Overview
Most sellers want one number: what they will walk away with. That number depends on the sale price, your loan balance, the terms of your contract and the fees charged by the companies involved, so no page can give it to you in advance. What this page can do is set out the categories in order, so that nothing on your estimate arrives as a surprise.
For owners of high-equity homes, the costs on the escrow statement are often the smaller part of the picture. The larger questions are usually tax questions, and they are answered most usefully before a listing date, not after. This page shows where those questions arise and who should answer them.
This page contains no fee amounts or percentages. Fees vary by company, by contract and by the details of your home. Ask for written estimates, and ask Sidney to prepare an estimated net sheet once you have a likely price range.
What to have ready
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Costs explained
Commission
Real estate commission is set in the listing agreement you sign with the brokerage. Under California Business and Professions Code section 10147.5, a printed or form agreement that establishes a licensee's compensation for the sale of residential property of not more than four units must include this notice immediately before its compensation terms: "The amount or rate of real estate commissions is not fixed by law. They are set by each broker individually and may be negotiable between the seller and broker." The same section says the amount or rate of compensation shall not be printed in such an agreement.
Ask how compensation is structured, what services are included and whether any compensation to a buyer's agent is part of your agreement or a separate negotiation.
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Escrow and title
Escrow and title companies charge for their services. Typical categories on a seller's estimate include:
- Escrow fee
- Title insurance policy
- Recording fees
- Document preparation, notary and courier fees
Who pays which of these is set by your purchase contract. Ask your escrow officer for a written estimate of the fees that apply to you.
In practice. Ask for the preliminary title report as soon as escrow opens and read it with your escrow officer. An old lien, an unreleased loan or an unexpected name on title is far easier to resolve with time in hand.
Ask for the preliminary title report as soon as escrow opens and read it with your escrow officer.
Transfer tax
A documentary transfer tax may apply when the deed records, and it will appear on your escrow estimate if it does. Ask your escrow officer or a real estate attorney who pays the transfer tax under your purchase contract.
Your loan and other liens
At closing, escrow pays off any loans secured by the home from your proceeds:
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Request payoff statements early. If you are unsure what is recorded against the property, a preliminary title report will show it.
If this, then that:
- If you have an equity line, then ask your lender how to close it at payoff, so it cannot be drawn on after closing.
- If a lien belongs to a past owner or a contractor, then raise it with your escrow officer and, if needed, an attorney as soon as it appears.
- If you plan to buy your next home with the proceeds, then ask your escrow officer and lender how and when funds will move between the two transactions.
Property taxes and HOA items
Escrow may prorate property taxes and HOA dues between you and the buyer based on the closing date. If the home is in an association, there may be charges for the documents the association provides for a sale. Your escrow officer can show these lines on your estimate.
Repairs and credits
After inspections, a buyer may ask for repairs or a credit. Whether you agree is a negotiation, not an obligation, but it is wise to keep room in your planning for it.
A request after inspections usually takes one of three forms: a repair before closing, a credit through escrow or a price reduction. Each is written into an amendment to the contract. Ask Sidney how each form affects your net figure and your timeline, and ask your escrow officer how a credit will appear on the statement.
Preparation and moving
These are usually outside escrow, so they are easy to forget:
- Cleaning, small repairs, painting and landscaping
- Staging, if you choose it
- Storage and moving costs
- Utility final bills
- Insurance on a vacant home, if your coverage changes when you move out
- Moving, crating and insurance for art, collections and fragile pieces
Estimate your net
How to read an estimated net sheet
A net sheet starts with a sale price and subtracts estimated costs and payoffs. When you review one:
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A worked sequence for building your own estimate:
- Start with a likely sale price from your pricing review, and a second, more conservative figure.
- Subtract the agent compensation set in your listing agreement.
- Subtract escrow, title and recording estimates from your escrow officer.
- Subtract any transfer tax your escrow officer expects to apply.
- Subtract loan payoffs from current payoff statements.
- Add or subtract prorations for taxes and dues, as estimated.
- Allow for a possible repair credit and for preparation and moving costs outside escrow.
- Treat the result as a range, then ask your CPA what portion of the gain, if any, may be taxable and whether any withholding applies.
Planning tool
Estimated Net Sheet Builder
Build your own estimate in the order this guide sets out, with figures from your listing agreement, your escrow officer and your payoff statements. Nothing is filled in for you.
A rough estimate for discussion, not a quote.
| Line | Likely | Conservative |
|---|---|---|
| Sale price | Add your price | Add your price |
| Agent compensation | Not entered | Not entered |
| Escrow, title and recording | Not entered | Not entered |
| Transfer tax | Not entered | Not entered |
| First loan payoff | Not entered | Not entered |
| Equity line or second loan | Not entered | Not entered |
| Other recorded liens | Not entered | Not entered |
| Property tax proration | Not entered | Not entered |
| HOA proration | Not entered | Not entered |
| Possible repair credit | Not entered | Not entered |
| Preparation | Not entered | Not entered |
| Staging | Not entered | Not entered |
| Moving | Not entered | Not entered |
| Storage | Not entered | Not entered |
| Art handling | Not entered | Not entered |
| Estimated net before any tax or withholding | Add a price | Add a price |
The amount or rate of real estate commissions is not fixed by law. They are set by each broker individually and may be negotiable between the seller and broker.
Ask your escrow officer or a real estate attorney who pays the transfer tax under your purchase contract.
A rough estimate for discussion, not a quote. Your escrow officer's estimate and final statement govern. Sidney is a licensed real estate agent, not a tax adviser or attorney; for questions about your own tax position, speak with a CPA.
