Calculating Closing Costs for Sellers

When selling a home, it’s essential to be aware of the closing costs that will affect your net proceeds. These costs are typically deducted from the sale price and can vary depending on your location and specific circumstances. Here’s a breakdown of the most common closing costs for sellers:

1. Real Estate Commission

The largest closing cost for most sellers is the real estate commission. This is typically a percentage of the final sale price and is split between the buyer's and seller's agents. The commission rate is usually negotiated upfront when you list your home.

2. Legal Fees

You’ll need a real estate lawyer to handle the legal aspects of the sale, including reviewing the Agreement of Purchase and Sale, managing the title transfer, and disbursing funds. Legal fees vary depending on the lawyer but typically range from $1,000 to $2,500.

3. Mortgage Discharge Fees

If you have a mortgage on the property, there may be fees associated with paying it off early. This can include:

• Mortgage discharge fee: Charged by your lender to officially close out the mortgage.

• Prepayment penalties: If you’re breaking a fixed-term mortgage before the end of its term, you may face penalties for early repayment. It’s important to check with your lender to understand any penalties or charges.

4. Adjustments for Property Taxes and Utilities

If you’ve prepaid property taxes, utilities, or condo fees, the buyer will need to reimburse you for their share of the costs. Conversely, if you owe any amounts, these will need to be settled before closing.

5. Title Insurance

While the buyer typically purchases title insurance, in some cases, the seller may be required to cover certain aspects of title insurance, such as clearing any title-related issues.

6. Home Staging & Repairs

If you’ve invested in home staging or repairs to make your home more marketable, these are upfront costs that should be factored in when calculating your overall closing costs.

7. Capital Gains Tax (If Applicable)

If the property is not your principal residence, you may be subject to capital gains tax on the profit from the sale. This applies particularly to investment properties, rental properties, or second homes. Consult your accountant for specific tax implications.

Calculating Proceeds of Sale for Sellers

Once you’ve deducted your closing costs, the next step is to calculate your proceeds of sale, which is the amount of money you’ll take home from the sale of your property. Here's how to calculate your net proceeds:

1. Determine the Sale Price

Start with the final sale price of the property as agreed upon with the buyer.

2. Subtract Closing Costs

From the sale price, deduct the following:

• Real estate commission: Typically 5-6% of the sale price (split between both agents).

• Legal fees: Estimated at $1,000 to $2,500.

• Mortgage discharge and penalties: Include any fees or penalties charged by your lender for paying off the mortgage early.

• Property tax or utility adjustments: Add or subtract any amounts owed or reimbursed between you and the buyer.

• Repairs or staging costs: Include any costs incurred to prepare your home for sale.

3. Calculate Your Mortgage Payoff

Subtract the remaining balance on your mortgage. This is the amount you still owe on your loan at the time of the sale.

4. Final Proceeds

After accounting for all closing costs and mortgage repayment, the remaining balance is your proceeds of sale—the money you’ll receive from selling your home.

Example:

• Sale price: $500,000

• Real estate commission (5%): $25,000

• Legal fees: $2,000

• Mortgage discharge fees: $1,500

• Remaining mortgage balance: $250,000

Total closing costs: $28,500

Proceeds of sale: $500,000 - $25,000 - $2,000 - $1,500 - $250,000 = $221,500

It’s important to consult your Realtor and lawyer to ensure you have a clear understanding of the costs involved and how they will impact your final proceeds. Properly calculating your net proceeds will help you plan for your next steps, whether you're buying another home or investing elsewhere.