Unit 14: Real Estate–Related Computations and Closing of Transactions

Question 1

A sales associate, while working for the broker, acquired a listing for $274,900 at a 6% commission rate. A second sales associate, who works for another brokerage office, found the buyer for the property. The listing and the selling brokers agree to a 50-50 split between the two offices. The property sold for the listed price. The selling broker kept 45% of the commission received by the selling office. What is the selling office’s split of the commission?

A) $8,900
B) $8,247
C) $7,752
D) $8,670

Answer 1

B) $8,247. $274,900 sale price × .06 rate = $16,494 total commission. $16,494 × .50 split = $8,247 selling office’s split.

Question 2

A sales associate, while working for the broker, acquired a listing for $274,900 at a 6% commission rate. A second sales associate, who works for another brokerage office, found the buyer for the property. The listing and the selling brokers agree to a 50-50 split between the two offices. The property sold for the listed price. The selling broker kept 45% of the commission received by the selling office. What is the sales associate’s commission at the selling office?

A) $4,123.50
B) $4,749.25
C) $3,711.15
D) $4,535.85

Answer 2

D) $4,535.85. 100% – 45% = 55% selling office sales associate’s split. $8,247 selling office’s split × .55 = $4,535.85 sales associate’s commission at the selling office.

Question 3

A lot that cost $86,000 sold for $73,100. What was the percentage of loss?

A) 20%
B) 15%
C) 12%
D) 85%

Answer 3

B) 15%. $86,000 original cost – $73,100 sale price = $12,900 loss. $12,900 loss ÷ $86,000 cost = 15% loss.

Question 4

True/False The formula for calculating profit is total cost ÷ amount made on sale = percentage of profit.

Answer 4

False. Amount made on the sale ÷ total cost = percentage of profit.

Question 5

A lot sold for $90,000, making a 20% profit. What was the cost of the lot?

A) $100,000
B) $108,000
C) $145,000
D) $75,000

Answer 5

D) $75,000. 100% cost + 20% profit = $90,000. 120% = $90,000 selling price. $90,000 selling price ÷ 1.20 = $75,000 cost.

Question 6

True/False The purpose of the final preclosing inspection is to verify that repairs have been completed and that the property has been left in good condition.

Answer 6

True

Question 7

True/False The buyer will write a personal check at the title closing for the funds required at closing.

Answer 7

False

Question 8

Closing date is March 10. The annual property taxes are $2,514.85 and the tax bill has not yet been paid. The day of closing is charged to the buyer. How much is the proration and how is the proration entered on the settlement statement?

A) $468.52 debit seller, $468.52 credit buyer
B) $468.52 credit seller, $468.52 debit buyer
C) $475.41 credit seller, $475.41 debit buyer
D) $475.41 debit seller, $475.41 credit buyer

Answer 8

A) $468.52 debit seller, $468.52 credit buyer. $2,514.85 ÷ 365 = $6.89 daily rate. January 31 + February 28 + March 9 = 68 days. $6.89 × 68 days = $468.52 debit seller, $468.52 credit buyer

Question 9

True/False Prorations are always the same dollar amount entered as a debit to one party and as a credit to the other party.

Answer 9

True. Prorations are entered on the settlement statement as double entries; a debit to one party and a credit to the other party. The dollar figure is identical for the debit and the credit.

Question 10

The closing date is February 28. The purchase price is $224,990. The buyer obtained a new mortgage loan for 80% of the purchase price. What is the charge for the intangible tax associated with the new mortgage?

A) $359.98
B) $360.00
C) $499.98
D) $449.98

Answer 10

A) $359.98. $179,992 new mortgage × $.002 = $359.98 intangible tax on new mortgage.

Question 11

True/False The state tax rate on notes is $.35 per $500, or fraction thereof, on the face value of the promissory note.

Answer 11

False. The tax rate on notes is $.35 per $100, or fraction thereof, on the face value of the promissory note.

Question 12

True/False If a home sells for $225,000, the documentary stamp tax on the deed will be $787.50.

Answer 12

False. If a home sells for $225,000, the documentary stamp tax on the deed will be $1,575. $225,000 ÷ $100 = 2,250 taxable increments. 2,250 × $.70 = $1,575.

Question 13

The closing date is February 28. The purchase price is $224,990. The buyer obtained a new mortgage loan for 80% of the purchase price. What is the charge for the state documentary stamp tax on the promissory note?

A) $787.47
B) $630.00
C) $629.97
D) $787.50

Answer 13

B) $630.00. $224,990 purchase price × .80 = $179,992 mortgage loan amount. $179,992 ÷ $100 = 1799.92, rounded up to 1,800 taxable increments. 1,800 taxable increments × $.35 = $630 tax on promissory note.

