Understanding Net Payoff: Calculation, Examples, and Uses

What Is Net Payoff?

Net payoff is the profit or loss from the sale of an item or service after subtracting:

• Costs related to the sale
• Costs associated with the asset
• Costs experienced over the life of the asset
• Associated accounting losses

The term is most commonly used to describe real estate and investment transactions, but can also be applied to transactions in other industries. For investment transactions, net payoff is calculated as securities revenue minus operating expenses.

Overview of 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.

Real-World Examples of Net Payoff

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.

The Bottom Line

Net payoff refers to the profit or loss from the sale of an asset after deducting all associated costs, such as selling costs and accounting losses. Sellers should calculate net payoff to accurately estimate their profits and make informed decisions regarding pricing and timing. Net payoff calculations are commonly made for real estate transactions, where mortgage payoff, commission, and closing costs are considered, and stock sales, where trade commissions are deducted.