22 Oct How to Estimate Your Net Proceeds When You Sell in the Philadelphia Suburbs
Your net proceeds are what’s left of your sale price after everything that comes out at settlement: your share of the transfer tax, what you pay under your listing agreement, your mortgage payoff, tax prorations, settlement charges, and any credits you give the buyer. To estimate yours, start from a realistic sale price, subtract each of those, and add any tax proration that’s in your favor, using your own documents.
You can do this before you list. Here’s the method, with a worked example on a house in the Philadelphia suburbs.
What are net proceeds?
Net proceeds are the money you receive at settlement. They aren’t your profit. Your profit, or gain, is figured for tax purposes: the sale price, minus your selling costs, minus what you paid for the house and the cost of any improvements. Repairs and upkeep don’t count as improvements. Your net proceeds are what the sale pays you after the mortgage and costs.
What do you need before you start?
- Your listing agreement or the terms you’re considering, and any agreement to pay a buyer’s agent or give the buyer a credit
- Your latest mortgage statement, and any home equity line statement
- Your latest county and municipal tax bill and your school tax bill
- Your water, sewer and trash account details
- Your condominium or homeowners association contact, if you have one
- An estimate of your settlement charges
How do you estimate net proceeds, step by step?
- Pick a likely price range, not a hope. Your agent can give you one based on recent sales.
- Subtract your share of the transfer tax. The rate depends on the municipality, and your agreement of sale sets the split. Montgomery County’s total is 2%. For the other suburban counties and Philadelphia, see Philadelphia vs the Suburbs: Why Your Transfer Tax Bill Is Different.
- Subtract what you’ll pay under your agreements. That’s your listing agreement, any compensation you agree to pay the buyer’s agent, and any credit you agree to give the buyer. Commission is negotiable and not set by law, so use the terms in your own agreements.
- Subtract your mortgage payoff. Your monthly statement is a starting point, but the payoff adds interest through the payoff date and any unpaid fees. Ask your lender for a payoff statement, and include any home equity line. If your lender holds an escrow account for taxes and insurance, any balance left after the payoff comes back to you from the lender, separately from settlement.
- Add or subtract the prorations. Property taxes and some utilities are divided between you and the buyer as of the settlement date.
- Subtract your settlement charges. The settlement company handling your sale can estimate the seller’s side; before then, ask your agent.
- Subtract anything else in your agreement of sale, such as a repair credit, any municipal or association fees for resale paperwork, and any liens or judgments that have to be paid off at settlement.
What’s left is your estimated net proceeds.
What does that look like on a $400,000 sale?
Here’s an example. The price is illustrative, not a typical price and not a prediction for your home.
Example: a house in Bridgeport, Montgomery County, sells for $400,000, with the transfer tax split evenly.
| Line | Amount, or where it comes from |
|---|---|
| Sale price | $400,000 |
| Minus your share of the transfer tax: $400,000 × 2% = $8,000, half each | − $4,000 |
| Subtotal | $396,000 |
| Minus your listing agreement, any buyer’s agent compensation and any buyer credit | Your agreements |
| Minus your mortgage and home equity line payoff | Your lender’s payoff statement |
| Plus or minus prorations | Your tax bills and the settlement date |
| Minus settlement charges | The settlement company’s estimate |
| Minus repair credits and resale fees | Your agreement of sale, municipality or association |
| Equals your estimated net proceeds |
Only the sale price and the transfer tax work the same way for every $400,000 sale in Bridgeport with an even split. Every other line depends on your own agreements, your lender, your tax bills and your settlement date. For more on each line, see What It Costs to Sell a House in the Philadelphia Suburbs.
How do property tax prorations work in Montgomery County?
In Montgomery County, county and municipal real estate taxes are billed for the calendar year, January through December. School district taxes are billed for a fiscal year that runs July 1 to June 30. In Upper Merion Township, for example, the county and township bill goes out on March 1 and the school bill on July 1. Your bills show the period each one covers.
At settlement, each bill is split as of the settlement date. If you’ve already paid a bill that covers days after settlement, the buyer credits you for those days. If a bill for days you owned the house is unpaid, you pay your share.
Say settlement is October 22 and you’ve paid both bills. The buyer credits you for the rest of the calendar year on the county and municipal bill, a little over two months, and for the rest of the school district’s fiscal year, through June 30. Your settlement statement shows the exact days and amounts.
How does the sale price change your take-home?
Run the estimate at a lower price and a higher one, not just the price you hope for. The transfer tax moves with the price. In a 2% municipality with an even split, every $10,000 of sale price changes your share by $10,000 × 2% ÷ 2 = $100. In Philadelphia, at 4.578% with an even split, it’s $228.90.
If any fee or credit in your agreements is figured as a percentage of the price, it moves too. Your mortgage payoff doesn’t change with the price. So at settlement, a higher price adds to your net proceeds, less the extra transfer tax and anything else figured on the price. Tax on your gain is separate: if your gain is more than you can exclude, a higher price adds to the taxable part.
Do you owe tax on what you take home?
What you owe tax on is your gain, not your net proceeds. If the house is your main home, federal tax law lets you exclude up to $250,000 of gain if you owned it and lived in it for at least 24 months of the five years before the sale. A married couple filing jointly can exclude up to $500,000 if at least one of them owned it, and both lived in it, for at least 24 months of those five years. You can take the exclusion once in a two-year period, and other conditions apply.
Pennsylvania’s personal income tax exempts the gain on the sale of a principal residence when you owned it for two of the last five years before the sale and lived in it for two of those five years. The state’s rules set other conditions too, including for a home used partly for business or as a rental.
The settlement agent reports the sale to the IRS on Form 1099-S unless an exception applies. One exception covers a sale of your principal residence for $250,000 or less, or $500,000 if you’re married, when each seller certifies in writing, under penalty of perjury, that the full gain is excludable. Ask your tax advisor how all of this applies to your sale.
When is the money paid?
At settlement. The settlement agent pays off your mortgage and the other charges on your settlement statement and pays you the rest. We walk through settlement day in What Happens Between Accepting an Offer and Closing in Pennsylvania.
Frequently asked questions
Are net proceeds the same as profit?
No. Net proceeds are the money you receive at settlement. Profit, or gain, is figured for taxes: the sale price, minus your selling costs, minus what you paid for the house and the cost of any improvements (not repairs).
Why is my mortgage payoff higher than my balance?
Your payoff adds interest through the payoff date and any fees your lender charges. Ask your lender for an official payoff statement.
Do I pay the transfer tax out of my proceeds?
Yes. Your share is a line on your settlement statement, paid from your proceeds at settlement.
Can I get a net proceeds estimate before I list?
Yes. Ask for one at more than one price, so you can see how your take-home changes between a lower offer and a higher one.
What will you take home?
The number that matters is what you receive at settlement, not your list price. If you’re thinking about selling in Philadelphia or the Philadelphia suburbs, we’ll build a net sheet for your house at more than one price, line by line. Any value range we give you is a broker price opinion, and a broker price opinion is not an appraisal. Contact Plus Realtors and tell us where your home is.