Before putting a home back on the market, homeowners will naturally want to know how much profit they’ll make. Calculating the potential profit from selling a house is a fairly straightforward matter. Using a home sale calculator will help, you just need the details, which can be numerous.
If you’re struggling to decide whether now is a good time to sell your house, calculating profit can be a deciding factor. If you’re satisfied with the potential net profit, you might move forward with selling.
Understanding profits from home sales is relatively simple. You will need to calculate two figures, each requiring its own spreadsheet:
The simple expectation that you will receive “a good deal” can easily lead a seller’s profits to fall short of realistic expectations. Utilizing a home sale calculator will help you better understand what you’re looking at.
So, let’s go over each aspect of selling a house for a good net profit.
Naturally, your net profits will be reduced by certain unavoidable expenses. There are closing costs for both the buyer and seller of a property. In addition, there are other costs that sellers must pay. These include longer-term expenses, such as capital gains taxes to be paid during the next tax season.
Let’s take a closer look at each of these expenses.
How Much Are Realtor Commissions?
These commissions are one of the largest expenses that most home sellers need to consider.
Realtors and real estate agents receive a small but sizable portion of the proceeds of house sales they facilitate. When you sell, the portion going to realtors is split between the seller’s agent and the buyer’s agent.
Looking at various statistics, the rate paid by the house seller is consistently between 5% and 6%. The buyer’s and seller’s agents each receive about 2.5% to 3% of the transaction in commissions. Sellers are almost universally responsible for paying each commission entirely.
House buyers typically have to pay several closing costs, but they are not required to pay any commissions. The seller pays their agent and the buyer’s agent once the house’s sale is closed.
It is worth noting that the actual percentage you can expect to pay depends on your location. Prominent realtors often compile statistics for both local and national average commissions paid.
While the variation isn’t substantial nationwide (5% to 6%), even half a percentage point can mean thousands of dollars when considering the size of these transactions. For this reason, you should compare your options and refer to local realtors, where possible, for statistics on what to expect in your locality.
This is one area that can be very cheap for the house seller, or very expensive. Given the wide variation in potential costs, it deserves special attention.
All prospective home buyers will expect assurances that their new home won’t collapse on their heads. Inspections may cost you some money now, but they can save you time and money down the road. If you have a leak, faulty wiring, or anything of that nature, you want to deal with it before listing your home.
Homebuyers typically pay for home inspections, so you don’t need to consider that expense. However, you should still inspect your home yourself or with some help to discover any severe and readily apparent problems before listing.
Leaving problems in your home while listing it can lead to a waste of time. Many potential buyers will either walk away or demand a lower price.
However expensive home repairs can be, they can save you money when it comes to the proceeds of your home’s sale. For example, a severely damaged roof may cost $3,000 to $5,000 to repair. But not fixing it and leaving visible problems can cost you even more by significantly reducing the money you can demand from your sale.
In terms of calculating how your repairs relate to your profit, you have a few simple steps:
If you bought your home less than one year ago and are already selling it, you will have to add your profits to your net income. This is the standard approach to short-term (under one year) capital gains.
This is also a far more expensive proposition. Depending on your tax bracket, you may end up spending more than 37% of your profits on taxes.
For regular capital gains on properties held for over a year, you shouldn’t spend more than 15%. If your taxable income was at least $40,400 as a single person or $80,800 married filing jointly, this is the rate you will have to pay. If you have a large income, you will have to pay 20% on balances exceeding $445,850 or $501,600 (single vs. married filing jointly).
If you still owe your mortgage lender, you will need to pay them off. You will need to contact them for an accurate picture of your loan payoff.
Your mortgage payoff will include the remaining interest and principal. Then, there are often prepayment fees for paying off the balance before your mortgage reaches maturity. All of these additional costs will need to be deducted from your profit.
There are a few other non-significant expenses, but they do add up. If you use a home sale calculator, it should include all of the following.
Moving costs should be considered among the various costs of selling your home. After all, it’s a necessary expense if you’re selling a house.
Hiring professional movers typically costs at least $500. However, costs can rise much higher depending on the distance, the number of moving trucks, and trips required.
You can save a lot of money by renting a moving truck or van and doing the heavy lifting yourself. Rates can vary from $40 to $200 per day for rentals.
Pre-inspection costs usually are smaller than most expenses on this list. But they are still worth considering and must be factored in to calculate exact profits.
Pre-inspection before listing will reveal any critical issues that can jeopardize your ability to sell or lower the market value of your home. Inspections can cost anywhere from $300 up, depending on the size and condition of your home.
Making your house presentable for potential buyers isn’t completely necessary. But it’s a beneficial step to take. According to a majority of real estate agents, it can improve the rates you can get from buyers.
Staging expenses normally range from $2,000 to $4,000. The return on investment is much harder to determine definitively, so we will leave this here as a minor, optional expense.
Title insurance is a one-time expense for sellers. It’s a closing cost where the seller pays for the new owner’s title insurance, protecting them from disputes over claims to the title or other factors like liens.
The government transfer tax, otherwise known as a “title fee,” is paid by the seller when the title is transferred. It’s a tax that varies from area to area. In California, the standard cost for the “County Transfer Tax” across the entire state is $1.10 per $1,000 of the sale price.
Some homeowners’ associations may also charge transfer fees.
Sellers typically hire an Escrow company. Escrow companies are neutral third parties that collect the funds needed for the closing process. They also collect documents.
Escrow companies usually charge a simple flat fee for their services.
Several costs may come up in the interim of transferring a property’s ownership. If you’re selling your home without immediately having another, you may need to add expenses such as:
As you can see, profit calculations are a straightforward matter. The tricky part is determining the exact costs of each of the necessary expenses. Some of those expenses are not easy to determine until closing time.
Profit is simply the price you accept for the sale of your home, minus all those expenses. What’s left is your net proceeds (profit).
You can get a rough estimate before closing, however. The most significant expenses should be clear early on. For example, if you’re at the point where you have an idea of how much your house will sell for, you can easily subtract:
The former two expenses are purely percentage-based, so they are easy to calculate. The remaining mortgage is even more straightforward, although you may need to account for prepayment fees.
Home repairs, often the next largest expense, are harder to estimate. But you will know how much you’ve needed to pay on repairs well before closing.
The remaining minor expenses will be, well, minor, in comparison. However, when added up, they can represent a significant total cost and should not be ignored.