How to Calculate your Net Proceeds for your home?
Net proceeds are the total dollar amount a home seller receives from the sale of a home after taking into account all expenses, living expenses, commissions, and fees incurred during the sale process.
Much to the disappointment of all home sellers, the sale price of your property is not the amount of money you actually make. To calculate this number, called your net product, you must factor in additional costs. These include the costs of hiring a real estate agent, listing the home in the Multiple Listing Service (MLS), and paying transaction fees.
Although it is not an exact science, calculating the net proceeds from the sale of a house is extremely useful. This will help you determine whether or not to include your home on an agent’s list or consider an alternative. One of those alternatives is to sell your home to a cash buyer.
If you are considering selling your home, this easy-to-follow guide will help you estimate how much money you will actually make from the sale of your home.
1. Start with your estimate
A good first step is to estimate the sale price of your property. It shouldn’t just be guesswork or “wishful thinking”. Instead, you need a reasonably informed estimate using data. How do you get there? Check local real estate websites to find comparable homes (“coms”) that have recently sold in your area.
What exactly does a house like yours do? A comp is a house with the following characteristics:
- Similar area
- About the same number of beds / baths
- About the same age
- In the same neighborhood
- Similar physical condition
If a recently sold home is in similar condition, is roughly the same size, has the same improvements (or no improvements), and is in the same location as yours, that home’s final sales price is the ideal starting point budget for your house. If you can find multiple homes that meet these criteria, even better.
Pay close attention to the date of the sale. The housing market is constantly changing. Just because a comparable home sold at a certain price last year does not mean that your home will sell for that price today. Try using mockup sales for the past three months, or the past six months if you’re having trouble finding examples.
A workaround to using comps
If you can’t find a comparable home that recently sold, you may need to make some simple cost adjustments to the one that sold. For example, suppose you find a house similar to yours, except that you have a remodeled kitchen. First, try to estimate the cost of comparable home upgrades using an online tool like Home Advisor. Then, subtract that estimate from the model’s sales price to get a good target sales price for your home. In this case, based on the average cost of the kitchen improvements, you can assume that your price must be at least $ 20,000 lower than that of a similar home sold.
This step is extremely important to the amount of money you make from the sale of your home. Undervaluation leaves money on the table, while overvaluation often leads to a lengthy and costly sales process.
2. Calculate the seller’s concessions
After arriving at a reliable estimate, you will need to start recording the expenses that will be subtracted from the sales price. First, calculate all of the seller’s potential concessions. A seller’s award is a “gift” from you, the seller, in the form of a price reduction. Seller concessions are most often awarded for necessary repairs found during an inspection, not cosmetic upgrades.
Common vendor concessions include water issues, wildlife encroachment, termites, the roof to be replaced, electrical failures, or the foundation to be repaired.
3. Calculate transaction costs
They say that nothing in this life is free, and that is certainly true of real estate transactions. It is difficult to sell a home in the traditional real estate market without the services of a licensed real estate agent. Unfortunately, agent fees are not cheap. Typical real estate commission fees are between five and six percent of the sale price (although legally this can vary).
Beyond agent commissions, as a seller, you will likely be responsible for paying closing costs to the property and escrow businesses. Closing costs are all the administrative costs of a housing transaction, such as attorney’s fees, title search, title insurance, taxes, and lender’s fees. These fees add up quickly and often add up to an additional two to three percent of the home sale.
4. Calculate the costs of holding
Just because you are putting your home on the market does not mean that you now have a “no-mortgage exit” card. Rather, you will continue to pay your mortgage and other typical home costs for the duration of your home’s listing. In fact, your home will likely stay on the real estate market for a while. Therefore, you will have to estimate what it will cost you during this period. The location of your home will be a determining factor in what you can expect to pay.
Obviously, a quick sale will save you significant maintenance costs. But in most countries, houses take more than a month to sell. In fact, the average home nationwide spends between 65 and 93 days on the market, according to data from the National Association of Realtors.
Beyond the mortgage, you will also continue to pay monthly expenses like utilities and HOA fees during this period. Collectively, all of these costs that you incur while the home is on the market are called “maintenance costs.”
5. Calculate the total product
Based on the information gathered in the previous steps, you can now begin calculating the net proceeds from the sale of your home once the real estate transaction is complete. However, keep in mind that the amounts can change depending on many variables; mainly the state of your local real estate market and fluctuating interest rates. For example, perhaps commissions are higher than the average in your area, or perhaps interest rates have risen, causing your home to stay on the market for more than two months.
6. Don’t forget the mortgage and additional expenses
This estimate does not take into account the mortgage or other debts you owe after the home is sold. The numbers above show you how much money you will have left after adding up all the expenses. But if your total net proceeds are less than what you owe on your mortgage, you will still have to pay your debt.
While these calculations help you estimate the dollars and cents involved in selling a home, they don’t begin to factor in the “ancillary costs” associated with the process. For example, incidental costs include time, mental stress, and physical labor as a result of activities such as:
- Keep the house clean
- Professional home setting.
- Adjust your schedule to accommodate screenings
- Negotiate with potential buyers
- Living with the ambiguity of not knowing if and when your property will eventually be sold
For many homeowners, the hassle is simply not worth the price. For others, the payment itself may not match the number offered elsewhere. After doing these calculations, you may want to ask yourself what is best for your situation.
What is the alternative?
If you decide that the sales process is too long, expensive, and emotionally time-consuming, you will be happy to know that there are alternatives to the conventional sales route.
Selling your home with an agent can be time-consuming and inefficient. This is why many choose to sell their home for cash to an off-market buyer. Selling a home off the market means that the home is never listed on the MLS and is instead purchased directly by an individual or business. Not only is an off-market sale faster and easier, but it can also lead to higher net profits.
Contact Falaya today to learn more about avoiding the headaches of the traditional sales process.