How to Calculate Profit When Selling a House

How to Calculate Profit When Selling a House
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Before you can calculate profit from selling a house, you’ll need to know what factors affect the selling prices in your area. When the market is hot, your estimated sales price could be higher, but in a slow market swing, you need to decide your minimum selling price for a profit. Your current equity in your home is also a factor in your profit estimate. Finally, your mortgage balance and many costs of selling your home will determine your actual profit.

Common Fees When Selling A House

Every home seller pays fees to sell a house. Common fees that you pay before listing include an independent appraisal of your home’s value. In many cases, you must pay for a home inspection, depending on your state laws. At some point, before you can hand over the keys to a new owner, you’ll pay for a title search.

To calculate profit from selling a house, you’ll need to estimate the total closing costs for your real estate transaction, according to Freddie Mac. These costs vary depending on local and state requirements and whether you use a real estate agent or sell your home without one. Repairs, preparation or staging and landscaping might affect your profit too.

Realtor Costs Affect Profit From Sale

Using a Realtor to sell your home is a cost that you must include when you calculate profit from selling a house. Bankrate estimates that real estate commissions for selling a home could be as high as ten percent of the sales price. Some real estate agents might be willing to contract for less when your sales price is high and homes in your market sell quickly. Estimate your real estate commission at no less than ​five to six percent​, according to Freddie Mac.

Calculate Sale by Owner Profits

Some home sellers take on all the tasks of a real estate agent and list their home for sale by owner. If you take this route, you gain ​5 to 10 percent​ of the sales price as profit. On a ​$200,000​ home, this amounts to ​$10,000​ to ​$20,000​ in profit after required fees, common costs and taxes. However, skipping the Realtor could require that you hire an attorney or title professional to help with the preparation of the paperwork needed for closing the sale of your home yourself.

Selling your home to a friend or relative without help from a Realtor can increase your profit as well. Family members and friends who want your home might agree to buy it as-is. To calculate profit from selling a house as-is, drop appraisal and inspection fees, unless required by law in your area. You’ll also be able to increase your profit by skipping repairs and staging costs. Closing costs might not change much, because you’ll still need to file reams of paperwork to transfer your property.

Calculate Home Sale Profit Margin After Taxes

Include an estimate of taxes due to the Internal Revenue Service and local agencies when you calculate profit from selling a house. Each property and each tax situation are different. Review the IRS Publication 523 (2020), Selling Your Home to find out how profits from your home sale could affect your income taxes. You might qualify to exclude a portion of the profit if your sale meets specific requirements.

When you sell your home, you may also need to pay local real estate taxes depending on their due date. If you hire a realtor, they will add the property taxes to your closing costs. With a sale by owner, you’re responsible for contacting your local property tax agency to square your account when you sell your home. See a tax professional for help estimating local and state income taxes that might be due after you sell your house.