Net Proceeds: What They Are and How They Are Calculated

When you’re selling your home, you’re probably curious about how much money you’ll actually get to keep in the end. The money you keep after paying all the fees, commissions, and costs is called net proceeds. Figuring out the exact amount can be tricky until someone buys your home, but you can still get a rough estimate to see what you might make.

What do net proceeds in real estate, mean?

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Simply put, net proceeds refer to the total money a homeowner walks away with after the sale of the property. Unfortunately for the home seller, this amount is usually less than the home’s actual sale price. That’s because selling a house also requires certain expenses, such as home mortgages, liens, and transaction costs. The two amounts are especially different if there’s an outstanding home mortgage balance to be paid off.

Understanding net proceeds a little more

As mentioned, net proceeds are what you end up with when you sell something, like a house or an asset after all the costs have been taken out. These home-selling costs or fees could include:

Any legal fees or expertise-related fees on technology platforms
Home appraisal cost
Real estate agent’s fees or commissions
Real estate attorney fees
Advertising costs and the cost of publicity on digital media platforms
Home staging costs
Property excise taxes and closing costs owed by the seller
Regulatory expenses
Escrow fees
Title insurance
Seller concession if any

These expenses are subtracted from the gross sale price of a house to calculate the net sale proceeds.

How are net proceeds calculated?

The easiest way to figure out your net proceeds when selling a home is to take the final sale price and subtract all the costs you have to pay, such as closing fees, expenses, and what you owe on your mortgage. Usually, these costs add up to about 7% to 10% of your home’s value. But for a more accurate picture, you should also consider other expenses such as money spent on any home renovation before selling or the cost of staging it.

All these expenses reduce the amount of money you’ll end up with from selling your home. Additionally, if you receive a check from the sale, you will need to take the necessary steps to ensure it is properly deposited into your account. But how do you deposit a check? Understanding the deposit process ensures you have timely access to your funds and can reinvest or pay off any outstanding expenses without delays. Let’s take an example to estimate net proceeds.

Let’s say the house is selling for $100,000. The realtor’s fee is $5,000, the advertising costs run to $1,000, and the closing costs are $6,000. This brings the total expenditure to $12,000. Net proceeds = gross proceeds – total expenses.

Therefore, the net proceeds would be $88,000 ($100,000 – $12,000).

How do the proceeds affect property taxes?

The money you get when you sell a property can affect your taxes. Of course, it depends on factors such as the type of property it is, how long you’ve owned it, and if it was your primary residence. The good news is, in some cases, you can exclude up to $250,000 (for single filers) or $500,000 (for married couples filing together) of the profit from your taxes if you meet certain conditions such as living in the home for at least two out of five years. If you use the money to buy another home, you might not have to pay taxes on the profit. Just remember, you usually need to reinvest it within a certain time frame – 90 days to six months.

How important are net proceeds in the real estate industry?

Here are some common ways in which sale proceeds can impact the real estate market and your tax liability.

Capital gains taxes

In many countries, including the United States, the net proceeds from the sale of a property can be subject to capital gains taxes. The amount of tax you owe is typically based on the difference between the sale price (net proceeds) and the property’s adjusted cost basis. A higher net proceeds amount can result in a higher capital gains tax liability.

Property assessment

Some local governments use recent property sales data, including net proceeds, to reassess property values for tax purposes. If you sell your property for a significantly higher amount than its assessed value, it could lead to a higher property tax assessment for the new owner. Conversely, if you sell for less, it may result in a lower assessment.

Property tax exemptions

In some cases, individuals may be eligible for property tax exemptions or deductions based on their net proceeds, especially in scenarios like senior citizens downsizing or homeowners selling their primary residence. Higher net proceeds could affect your eligibility for these exemptions.

Transfer taxes

Certain jurisdictions impose transfer taxes or deed recording fees based on the sale price or net proceeds of the property. These fees can vary depending on your location and can add to the overall cost of the sale.

Impact on property valuation

The net proceeds from a recent sale in your neighborhood can influence the perceived market value of other properties in the area. This may indirectly affect property tax assessments for nearby properties.

Does the way you sell a house affect your net proceeds?

Yes, the way you sell can indeed affect your net proceeds. For example, selling a property through a real estate agent typically involves commissions, which can reduce your net proceeds.

On the other hand, selling directly to a buyer (for sale by owner or FSBO) without an agent may save you on real estate commissions but could also mean a longer sales process, more effort, and potentially lower offers.

According to the National Association of Realtors, the average FSBO listing price for a house sold was $225,000 in 2022. This was much less than the average price of $345,000 for listings with an agent. Additionally, factors such as market conditions, negotiation skills, and the condition of your property can all influence the final home sale price and, consequently, your net proceeds.

FAQs

Is net proceeds the same as profit?

Net proceeds and profit are related but not the same. Net proceeds refer to the actual amount of money you receive from a transaction after deducting all associated expenses, fees, taxes, and costs of selling. Profit, on the other hand, typically refers to the financial gain earned from an investment. It often involves revenues, costs, income, and expenses over time. Net proceeds, on the other hand, are specific to a single transaction and focus on the immediate cash after deductions.

Why are net proceeds important?

Net proceeds help you understand the true financial impact of a sale or investment.

What expenses are typically deducted from gross proceeds to calculate net proceeds?

Common deductions include transaction fees, agent commissions, taxes, and any other relevant expenses associated with the house sale.

What is the difference between gross proceeds and net proceeds?

Gross proceeds represent the total amount of money generated from a transaction before any deductions. Net proceeds, on the other hand, are the actual amount you receive after all expenses and deductions are subtracted.

Do taxes affect net proceeds?

Yes, taxes can significantly impact net proceeds. Income taxes, capital gains taxes, and other applicable taxes are deducted from gross proceeds, reducing the final net amount.

How can I maximize my net proceeds in a transaction?

To maximize net proceeds, consider reducing unnecessary expenses, negotiating lower fees or commissions, and understanding the tax implications of the transaction. It’s also important to optimize the timing of the sale of your home based on market conditions.

Can net proceeds be negative?

Yes, net proceeds can be negative if the expenses and deductions associated with a transaction exceed the gross proceeds. It’s a loss on the transaction.

How to calculate net proceeds from a home sale was last modified: March 12th, 2025 by Ramona Sinha

Written by Ramona Sinha. December 25, 2023

Ramona is the Senior Content Writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. She has written articles covering a broad range of topics, such as real estate, lending and mortgage, finance, business, taxation, home designs, home improvement projects, decor concepts, and more. An avid traveler, she’s a digital nomad at heart and an animal lover from the depth of her soul.