Question 14

The closing date is February 28. The purchase price is $224,990. The buyer obtained a new mortgage loan for 80% of the purchase price. What is the charge for the documentary stamp tax on the deed and how will the tax be entered on the closing statement?

A) $1,575.00; debit seller
B) $1,575.00; debit seller; $1575.00; credit seller
C) $1,574.93; credit buyer
D) $1,574.93; debit seller

Answer 14

A) $1575.00; debit seller. $224,990 purchase price ÷ $100 = 2249.9, rounded up to 2250 taxable increments. 2250 taxable increments × $.70 = $1575 tax on deed; debit seller.

Question 15

True/False A new purchase money mortgage (PMM) is entered on the settlement statement as a debit to the seller and as a credit to the buyer.

Answer 15

True. A new purchase money mortgage is a loan given by the seller to finance part of the purchase price. Therefore, the seller’s proceeds are reduced (debited) by the amount of seller financing. The buyer is credited part of the purchase price for the financed amoun

Question 16

True/False The earnest money deposit is credited to the buyer on the closing disclosure.

Answer 16

True. Items credited to the buyer include the earnest money deposit, assumed mortgages, newly created mortgages, prorated property taxes (city and county), prorated unpaid interest, prorated advance rent, and security deposits.

Question 17

True/False Prepaid rent is entered on the closing disclosure as a debit to the seller and as a credit to the buyer.

Answer 17

True. The unused portion of the advance rent belongs to the buyer, and so the buyer is credited the unused portion of the rent. The seller is debited the unused portion. Prorations are double entries (a debit to one party and a credit to the other). The dollar value of the debit and the credit are the same.

Question 18

is the amount you make over and above cost.

Answer 18

Profit

Question 19

is a final walk-through with the sales associate to verify that repairs have been completed and that the property is left in good condition.

Answer 19

A preclosing inspection

Question 20

means to divide various debits (charges) and credits between buyer and seller. A proration is a shared expense between the buyer and the seller.

Answer 20

To prorate

Question 21

are paid in arrears and are prorated using a 365-day year (actual number of days in the proration period). Unpaid property taxes appear as a credit to the buyer and as a debit to the seller. Prorations have the same dollar amount in each entry. Seller days are used to prorate items paid in arrears.

Answer 21

Property taxes

Question 22

collected in advance belongs to the new owner as of the date of closing. Advance rental income appears as a credit to the buyer and a debit to the seller. Buyer days are used to prorate items paid in advance.

Answer 22

Rental income

Question 23

is paid on the full purchase price. The rate is $.70 ($.60 in Miami-Dade County) per $100, or fraction thereof.
Documentary stamp tax on notes is paid on the amount of debt. This tax is paid on all new and assumed mortgage notes. The rate is $.35 per $100, or fraction thereof.

Answer 23

Documentary stamp tax on deeds

Question 24

is paid on the amount of debt. This tax is paid on all new and assumed mortgage notes. The rate is $.35 per $100, or fraction thereof.

Answer 24

Documentary stamp tax on notes

Question 25

is paid on new debt. The rate is $.002 per $1 of new debt.

Answer 25

Intangible tax

Question 26

How are unpaid property taxes entered on the closing disclosure?

A) Credit to seller; debit to buyer
B) Debit to buyer only
C) Debit to seller only
D) Credit to buyer; debit to seller

Answer 26

D) credit to buyer and debit to seller. Unpaid property taxes will show as a debit to the seller for the number of days in the current year the seller owned the property. An identical amount will show as a credit to the buyer.

Question 27

To get a mortgage loan of $98,500, a buyer has agreed to pay all state tax costs incurred by creation of the new mortgage. What is the total cost?

A) $689.50
B) $541.75
C) $197
D) $344.75

Answer 27

B) $541.75. The solution is $98,500 mortgage ÷ $100 increments = 985 taxable increments. 985 × $.35 = $344.75 doc stamps on mortgage note. $98,500 × $.002 rate = $197 intangible tax. $344.75 + $197 = $541.75.

Question 28

An investor incurred a 20% loss when she sold a 10-acre parcel (tract A) for $150,000. She also owns a 25-acre parcel (tract B) for which she paid $300,000. How much must the investor sell B for if she wishes not only to recover the loss from A but also to realize a 20% profit on the investment in B?

A) $360,000
B) $420,500
C) $510,000
D) $397,500

Answer 28

D) $397,500. The solution is tract A: 100% – 20% = 80%. 80% = $150,000 sale price. $150,000 ÷ .80 = $187,500 cost. $187,500 cost – $150,000 sale price = $37,500 loss from tract A. Tract B: $300,000 cost + 20% profit = $300,000 × 1.20 = $360,000 sale price. $360,000 sale price to make a 20% profit + $37,500 loss from A = $397,500 target sale price for B.

