So, you’ve decided to sell your house.
You know how much you owe on your mortgage and roughly how much your house will sell for.
Your net proceeds should be the difference between the two.
Right? Not quite.
When you sell your house there are actually some other very significant costs you will have to account for. Here we’ll tell you what to expect and we’ll help you to estimate your net proceeds (the amount you will walk away with after settlement.)
Right? Not quite.
When you sell your house there are actually some other very significant costs you will have to account for. Here we’ll tell you what to expect and we’ll help you to estimate your net proceeds (the amount you will walk away with after settlement.)
First, it is important to note that real estate practices and laws differ from state to state and even within a state, there can be different customs.
This article will focus on real estate transactions within the Lehigh Valley area of Pennsylvania as that is where we are based.
It’s always best to consult with a professional in your area in order to get an accurate idea of your own potential costs.
This article will focus on real estate transactions within the Lehigh Valley area of Pennsylvania as that is where we are based.
It’s always best to consult with a professional in your area in order to get an accurate idea of your own potential costs.
mortgage
Balance Due/Payoff Amount
The largest sum that will be deducted from your profit is probably the payoff of your mortgage.
Your monthly statement will give you a pretty good idea of what this is going to be, but you can always contact your mortgage company for an accurate, time sensitive amount.
You might be interested in doing this if you owe an amount close to what you think you will net from the sale of the property.
No seller wants to bring money to settlement, but it does, unfortunately, happen.
If your lender pays your property taxes and your home owner’s insurance, they’ll be holding money in an escrow account for such disbursements and when you pay off the loan, you’ll get back any extra that is left in that account.
This may seem obvious, but if you have a second mortgage, a home equity loan or line of credit, or any other liens against your home, these will need to be paid off too. If you are not sure, check with your mortgage company or the title company.
Your monthly statement will give you a pretty good idea of what this is going to be, but you can always contact your mortgage company for an accurate, time sensitive amount.
You might be interested in doing this if you owe an amount close to what you think you will net from the sale of the property.
No seller wants to bring money to settlement, but it does, unfortunately, happen.
If your lender pays your property taxes and your home owner’s insurance, they’ll be holding money in an escrow account for such disbursements and when you pay off the loan, you’ll get back any extra that is left in that account.
This may seem obvious, but if you have a second mortgage, a home equity loan or line of credit, or any other liens against your home, these will need to be paid off too. If you are not sure, check with your mortgage company or the title company.
Escrow refund
If your lender pays your property taxes and your home owner’s insurance, they’ll be holding money in an escrow account for such disbursements and when you pay off the loan, you’ll get back any extra that is left in that account.
Each lender will handle your escrow account differently.
Some will allow you to use it towards the balance due, which means anything left over in your account will be a line item on the settlement sheet that lessens the total amount that you owe.
On the other hand, many lenders will not close your escrow account until they have certified that the loan is closed and paid off in full. In this case, you should receive a check for the amount left in your escrow account within 20-30 days of closing.
Each lender will handle your escrow account differently.
Some will allow you to use it towards the balance due, which means anything left over in your account will be a line item on the settlement sheet that lessens the total amount that you owe.
On the other hand, many lenders will not close your escrow account until they have certified that the loan is closed and paid off in full. In this case, you should receive a check for the amount left in your escrow account within 20-30 days of closing.
second mortgage / other liens
This may seem obvious, but if you have a second mortgage, a home equity loan or line of credit, or any other liens against your home, these will need to be paid off too.
If you are not sure, you can contact your local county recorder’s office to find out.
In some locations, only mortgages are recorded at the Recorder of Deeds, mechanics liens and other judgements may be recorded in the Civil Division.
If you think you may have outstanding liens other than your mortgage and you are not sure, you can always ask your agent to help you find out. Click here to learn about the different types of liens.
real estate commissions
Often the second largest amount a seller will pay is the real estate commissions.
We discuss the reasons for hiring an agent versus going it alone in our article titled Do I need an Agent?
Though there are some instances where you will sell your home without this fee, most will wind up paying a commission in the 5-6% range.
It is customary for the seller to pay the full real estate commission, which covers both the seller’s agent and the buyer’s agent.
In areas where this is the case, that is built into the market values of the homes.
The good news is that as the seller, you will negotiate your commission rates up front and this will not change after you sign the listing contract.
We discuss the reasons for hiring an agent versus going it alone in our article titled Do I need an Agent?
Though there are some instances where you will sell your home without this fee, most will wind up paying a commission in the 5-6% range.
