or FSBO transaction eliminates the need to pay a listing agent’s commission. But remember, while this approach may eliminate that cost, it means you must also take on all the work of showing and selling the home. In addition, FSBO homes often sell for less money. In 2023, the average FSBO listing sold for a median of $310,000, compared to $405,000 for listings with an agent, according to data from the National Association of Realtors.
• iBuyer sales: An iBuyer is an online homebuying company that makes an instant offer on your home, often sight unseen. This approach tends to result in less net proceeds for the seller, because iBuyers typically offer less than market value for homes (and might charge hefty service fees). The same holds true for selling to a local or national cash-homebuying company (typically minus the service fees). “Since iBuyers need to make a profit on the sale, they rarely make an offer at or over full market value, and their fee structure is often more expensive than an agent’s commission,” says Rick Sharga, founder of the real estate consulting firm CJ Patrick Company.
• Agent sales: When selling a home the traditional way, with a professional real estate agent, you can expect to pay a commission. Real estate commissions are typically the biggest expense associated with this approach and run around 5 to 6 percent of the sale price (the amount is split evenly between your agent and the buyer’s). But selling with an agent is also the best way to get top dollar for your home.
  

FAQs

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  Is net proceeds the same as profit?

  Not exactly. Greg McBride, Bankrate’s chief financial analyst, explains: “Net proceeds are what you walk away with after all mortgages, liens and transaction costs are paid. They are not the same as profit, because the proceeds include your down payment and any principal repaid, which do not represent profit.”
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  What is the difference between net and gross proceeds?

  Gross proceeds are the total amount that the seller receives from the sale of the home. Net proceeds are the amount that the seller pockets after paying the mortgage balance and various closing costs.
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  How do you calculate net proceeds?

  To calculate net proceeds on a home sale, subtract the sum of the seller’s closing costs, expenses and mortgage balance from the final sale price of the home.