Question 29

A 30.25-acre parcel of land in Citrus County sells for $5,300 per acre. What is the documentary stamp tax on the deed?

A) $1,122.80
B) $1,113.00
C) $561.40
D) $1,124.20

Answer 29

A) $1,122.80. The solution is 30.25 acres × $5,300 per acre = $160,325 purchase price. $160,325 ÷ $100 = 1,603.25 rounded up to 1,604 taxable units. 1,604 × $.70 rate = $1,122.80 documentary stamp tax on deed.

Question 30

A broker lists a property. A 6% commission is agreed to, and the listing is placed in the MLS. The sale commission is to be split as follows: 45% to the listing broker and 55% to the selling broker. A sales associate who works for a cooperating broker sells the property for $245,000. The sale associate’s agreement with her employer calls for a 60% share of all commissions she brings to the company. How much is due to the sales associate?

A) $4,851
B) $3,969
C) $8,820
D) $6,615

Answer 30

A) $4,851. The solution is $245,000 sale price × .06 rate = $14,700 total sale commission. $14,700 commission × .55 rate = $8,085 commission to selling office. $8,085 × .60 rate = $4,851 selling sales associate’s split.

Question 31

The buyers are purchasing an apartment building. Each of the five apartments rents for $825 per month. The closing is scheduled for July 15, and the rents were collected on July 1. What is the rent proration for this transaction, and to whom will the amount be credited (day of closing belongs to the buyer)?

A) $2,062.50 credit to seller
B) $2,337.50 credit to seller
C) $4,125.00 credit to buyer
D) $2,262.10 credit to buyer

Answer 31

D) $2,262.10 credit to buyer. The solution is $825 rent × 5 apartments = $4,125 total monthly rent. $4,125 ÷ 31 days × 17 days due buyer = $2,262.097 or $2,262.10 credit to buyer.

Question 32

A warehouse measures 825 feet by 600 feet and rents for $130,000 a month. What is the rent per square foot per month?

A) $3.05
B) $2.62
C) $.26
D) $.33

Answer 32

C) $.26. The solution is 825 feet × 600 feet = 495,000 square feet. $130,000 rent ÷ 495,000 square feet = .262626 or $.26 per square foot.

Question 33

A builder purchases a residential lot for $40,000 and constructs a new house at a cost of $190,000. The builder later sells the property for $184,000. What is the builder’s percentage of loss on the sale?

A) 23%
B) 20%
C)15%
D) 25%

Answer 33

B) 20%. $40,000 + $190,000 = $230,000 cost. $230,000 cost – $184,000 sale price = $46,000 loss. $46,000 loss ÷ $230,000 cost = .20 or 20% loss.

Question 34

A man owned 3/8 of a property. He was paid $60,000 as his share of the proceeds from the sale of the property. What was the total selling price of the property?

A) $180,000
B)$160,000
C) $96,000
D) $120,000

Answer 34

B) $160,000. The solution is part ÷ rate = whole (total sale price). $60,000 part ÷ .375 rate = $160,000 total sale price.

Question 35

An investor purchased three 200-foot lots on a lake for $700 per front foot each. The investor then subdivided the lots into six lakefront lots, which he then sold for $91,000 each. What was his percentage of profit on the sales?

A) 35%
B) 25%
C) 20%
D) 30%

Answer 35

D) 30%. The solution is 3 lots × 200 feet = 600 front feet. 600 front feet × $700 per front foot = $420,000 cost of lots. $91,000 lot sale price × 6 lots = $546,000. $546,000 – $420,000 = $126,000 profit. $126,000 profit ÷ $420,000 cost = .30 or 30% profit.

Question 36

You bought a house in Hernando County, Florida, for $195,000. You gave a deposit of $25,000, assumed a recorded mortgage of $100,000, and signed a new second mortgage and note for $70,000. What are the total state taxes due as a result of this transfer of property?

A) $1,960
B) $1,365
C) $1,265
D) $2,100

Answer 36

D) $2,100. The solution is $195,000 ÷ $100 = 1,950 taxable units. 1,950 × $.70 rate = $1,365 doc stamps on deed. $100,000 ÷ $100 = 1,000 taxable units. 1,000 × $.35 rate = $350 doc stamps on assumed mortgage note. $70,000 ÷ $100 increments = 700 taxable units. 700 × $.35 rate = $245 doc stamps on new mortgage note. $70,000 new mortgage × $.002 = $140 intangible tax on new mortgage. $1,365 + $350 + $245 + $140 = $2,100.

Question 37

How is the purchase price entered on the closing disclosure?

A) Credit to buyer; debit to seller
B) Debit to buyer only
C) Credit to seller; debit to buyer
D) Credit to seller only

Answer 37

C) credit to seller; debit to buyer. The buyer pays the purchase price (charged; debited the purchase price). The seller receives the purchase price (earns; credited the purchase price).