It is customary for the seller to pay the full real estate commission, which covers both the seller’s agent and the buyer’s agent.
In areas where this is the case, that is built into the market values of the homes.
The good news is that as the seller, you will negotiate your commission rates up front and this will not change after you sign the listing contract.
closing costs
The seller has only a few line items to worry about here in Pennsylvania.
In addition to your lien payoffs and real estate commissions, here are a few things you can expect to pay (or be credited) at settlement from the proceeds of the sale.
In addition to your lien payoffs and real estate commissions, here are a few things you can expect to pay (or be credited) at settlement from the proceeds of the sale.
tax proration
You’ve paid your taxes throughout the year (or your lender has) and since taxes are pre-paid for a period, you will get reimbursed for whatever portion of the period you will not use.
This is separate from the refund of your escrow account. That account is a slush fund of sorts that your lender holds until payments are due. Leftover escrow is generally deducted from the loan payoff amount.
This tax proration is a credit is for taxes already paid.
Let’s say you paid your school tax for the year at the end of June.
Your taxes are then paid up until the following June.
If you settle in September, you’ve only “used” 3 months worth of taxes. You will be reimbursed for the 9 months you did not use.
This is separate from the refund of your escrow account. That account is a slush fund of sorts that your lender holds until payments are due. Leftover escrow is generally deducted from the loan payoff amount.
This tax proration is a credit is for taxes already paid.
Let’s say you paid your school tax for the year at the end of June.
Your taxes are then paid up until the following June.
If you settle in September, you’ve only “used” 3 months worth of taxes. You will be reimbursed for the 9 months you did not use.
Transfer tax
Payment of the transfer tax on real estate can vary greatly, even within a state.
Here in the Lehigh Valley it is customary and understood that the buyer and seller will split the transfer tax evenly, each paying 1% of the 2% total amount due.
This is the contract default in Pennsylvania, but be aware that other areas of the state have different customs.
Transfer tax is based on the sale price and is a straightforward calculation.
If the sale price of the house is $200,000, then the total sales tax is $200,000 x 0.02 = $4000.
The buyer and the seller split the bill, so the seller is responsible for $2000 transfer tax in this instance.
Here in the Lehigh Valley it is customary and understood that the buyer and seller will split the transfer tax evenly, each paying 1% of the 2% total amount due.
This is the contract default in Pennsylvania, but be aware that other areas of the state have different customs.
Transfer tax is based on the sale price and is a straightforward calculation.
If the sale price of the house is $200,000, then the total sales tax is $200,000 x 0.02 = $4000.
The buyer and the seller split the bill, so the seller is responsible for $2000 transfer tax in this instance.
miscellaneous fees
Here in the Lehigh Valley, the seller is typically only responsible for a few more small fees at closing.
calculating net proceeds
Once you’ve determined the amounts listed in the sections above, calculating your net proceeds is easy.
Simply start with the sale price and add or subtract the totals for each section listed above.
Here we’ll run through an example where we define an amount for each of the above expenses and then we’ll calculate the final net proceeds.
Plug in amounts specific to your individual circumstances to find your personalized answer.
*Remember to add the tax proration, this is money you are getting back.
Simply start with the sale price and add or subtract the totals for each section listed above.
Here we’ll run through an example where we define an amount for each of the above expenses and then we’ll calculate the final net proceeds.
Plug in amounts specific to your individual circumstances to find your personalized answer.
- Sales Price = $250,000
- First Mortgage Payoff Amount (minus escrow) = -$185,000
- Home Equity Line of Credit Payoff = -$10,000
- Real Estate Commission = ($250,000 x 6%) = -$15,000
- Tax Proration = +$1500 (Click here to learn how to prorate your taxes)
- Transfer Tax = ($250,000 x 1%) = -$2500
- Miscellaneous Fees = -$645
*Remember to add the tax proration, this is money you are getting back.
other potential expenses
It is worth noting here that there may be other expenses associated with the sale of your home.
You may want to do repairs or updates before you list or you might need to hire some contractors or professional cleaners.
During the inspection and negotiation phase of the contract, the buyer may ask you to repair some items noted during the home inspection.
While none of these costs are mandatory, they are something you should be prepared for, nevertheless.
You may want to do repairs or updates before you list or you might need to hire some contractors or professional cleaners.
During the inspection and negotiation phase of the contract, the buyer may ask you to repair some items noted during the home inspection.
While none of these costs are mandatory, they are something you should be prepared for, nevertheless.
