Definition
Net proceeds refer to the amount of money a seller receives after deducting all expenses related to the sale of a property. These expenses may include agent commissions, closing costs, outstanding mortgage balances, property taxes, and other fees. Net proceeds represent the actual profit a seller makes from the transaction.
Explanation
When a homeowner sells a property, the final sale price does not equal the amount they take home. Several deductions must be made before the seller can collect their net proceeds, including:
- Real estate agent commissions (typically 5-6% of the sale price).
- Outstanding mortgage balance (any unpaid loan amount on the property).
- Closing costs (such as title insurance, escrow fees, and legal fees).
- Prorated property taxes and HOA fees (if applicable).
- Repair costs or seller concessions (such as covering the buyer’s closing costs).
Calculating net proceeds is crucial for sellers because it helps them determine how much money they will have available for their next home purchase or other financial goals.
Example
A homeowner sells their house for $500,000. After deducting expenses, their net proceeds are:
- Real estate agent commissions (6%) = $30,000
- Remaining mortgage balance = $200,000
- Closing costs (title fees, escrow, etc.) = $5,000
- Prorated property taxes = $2,000
Net Proceeds=500,000−(30,000+200,000+5,000+2,000)=263,000
The homeowner receives $263,000 in net proceeds, which they can use for a down payment on another home or other investments.