How to accurately calculate profit on the sale of your home

Selling your home can be an exciting milestone, but understanding the true return on your investment can lead to important insights. Many sellers make the mistake of simply subtracting their original purchase price from their selling price to determine their profit. However, there are several hidden costs to consider when calculating the true profit.

“Your profit calculation starts with the selling price of your home minus what you originally paid for it. Thereafter, there several other expenses that will need to be factored in before you will arrive at the true return on your initial investment,” says Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.

These costs include:

• Any improvements such as renovations or extensions.
• The outstanding amount on your home loan and any bond cancellation fees.
• Estate agent commission fees (plus VAT).
• The cost of a Rates Clearance Certificate from the municipality
• The cost of obtaining various compliance certificates (e.g. Electrical Water, Gas, Beetle, and Electric Fence Compliance Certificates)
• Capital Gain Tax if the gain exceeds R2 million

In short, the calculation would look something like: Selling Price – (Outstanding Bond + Bond Cancellation Fees + Estate Agent Commission + Rates Clearance Fees + Compliance Certificate Costs + CGT + Other Miscellaneous Costs) = Net Profit

Other costs that are worth factoring in are the bond registration fees and transfer duties that you incurred when you first purchased the property, as well as the total interest paid over the loan term. “Although these amounts are not always factored in during these calculations, including them will paint a more holistic picture of all the associated costs of purchasing and owning the asset,” says Goslett.

Whether you plan to reinvest in another property, settle debts, or save for future goals, Goslett says that knowing your actual profit will allow for better financial planning. “It also helps you avoid unexpected shortfalls, ensuring that you have enough funds to cover all obligations before finalising the sale. Without an accurate calculation, you could overestimate your financial position and face challenges on your next purchase,” Goslett explains.

By factoring in all relevant expenses, you can confidently determine the actual financial gain from your home sale, leaving you to make more informed decisions regarding your next real estate investment. “To find out how your profit compares to others in your area, speak to your local agent to find out what the average house price appreciation rate is and compare that against your rate of return,” he concludes.

Issued by: Kayla Ferguson