CHP 62 - Contracts, Closing Costs & Insurance

Question 1

Percentage of listing price =

Answer 1

Offer/Listing Price

Question 2

% of listing price Example. A property listed for $150,000 receives an offer for $120,000. The offer’s percentage of listing price is:

Answer 2

$120,000 ÷ $150,000 = 80%

Question 3

Deposit =

Answer 3

Offering price * required or market-accepted percentage

Question 4

Earnest Money Deposit Calculation Example. A seller requires a 2% deposit on a property listed for $320,000. The required deposit (assuming a full price offer) is:

Answer 4

$320,000 x 2% = $6,400

Question 5

30/12 Formula

Monthly Amount =

Answer 5

Annual amount/12

Question 6

30/12 Formula Daily Amount =

Answer 6

Monthly Amount/30

Question 7

Proration =

Answer 7

(Monthly amount multiplied by the # months) + (Daily amount multiplied by the # days)

Question 8

Closing Costs 30/12 Proration Example

An annual tax bill is $1,800. Closing is on April 10. What is the seller’s share of the taxes?

Answer 8

Monthly amount = ($1,800 ÷ 12) = $150; no. of mounts = 3
Daily amount = ($150 ÷ 30) = $5.00; no. of days = 10
Proration = ($150 x 3 ) + ($5 x 10) = ($450 + 50) = $500 seller’s share

Question 9

Closing Cost 365 Formula

Daily Amount =

Answer 9

Annual Amount/365

OR

Monthly Amount/Length of Month

Question 10

365 Method Proration =

Answer 10

Daily amount * # of days

Question 11

Closing Cost 365 Example.

An annual tax bill is $1,800. Closing is on April 10. What is the seller’s share of the taxes?

Answer 11

Daily amount = ($1,800 ÷ 365) = $4.93
Jan 1 thru April 10 = (31 + 28 + 31 + 10), or 100 days
Proration = $4.93 x 100 days = $493 seller’s share

Question 12

What’s the logic for income received in advance (rent)…

Answer 12

Credit buyer and debit seller

Question 13

Advance Income Example

Example. Seller receives $1,000 rent. The month is ¾ over.

Answer 13

Buyer’s share is ($1,000 x 25%) = $250

rent received/ # of days in the month * # of days considered

Credit buyer / debit seller $250

Question 14

Expenses paid in Arrears (Tax) follows this logic…

Answer 14

Logic:Credit buyer and debit seller for seller’s share

Question 15

Arrear Expense Example

Buyer will pay $1,000 taxes. The year is ¾ over.

Answer 15

Buyer’s share is ($1,000 x 25%) = $250

Credit buyer / debit seller $750

Question 16

Recovery with co-insurance clauses

Formula

Answer 16

Recovery = Damage claim * (% replacement cost covered/min coverage requirement)

Question 17

Recovery example

An owner insures a home for $100,000. Replacement cost is $150,000. A co-insurance clause requires coverage of 80% of the replacement cost to avoid penalty. Fire destroys the house. What can the owner recover from the insurer?

Answer 17

Claim recovery = $150,000 x (67% cost covered ÷ 80% required) = $125,625