Calculating Net Proceeds of Your Real Estate Transaction
If you are selling a residential property in Massachusetts, your first question will probably be: “what is the highest market value of my property?” The best way to answer that question is to consult with a qualified real estate broker or agent. That would be me, in case you are wondering. Contact me for an opinion of value – no strings attached. I’m happy to provide this service with no obligation. Hopefully you’ll remember my name when someone asks you if you know a good agent, or when you are ready to buy or sell real estate. In the meantime, my colleague Jeremy McHugh explains closing costs for the typical real estate transaction.
Demystifying closing costs
Once we have set the value of your home, successfully marketed the property and accepted an offer, next you will want to know exactly how much money you will actually receive when the sale is concluded. This question will eventually be answered when the closing attorney drafts the closing disclosure, or “settlement statement”- but this often does not happen until a day or two before closing. So, if you want to be able to accurately calculate your net proceeds before that, read on. For a spreadsheet to assist with calculating your net proceeds, you can visit the McHugh Law website. Attorney McHugh explains further.
Here are the typical expenses to the seller of a residential condominium or single family property in Massachusetts:
- Broker’s commission: 5%-6% is the common range for real estate broker fees in Massachusetts. Customarily, the seller will pay the full amount of the commission, with the buyer’s agent receiving a 50% share of the commission. Of course, it is possible to consummate a sale without the aid of 2 real estate agents, but in the majority of transactions, it is the efforts of two agents working together that result in a mutually satisfactory deal.
- Mortgage Payoff: You will need to obtain a Mortgage Payoff Statement from your lender, which will provide the exact amount due to release the mortgage lien as of the day of closing. In Massachusetts conveyancing practice, the closing attorney allows three business days after closing for processing the file and sending the payment in by courier or wire. This Mortgage Payoff Statement is different from your monthly statement: the Payoff Statement makes reference to a specific “good through” date, to which daily interest charges are calculated.
- Deed tax: Calculated as $4.56 per thousand of the consideration stated in the deed- i.e, the sale price. For a $500,000 sale, the deed excise tax would be $2,280.
- Seller’s counsel fee: In Boston, a flat fee in the range of $800 to $1500 is common for a standard residential sale transaction and may vary depending on the level of complexity of the transaction.
- Discharge tracking fee: $100-$150: If you have one or more outstanding mortgages on the property, the closing attorney’s office will often charge this fee in consideration of their obligation to ensure that your mortgages are fully paid off within 3 days of closing and the proper lien release documents are recorded at the Registry of Deeds.
- Recording fees: $75-$225. Depending of the circumstances: if you are selling a condo unit, you will pay $75 to record a 6D certificate of no unpaid common charges, each mortgage discharge is $75, etc., depending on the details of your transaction.
- Final water bill: Generally in the range of $40-$200 for a single family or small multifamily property. At closing the amount of any water and sewer bills will be deducted from the proceeds of sale and used to pay the bill in full. Usually this will not be charged to you for a condominium sale, as the water bill is customarily a common expense and as such, paid by the condominium trust.
Here are the typical credits to the seller that will be applied on the settlement statement at the closing of a Massachusetts real estate sale:
- Prorated, prepaid property taxes: In most municipalities, taxes are paid quarterly, due on the first day of the second month of the quarter. Thus, if you close on Feb 15th, you have already paid the tax bill for the period from January 1 to March 31st. Thus, the buyer will credit back to you the prorated amount of the tax bill from Feb 15th to March 31st.
- Prorated, prepaid condominium monthly fee. Condominium fees are due on the first day of the month, so you will have prepaid the fee if closing on any day other than the first day of the month: in which case the buyer will have the obligation to pay the fee for that month.
- Heating Fuel: If you have an oil fired heating system, you will need to obtain a reading by your fuel oil supplier of the value of the remaining fuel in the tank, which will be added as a credit on your settlement statement.
To obtain an accurate estimate of your closing costs, and therefore your net proceeds of sale, simply add up the total credits to the purchase price, then subtract out all of the closing costs. You should be aware that all disbursements out of the proceeds discussed above will be made by the closing attorney (aka settlement agent), so that as the seller you will not be responsible for paying off the balance of your mortgage, final water bill, etc.-these will all be handled by the closing attorney. Again, check out the closing costs spreadsheet if you are interested.