Florida Real Estate Principles, Practices & Law 38th Edition

Linda L. CrawfordCopyright © 2015 Kaplan, Inc.

All rights reserved.

Chapter 14

Computations and Title Closing

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Computations

• Parts of a fraction– Numerator and Denominator

• Changing fractions to decimals• Changing decimals to fractions• Changing percentages to decimals• Decimal place values

Sale Commissions

• Commission often is shared by – Listing broker– Listing sales

associate– Selling broker– Selling sales

associate

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Sharing Commission Example

Sales associate Bill who works for Proven Realty, secured a listing for $173,000 at 6 percent commission. Terry, who works for Reliance Realty, sold the property at the listed price. The listing broker and selling broker share the commission equally. The broker of Reliance Realty keeps 45 percent of what his company received. How much was Terry compensated?

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Solution

• $173,000 sale price × 6 percent commission = $10,380 total commission

• $10,380 ÷ 2 = $5,190 commission to selling office• 100% - 45% = 55% to selling sales associate• $5,190 selling office × 55 percent = $2,854.50

selling sales associate’s commission

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Graduated Commission

A broker lists a hotel for $2,500,000, and the seller agrees to a graduated commission.

The seller will pay a 5% commission on the first $1,000,000 of the actual sale price; 6% commission on the next $1,000,000 of the sale price; and 7% commission on any of the sale price above $2 million.

What will be the total commission if the property sells for $2,250,000?

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Solution

1. $1,000,000 x 5% = $50,0002. $1,000,000 x 6% = $60,0003. $250,000 x 7% = $17,5004. $50,000 + $60,000 + $17,500 =

$127,500 total commission

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Percentage Applied to Selling Price, Cost, and Profit

• Profit – How much you make over and above your cost

• Loss – How much you sell below your cost

• Profit Formula– Amount made on sale ÷ Total cost = Percent

Profit

• Loss Formula– Amount lost on sale ÷ Total cost = Percent Loss

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Example

• A lot cost $28,000 and sold for $35,000.

– What is the percentage of profit?

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Solution

• $35,000 price - $28,000 cost = $7,000 profit• $7,000 made on sale ÷ $28,000 cost = .25• 25% profit made on sale

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Another Example

A house cost the owner $125,000. The owner sold the house for $100,000.

What was the percent of loss?

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Solution

$100,000 price - $125,000 cost = -$25,000

$25,000 loss ÷ $125,000 cost = .20

20% loss on the sale

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One More Example

A lot sold for $35,000, making a 25 percent profit.

What was the cost of the lot?

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Solution

100% cost + 25% profit = $35,000 selling price 125% = $35,000 selling price

$35,000 ÷ 1.25 (125%) = $28,000 cost of lot

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Pre-Closing Steps

• Mortgage application• Survey• Appraisal• Title Insurance• Closing documents• Property inspections• Pre-closing inspection

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Prorated Expenses

• To prorate means to divide various charges and credits between buyer and seller

• Contract should specify a date and time for prorating items– Midnight before the day of closing is customary

• Credit = one party gets reimbursed $• Debit = the other party is charged $

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Items to Prorate

• Property taxes for the current year• Rental income for the closing month• Interest (assumed mortgage) for the closing

month• Proration methods

– 30-day-month (statutory month) method– 365-day method (actual number of days)

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30-day Month Method Tax Proration

The annual property taxes are $3,840. The day of closing is June 15 and is charged to the buyer.

Calculate the proration using the statutory month method

Who will receive a credit and who will have a debit

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Solution

1/1 June 15 12/31Seller Buyer5 months+ 14 days in June

$3,840 ÷ 12 = $320 per month x 5 months = $1,600.00

$320 ÷ 30 days = $10.6667 per day x 14 days = $149.33

$1,600.00 + $149.33 = $1,749.33Credit Buyer $1,749.33 and Debit Seller $1,749.33

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365-day Method Tax Proration

The annual property taxes are $3,840. The day of closing is June 15 and is charged to the buyer.

Calculate the proration using the 365-day method

Who will receive a credit and who will have a debit

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Solution

1/1 June 15 12/31

Seller Buyer165 days

$3,840 ÷ 365 = $10.5205 per day x 165 days = $1,735.89

Credit Buyer $1,735.89 & Debit Seller $1,735.89

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Rental Proration

A rental property will close on June 15 and the closing day belongs to the buyer. The seller has collected the rent of $1,000 at the beginning of the month.

Calculate the proration

How will it be distributed on the closing statement

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Solution

June6/1 15

6/30

Seller Buyer16 days

$1,000 ÷ 30 = $33.33333 per day x 16 days =$533.33

Credit Buyer $533.33 & Debit Seller $533.33

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State Transfer Taxes

• State documentary stamp tax on deeds– $.70 per $100 increment of sale price

• State documentary stamp tax on notes– $.35 per $100 increment on note amount for all

new and assumed mortgage notes

• State intangible tax on mortgages– $.002 per $1 on the amount of new mortgage

loan

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Doc Stamps on Deed Example

A home sells for $150,025 in Duval County.

Solution:$150,025 ÷ $100 = 1500.25 stamps, round up

to 1501 stamps x $.70 each stamp = $1,050.70 documentary stamp taxes on the deed

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Doc Stamps on Notes Example

A buyer purchases a property by assuming an existing loan of $62,350 and signing a new mortgage and note for $110,000.

Solution: $62,350 ÷ $100 = 623.5 stamps, round up to 624 x

$.35 per stamp = $218.40$110,000 ÷ $100 = 1100 stamps x $.35 per stamp =

$385.00Total documentary stamp taxes on the notes =

$603.40

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Intangible Tax Example

A buyer purchases a property by assuming an existing loan of $62,350 and signing a new mortgage and note for $110,000.

Solution:$110,000 x $.002 = $220.00 intangible tax

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Key Concepts Regarding Closing Statements• Double entry items• Exceptions

– Buyer’s deposit– Existing mortgage being paid off– New mortgage obtained from a financial

institution– Expenses

• Buyer days– Prorated item is paid in advance of closing

• Seller days– Prorated item is paid after closing

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Seller’s Closing Statement

• Items credited to seller– Total purchase price– Other prepaid items

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Seller’s Closing Statement

• Items charged (debits) to seller– Mortgages assumed, paid off, or newly created– Prorated taxes, interest, advance rent– Security deposits– State documentary stamps on the deed– Broker’s commission– Title insurance (owner’s policy)– Preparation of deed– Seller’s attorney fees

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Buyer’s Closing Statement

• Items credited to buyer– Earnest money deposit– Mortgages assumed or

newly created– Prorated property taxes,

unpaid interest and advance rents

– Security deposits

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Buyer’s Closing Statement

• Items charged (debits) to buyer– Purchase price– Title insurance (mortgagee’s policy)– State documentary stamps on the note– State intangible tax on the new mortgage– Recording of the deed– Recording of the mortgage– Buyer’s attorney fees– Preparation of mortgage and note

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Paid at Closing

• On the buyer’s closing statementTotal debits – Total credits = Amount the buyer

must pay at closing

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