Chapter 14 - Real Estate-Related Computations and Closing of Transactions (6%)

Question 1

Section 14.1: PRE-CLOSING ACTIVITIES

:::STATE EXAM CONTENT AREA: XIV.B: CLOSING STATMENTS:::

Answer 1

TITLE CLOSING
- General -
 A few weeks after entering into a
purchase and sale agreement
 The executory sales contract becomes
executed
 The buyer pays the seller, and the
seller delivers a deed to the buyer
 Handled by the closing agent, usually
an attorney or title company
 Closing is the responsibility of the
broker so they must check for errors

Closing Statement
 Summarizes the transaction
 Tells both the buyer and the seller, as
of the day of the closing, how much
money the seller will “take from”
closing; how much the buyer has to
“bring to” closing.

Debits and Credits
 Debit – second letter of debit is “e”
which stands for expense
 Credit- second letter of credit is “r”
which stands for receipt

Question 2

Section 14.1: PRE-CLOSING ACTIVITIES

:::STATE EXAM CONTENT AREA: XIV.B: CLOSING STATMENTS:::

** Binder Deposit

Answer 2

** When the contract was first entered into, the buyer paid the binder, or earnest money deposit. The broker usually holds this earnest money deposit in an escrow account until the day of closing.

** On the Closing Statement, it is entered as a CREDIT TO THE BUYER since this portion of the purchase price has already been paid and will not have to be paid again.

** In this case, since the seller has not yet received the money, it is NOT SHOWN ON THE SELLER’S PORTION of the closing statement.

** The seller is still owed the entire amount of the purchase price.

** A check is drawn in the amount of the deposit, which the broker brings to the closing and delivers to the closing agent.

** In other words, The buyer’s deposit is not shown as a
debit to the seller because the broker is
holding the deposit in his escrow account. It
appears as a receipt on the broker’s
statement.

Question 3

Section 14.1: PRE-CLOSING ACTIVITIES

:::STATE EXAM CONTENT AREA: XIV.B: CLOSING STATMENTS:::

Answer 3

Closing Statement Worksheet
 5 sections
     1 – total purchase price
     2 - proration's and prepayments
     3 – expenses
     4 – total debits and credits
     5 – broker’s statement

Question 4

Section 14.2: TOTAL PURCHASE PRICE

:::STATE EXAM CONTENT AREA: XIV.B: CLOSING STATMENTS:::

Answer 4

Section 1 –
Closing Statement Worksheet
 Purchase Terms Debit Credit
Purchase price Buyer Seller
Earnest money deposit (Binder) - Buyer
New mortgages - Buyer
Assumptions, subject to, PMMs Seller Buyer

Question 5

Section 14.3: PRORATIONS AND PREPAYMENTS

:::STATE EXAM CONTENT AREA: XIV.A: MATH:::

Answer 5

** SEE BOOK AND PP FOR MATH

Section 2 –
Proration's and Prepayments
 Day of closing – buyer or seller
** 365 / 360 day method
 Proration categories
** Rent
** Mortgage interest
** Real estate property taxes

TITLE CLOSING
Calculating Prorations
 Time Line Method (who paid it, who
will pay it or who has it)
 Used to calculate your used or unused days

Calculating Proration’s

• • Real estate taxes
    
    • • Annual
        
        • • Arrears
• • Rent
    
    • • Monthly
        
        • • Advance
• • Mortgage payment
    
    • • Monthly
        
        • • Arrears

Proration's & Prepayments
 Items owed by one party to the other - a
debit to the buyer is a credit to the seller;
whereas a debit to the seller is a credit to the
buyer
 Debit Credit
** Rent Seller Buyer
Interest on Mortgage Seller Buyer
 (taken over by buyer)
** Prepaid interest Buyer Seller
** (purchase money mortgage)
** Taxes Seller Buyer

Question 6

Section 14.4: EXPENSES

:::STATE EXAM CONTENT AREA: XIV.A: MATH:::

Answer 6

** SEE BOOK AND PP FOR MATH

Section 3 - Expenses
** Abstract
 Attorney fees
** State documentary stamp taxes
    ** Deed
    ** Intangible
    ** Promissory note
** Title insurance - NOT PRORATED
 Commission

** Abstract Continuation
** History of Title
** Assures marketable title
** Buyer usually pays for title insurance
(negotiable)
** Seller cannot require use of particular
title company unless seller pays

Expenses
 Always debits - NEVER CREDITS - Representing
money owed to third parties such as attorneys
and the broker. SINGLE-ENTRY ONLY
Buyer
 Debit
Attorney (buyer’s) Buyer
Title insurance Seller or Buyer
(paid according to sales contract)
Doc. stamps on mortgage note Buyer
Intangible tax on mortgage Buyer
Recording mortgage and deed Buyer

TITLE CLOSING
- Calculating Prorations -
 Charges and Income for Day of
Closing
Customarily, the day of closing
belongs to the Buyer - negotiable
 Problem may state that "day of
closing belongs to Seller" - then seller
pays expenses & receives income
for that day.