Understanding Your Home Equity: What Happens When You Sell?

If you have a mortgage, it will need to be paid off when you sell your home. Some of your equity will go toward the costs of selling your house, like agent commissions and closing fees. The title company handles these payments, including your existing mortgage, and what’s left after these costs are deducted is called your net proceeds. This is the portion of your equity that’s actually paid to you in the end.

Equity on Paper vs. Real Life

When banks or real estate professionals talk about equity, they’re often referring to two different amounts:

1. Equity on Paper: The value of your home minus what you owe on your mortgage.
2. Net Equity Proceeds: The cash you receive after selling your house and paying off debts like your mortgage and selling costs.

Why are these two amounts different? Selling a house isn’t free. Some of your equity will go toward covering costs like commissions, taxes, and fees.

For a detailed breakdown of what it costs to sell a home, check out our Cost of Selling a Home blog post.

Let’s Look at an Example

Imagine your house is worth $200,000. From this, you subtract the costs of selling, which total $21,500. This leaves you with $178,500 in total sales proceeds.

Now, let’s say you still owe $160,000 on your mortgage. Once that’s paid off, your net equity proceeds would be $18,500.

Here’s how it looks step by step:

• Sales price: $200,000
• Costs to sell: $21,500
• Total sales proceeds: $178,500
• Remaining mortgage balance: $160,000
• Net equity proceeds: $18,500

Equity on Paper

While you’re living in your home, your Equity on Paper is simply the property’s value minus your mortgage balance. In this example:

• Home value: $200,000
• Mortgage balance: $160,000
• Equity on Paper: $40,000

Your Net Equity Proceeds

When you sell, things change. Your Net Equity Proceeds are what’s left after all selling costs and debts are paid. In the same example, that would be $18,500.

This is why your equity on paper is often higher than what you actually get after selling.

Costs to Sell: What to Expect

Selling a home involves several expenses. Here’s a breakdown of the most common costs:

• Agent Commissions: Typically 5-6% of the sales price (NAR 2024 Report).
• Closing Costs: Includes title insurance, taxes, and other fees (typically 1-3% of the sales price).
• Repairs or Staging Costs: To make your home more appealing to buyers.

For more information on these costs, visit our Cost of Selling a Home post.

Final Thoughts

Your Equity on Paper while you’re living in your home is often much higher than the Net Equity Proceeds you receive after selling. In the example above, your equity on paper was $40,000, but after selling costs and paying off your mortgage, your net proceeds were $18,500.

This difference is an important factor to keep in mind when deciding whether to sell your home.

What’s Next?

Selling your home is a big decision, and it’s okay to feel unsure. Sometimes, a little more information or a friendly conversation can help.

If you’re wondering how much equity you might have or need help deciding if it’s the right time to sell, we’re here for you. Forget the robots and message apps—our team is ready to answer your questions. It’s as easy as picking up the phone.

For more helpful tips and advice, check out our other posts or contact us today.