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Taxes and withholding
California real estate withholding
The Franchise Tax Board explains that "Real estate withholding is a prepayment of income (or franchise) tax due from sellers on the gain from the sale of California real property. It is not an additional tax on the sale of real estate." It also says a seller "may qualify for partial or no withholding if you meet the criteria for an exemption," which is certified on FTB Form 593. Your escrow officer will provide the form; your CPA can tell you which section, if any, applies to you.
Federal FIRPTA withholding
A separate federal rule applies when the seller is a foreign person. The IRS explains that "The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding." It also says that "The transferee must find out if the transferor is a foreign person." In practice, escrow usually asks every seller to complete a document about their status.
If you, a co-owner, a trust or an entity on title may be a foreign person for federal tax purposes, raise it with your CPA and escrow officer before you list. This page does not describe the withholding amounts, exceptions or procedures; the IRS page and your CPA are the sources for those.
Federal tax on the sale
IRS Publication 523, Selling Your Home, explains how gain on the sale of a main home is figured, the conditions under which some gain may be excluded, and which records to keep. It lists items such as advertising fees and legal fees among selling expenses, and says that in general you should keep basis records until 3 years after the due date of your tax return for the year you sold. The Journal note on capital gains when selling a long-held home covers more background.
A note on high-equity homes
When a home has been owned for many years, or has risen substantially in value, the tax questions often outweigh the transaction costs. Matters a CPA may want to discuss include:
- How your basis is figured, including improvements and how you acquired the home
- Whether you meet the conditions Publication 523 describes for excluding some gain
- How title is held, and whether that affects the answer
- How the timing of the sale relates to the rest of your tax year
None of these has a general answer. Bring your records to a CPA before you set a listing date, so there is room to plan.
Sidney is a licensed real estate agent, not a tax adviser or attorney. For questions about your own tax position, speak with a CPA before you list.
Questions
Common pitfalls
Treating an early estimate as final.
Prorations, interest and credits change with the closing date and negotiation.
Forgetting costs outside escrow.
Preparation, storage and moving are real costs even though they do not appear on the statement.
Assuming withholding is a tax.
California withholding is a prepayment, and an exemption may apply; ask your CPA.
Leaving tax questions until after closing.
Planning is only possible before the sale.
Ignoring old liens.
Read the preliminary title report early.
Questions to bring to your advisers
Your escrow officer
Which fees are mine under this contract? When will I see the estimated closing statement? Who pays the transfer tax under our contract? How will I complete Form 593 and any federal status document?
Your CPA
What is my basis? Do I qualify for any exclusion described in Publication 523? Does any California withholding exemption apply to me? Could FIRPTA apply to anyone on title?
A real estate attorney
Are there title or lien issues to resolve before I list?
For local context, see the Journal note What does it cost to sell a house in the San Gabriel Valley?
Frequently asked questions
Is commission a fixed percentage in California?
No. Under California Business and Professions Code section 10147.5, a form listing agreement for a home of up to four units carries this notice: "The amount or rate of real estate commissions is not fixed by law. They are set by each broker individually and may be negotiable between the seller and broker." Read your agreement's compensation terms and ask any questions before you sign.
Who pays the transfer tax?
That depends on your contract and where the home is. Ask your escrow officer or a real estate attorney who pays the transfer tax under your purchase contract. Your escrow officer can also show the amount on your estimated closing statement once the sale price and the recording jurisdiction are known. This page does not quote transfer tax amounts or rates.
Will I owe tax on the sale?
That depends on your situation, and only a tax professional can answer it. IRS Publication 523 explains how gain on the sale of a main home is figured and when some of it may be excluded. California's Franchise Tax Board publishes separate rules on withholding at closing. Bring your purchase records and improvement receipts to a CPA before you list, not after you close.
When will I know my actual costs?
Your escrow officer prepares an estimated closing statement during escrow and a final statement at closing. Before you list, Sidney can prepare an estimated net sheet based on a likely price range and the fee estimates you gather. Treat every early figure as an estimate. Some items, such as prorations and loan interest, depend on the actual closing date.
What is California real estate withholding?
The Franchise Tax Board describes it as "a prepayment of income (or franchise) tax due from sellers on the gain from the sale of California real property" and says it is not an additional tax. A seller may qualify for partial or no withholding by meeting an exemption, certified on Form 593. Your escrow officer provides the form, and your CPA can tell you which section, if any, applies.
Does it matter if I live outside the United States?
It can. Federal FIRPTA withholding applies when the seller is a foreign person, and the IRS says the buyer must find out whether the seller is one. Raise your status, and that of any co-owner, trust or entity on title, with your CPA and escrow officer before you list. This page does not describe withholding amounts or exceptions.
Should I talk to a CPA if my home has risen a great deal in value?
Yes, and before you list. When a home has been owned for many years or has risen substantially in value, how basis is figured, whether an exclusion applies and how title is held can all matter. IRS Publication 523 explains the general rules. A CPA can apply them to your facts while there is still time to plan.
Official sources
- California Business and Professions Code section 10147.5
- IRS Publication 523, Selling Your Home
- California Franchise Tax Board Publication 1016, Real Estate Withholding Guidelines
- IRS, FIRPTA Withholding
Want an estimated net sheet for your home? Use the "Ask Sidney about your home" card on this page to send a private note.
When you would like a second set of eyes
If you would like to review an estimated net sheet together, line by line, Sidney is glad to sit down with your figures.
Sidney Manzo, licensed real estate agent, in real estate since 1990. CA DRE #01108914. RE/MAX Dream Properties (ASLG Inc), CA DRE #02142193.
