The first number a seller hears is the sale price. The number that matters is the wire that hits your account after closing. Those two can be more than $400,000 apart.
Let me walk through one. Say you own a three-bedroom ranch off Lake Murray Boulevard in La Mesa that you bought in 2012. It sells for $850,000, and you still owe about $410,000.
Here's roughly where the money goes:
- Commission: say 5% total, which is $42,500. (Commissions are negotiable. This is just the example figure.) - Title and escrow, the seller's share: around $4,000. - San Diego County transfer tax: $1.10 per $1,000, so $935. La Mesa doesn't add a city tax on top of that. - Repair credit to the buyer after inspection: $5,000. On a house built in the late '50s, the buyer's inspector will find something. - Termite work, a home warranty and disclosure reports: call it $2,200.
That's about $55,000 before you touch the loan. Then comes the payoff, and it isn't the balance on your statement. Mortgage interest is paid in arrears, so the lender adds the days since your last payment. Figure $411,000 to be safe.
You walk away with roughly $384,000. That's a great outcome. It just isn't the $440,000 a lot of sellers have in their heads when they subtract the loan from the price and stop there.
Here's my opinion: a net sheet should round against you. I'd rather you be pleasantly surprised at the escrow office than sitting there recalculating your next down payment.
Property taxes are what catch the buyer. In California, your tax base resets to what you paid. That seller from 2012 might pay around $5,500 a year. The buyer at $850,000 will be closer to $9,800, because La Mesa runs a little over 1.1% once local bonds are included. Their lender sets up the impound account for the new amount. What buyers don't see coming is the supplemental tax bill. It shows up several months after closing and covers the gap between the old assessment and the new one for the rest of the fiscal year. It's mailed to you, not your lender. I've had buyers call me thinking it was a scam.
One more thing on timing. The first property tax installment is due November 1 and goes delinquent after December 10. If you're closing in the next six weeks, ask escrow exactly how the proration was handled. It's a single line on the settlement statement. Read it.