Net proceeds
The amount a seller actually receives at closing after paying off the mortgage balance, commissions, excise tax, title and escrow fees, and other closing costs. Estimated on a net sheet; final figures come from the settlement statement.
Key Takeaways
- Net proceeds are what the seller takes home after the loan payoff, brokerage compensation, excise tax, and closing costs come out of the sale price.
- A higher sale price does not always mean higher net proceeds, because concessions and costs can rise faster than the price.
- Washington's real estate excise tax is the obligation of the seller under RCW 82.45.080, so it lands on the seller's side at closing.
- A seller net sheet is an estimate. The settlement statement prepared for closing carries the final figures.
What It Means
Net proceeds are the dollars a seller walks away with after every payoff and cost is subtracted from the sale price. The price is the headline number, and it is not the seller's money. The mortgage payoff comes out first, then brokerage compensation, then the state and local real estate excise tax, then title and escrow charges, recording fees, and any prorated property taxes, utilities, or association dues the seller still owes as of the closing date.
Brokers estimate net proceeds on a seller net sheet before an offer is accepted, so the seller can compare offers by what each one leaves behind instead of by price alone. An offer that is $10,000 higher but asks the seller to pay $12,000 of the buyer's Closing Costs nets less. The final figures land on the settlement statement the closing agent prepares, and several lines move right up to closing because loan interest and Proration items are calculated to the day.
Net proceeds can be negative. When the payoff plus the costs of selling exceed the price, the seller either brings money to closing or needs the lender's approval for a Short Sale.
How It Works in Washington
The Washington cost that surprises new sellers is the real estate excise tax. RCW 82.45.060 imposes a graduated state tax on the selling price, at 1.1 percent on the lowest tier, then 1.28 percent, then 2.75 percent, and 3 percent on the top tier, and it directs the Department of Revenue to adjust the dollar thresholds every fourth year. For sales on or after January 1, 2023, the department's published thresholds are $525,000, $1,525,000, and $3,025,000. Land classified as timberland or agricultural land is taxed instead at a flat 1.28 percent.
Local government adds to it. RCW 82.46.010(2) lets a county or city impose an excise tax on each sale at a rate not exceeding 0.25 percent of the selling price, and RCW 82.46.010(3) authorizes an additional local tax of up to 0.5 percent. A net sheet has to use the rate for the specific city or county. RCW 82.45.080 makes the tax the obligation of the seller, which is why it sits on the seller's side of the statement.
Brokers carry an accounting duty on top of the arithmetic. RCW 18.86.030(1)(e) requires a broker to account in a timely manner for all money and property received from or on behalf of either party, and RCW 18.85.285(1) requires the firm's transaction records to include an itemization of the receipts and disbursements with each transaction.
Example
Renata sells her house for $650,000. Her first mortgage payoff is $412,000. She agreed to pay her listing firm 2.5 percent and to compensate the buyer's firm 2.5 percent, which is $32,500 in total.
The state excise tax is $5,775 on the first $525,000 at 1.1 percent, plus $1,600 on the remaining $125,000 at 1.28 percent, for $7,375. Her city imposes the local excise tax at 0.25 percent, adding $1,625, so the excise line is $9,000. Her owner's title policy is $1,850, the escrow fee is $1,100, recording is $205, and she owes $1,120 of prorated property taxes through the closing date.
Deductions total $457,775, so Renata's net proceeds are $192,225. Had she taken a competing offer of $658,000 that asked her to pay $12,000 toward the buyer's closing costs, her net would have fallen even though the sale price rose.
Common Mistakes and Exam Traps
- Net proceeds are figured from the sale price, not from the appraised value and not from the original list price.
- Washington's real estate excise tax is the seller's obligation by statute, so a question that parks it on the buyer's side of the settlement statement is wrong.
- Net proceeds and a net listing are different ideas. Net proceeds is a calculation that applies to any sale, while a net listing is a listing agreement in which the seller specifies the amount he or she wants to receive from the sale.
- Equity and net proceeds are not the same number. Equity is value minus what is owed against the property. Net proceeds also subtract the costs of selling.
Where you'll learn this
Frequently Asked Questions
Why is the number on the net sheet different from the check at closing?
A net sheet is an estimate prepared before closing, and several lines move with the calendar. Loan interest, prorated property taxes, and utility charges are calculated to the exact closing date, so the settlement statement is the final word.
What is the difference between net proceeds and capital gain?
Net proceeds are the cash left after the payoff and the costs of selling. Capital gain is a tax calculation that compares the sale price, less selling costs, to the seller's basis in the property. A seller can have large proceeds and a small gain, or the reverse.
Can a seller owe money at closing instead of receiving it?
Yes. If the loan payoff plus the costs of selling is more than the sale price, the seller brings the difference to closing or asks the lender to approve a short sale.