What Is Net Payoff?
Net payoff is the profit or loss from the sale of an item or service after the costs of selling it, any additional costs associated with the asset or experienced over the life of the asset, and associated accounting losses have all been subtracted. The amount that remains is considered to be the net payoff. The term is most commonly used in describing real estate and investment transactions, but can also be applied to other industries.
Determining the net payoff is important for sellers as they consider the pricing of an asset, the timing of the sale, and how much they can reasonably expect to walk away with when the deal has been completed.
Understanding Net Payoff
Net payoff is a term used to describe the "all in" gain or loss experienced after a sales transaction has been completed. When considering the sale of an asset, the seller should take into consideration not just the sale price, but how much the asset cost over its lifetime and the amount they will actually receive at the end of the transaction after commissions and any other associated taxes or fees are subtracted from the proceeds. The resulting amount is the net payoff.
- Net payoff refers to the profit or loss on the sale of a product or service after all the costs associated with producing, owning and selling it have been accounted for.
- The term is typically associated with real estate or investment transactions; with investments, it's calculated as securities revenue minus operating expenses.
Net Payoff Example
For example, if Amy sells her house for $250,000, she will need to subtract her mortgage payoff amount, real estate commission and any settlement fees from the $250,000 to determine her net payoff. Suppose she still owes $75,000 on her mortgage, the real estate commission (including both the buyer's and seller's agent) is 5%, or $12,500, and her closing costs are another 5%, or another $12,500. That means $100,000 is subtracted from the $250,000 and Amy's net payoff is $150,000.
As another example, consider the sale of some shares of stock. The net payoff would be the amount received for the sale minus the trade commission. So if an individual sold 20 shares of company XYZ at $15 per share for $300, and the online discount broker commission fee was $10, the net payoff would be $290.