When you sell a house, the money does not arrive as a single check for the sale price. The buyer’s funds flow to a closing agent — a title company or attorney, depending on your state — who pays off your mortgage, sends commissions to the real estate agents, settles taxes and closing fees, clears any other liens on the property, and wires whatever is left to you. Every dollar is tracked on a document called the Closing Disclosure, which replaced the older HUD-1 settlement statement for most residential sales.1Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosure FAQs Your net proceeds are the number at the bottom.
Paying Off Your Mortgage and Other Liens
The biggest bite out of the sale price is almost always the remaining balance on your mortgage. Before closing, your lender issues a payoff statement showing the exact amount needed to clear the loan, including interest accrued through the expected closing date. Once the buyer’s money is in escrow, the closing agent wires that amount directly to the lender. The mortgage lien is released and recorded at the county so the buyer takes clean title.
Any other recorded claim against the property is handled the same way. If you have a home equity line of credit or second mortgage, the closing agent orders a separate payoff and freezes the HELOC so no new draws can go through before it’s satisfied. Contractor liens for unpaid work and federal tax liens from the IRS also come out of your proceeds at closing, because the buyer will not accept the deed otherwise.
Prepayment Penalties
Older or non-standard mortgages sometimes carry a prepayment penalty for paying off the loan early. Federal law caps these at 2% of the outstanding balance during the first two years, 1% during the third year, and prohibits them after year three.2Consumer Financial Protection Bureau. Ability-to-Repay and Qualified Mortgage Rule Small Entity Compliance Guide Most mortgages written since 2014 either ban them outright or limit them sharply, and FHA-insured loans closed after January 21, 2015 cannot carry one at all.3Federal Register. Federal Housing Administration (FHA) Handling Prepayments Eliminating Post-Payment Interest Charges If yours does have one, it will appear on the payoff statement and be deducted from your proceeds.
Real Estate Commissions
Agent commissions are the second major deduction. Historically the seller paid a combined 5% to 6% covering both the listing agent and the buyer’s agent. That changed after the 2024 National Association of Realtors settlement. Offers of buyer-agent compensation can no longer be advertised through the multiple listing service, and buyers now negotiate their own agent’s fee separately, usually through a written buyer-broker agreement.
You still pay your listing agent’s commission, which comes out of your proceeds at closing. You can also choose to offer compensation to the buyer’s agent as a negotiating tool, but you are not required to. If you do, the amount is spelled out in your listing agreement and deducted alongside the listing agent’s fee. The national average total commission was around 5.5% as of late 2025, though how it splits between the two sides depends on what you and the buyer negotiated.
Closing Costs and Professional Fees
A cluster of smaller professional fees and administrative charges also come out at closing. The exact mix varies by state and by transaction, but the common items are:
- Title insurance. An owner’s title policy protects the buyer against ownership disputes or hidden liens that surface after closing. In many markets the seller pays for it, and the cost runs roughly 0.5% to 1% of the purchase price — about $1,750 to $3,500 on a $350,000 home.
- Escrow or settlement fees. The closing agent charges to manage the transaction, hold funds, and coordinate documents. Typically $500 to $1,500.
- Attorney fees. In states that require a closing attorney, expect $500 to $3,500 depending on complexity.
- Recording fees. Your county charges to record the deed transfer and lien releases. Amounts vary by jurisdiction and are generally modest.
- Document preparation and notary fees. Drafting the new deed and notarizing signatures adds smaller line items. Notary fees range from a few dollars to $25 or more per signature depending on your state.
Transfer Taxes and Prorated Charges
Most states, and many local governments, charge a transfer tax when property changes hands. Rates run from about 0.1% of the sale price in some states to more than 2% in others, with certain cities layering on their own surcharge. A handful of states impose no transfer tax at all. Your closing agent calculates the figure and deducts it from your proceeds.
Property taxes are typically billed in arrears, so you owe a prorated share for the portion of the tax period you still owned the home. Close on April 1 with a calendar-year bill, and roughly three months’ worth is deducted from your proceeds as a credit to the buyer, who will pay the full bill when it arrives. Homeowners association dues are prorated the same way. If you prepaid, you get credited back for the unused portion; if dues are unpaid, the balance is deducted so the HOA cannot lien the property.
Seller Concessions
Sometimes you agree during negotiations to cover a portion of the buyer’s closing costs, often to keep the deal together at the agreed price. These credits — for repairs, for a share of the buyer’s origination fees, or for general closing costs — appear on the Closing Disclosure as a reduction to your proceeds. The amount you can offer is limited by the buyer’s loan program, but whatever you agree to comes directly out of your walk-away cash.
When the Payoff Is Bigger Than the Sale Price
If your mortgage balance exceeds what the home sells for, you walk away with nothing, and possibly still owe money. In a short sale, your lender agrees to accept less than the full payoff to let the deal close. You forfeit any proceeds, and depending on the lender’s terms you may still owe the deficiency between the sale price and the remaining loan balance. Short sales require lender approval before closing and move significantly slower than a standard sale. If you suspect the home is worth less than what you owe, talk to your lender and a real estate attorney before listing.
How You Actually Get Paid
After every lien, fee, tax, and credit is settled, the closing agent calculates the final number on your Closing Disclosure. Disbursement happens after the new deed is recorded with the county. You can take the money as a wire transfer or a cashier’s check. For a wire, you give your bank’s routing number and account number to the closing agent well before the closing date.
Watch for Wire Fraud
Real estate wire fraud is a serious and growing risk. Scammers monitor email traffic around upcoming closings and send messages impersonating the closing agent or your real estate agent, with altered wire instructions. Once funds land in a fraudulent account, recovering them is extremely difficult. Verify wiring instructions by calling the closing agent at a phone number you got independently, not one pulled from an email. Reputable title companies confirm wire details by phone and through secure portals rather than email.
Review Before You Sign
Before disbursement, you sign the Closing Disclosure confirming every line is accurate. This is your last chance to catch an error in the mortgage payoff, the commission split, the prorated taxes, or any other charge. Once the deed is recorded and funds are released, the money is yours.
Capital Gains Tax Comes Later
The deductions above all happen at the closing table. Capital gains tax is different: it shows up when you file your federal return for the year of the sale, not at closing. If the home was your primary residence, you can exclude up to $250,000 of profit from your income, or $500,000 if you file jointly with your spouse. To qualify, you must have owned the home and lived in it as your main residence for at least two of the five years before the sale, and those two years do not need to be consecutive.4Internal Revenue Service. Topic No. 701, Sale of Your Home Many sellers owe no federal capital gains tax at all because their profit fits within the exclusion.
Profit for this purpose is not simply the difference between what you paid and what you sold for. Your cost basis includes what you paid plus certain settlement costs from the purchase, and it goes up by the cost of capital improvements you made during ownership, such as a new roof, a kitchen renovation, or a room addition.5Internal Revenue Service. Publication 551, Basis of Assets6Internal Revenue Service. Topic No. 409, Capital Gains and Losses7Internal Revenue Service. Questions and Answers on the Net Investment Income Tax Keep records of your basis and improvements even if no 1099-S is filed on your sale, in case the exclusion is later questioned.
One boundary worth flagging: if you are a foreign person rather than a U.S. citizen or resident alien, the closing agent is required to withhold 15% of the total sale price at closing under the Foreign Investment in Real Property Tax Act and remit it to the IRS as a prepayment against your eventual tax liability, subject to limited exceptions.8Internal Revenue Service. FIRPTA Withholding That reduces the proceeds you receive at closing, though any overwithholding is refunded after you file your U.S. return.