B-7 Escrow and Closing

Taxes on a lot are $892 for the calendar year 2005. Title is transferred Aug. 15th of the same year. What is the proration to the buyer and seller?

$555.02 debit to seller $555.02 credit to buyer

Property Tax Prorations

Property taxes are billed after you have *used* the property. The tax bill for January 1 to June 30 is not sent until September 1 or later. Suppose you sold your property on August 1st. The seller will have *used* the property January through July and the buyer will get the bill for the taxes January through June 30th and the buyer was not even using the property. This is why we prorate (divide portions) in real estate. The escrow company will charge (debit) the seller for the property taxes for the time they *used* the property (Jan. through July) and give it to the buyer in a cash credit in escrow for exactly the amount they debited the seller. When the tax bill arrives, the buyer will pay the entire bill since property taxes are paid in arrears and are a debit to the seller and a credit to the buyer in escrow settlements.

Niles sells his property to Apple with the escrow to close June 15, 2005. The annual property taxes are $1,143.62. Prorate the property taxes. The COE day belongs to the buyer (and it is a charge to the buyer)

Step 1: Count the days of property tax used by Niles Jan. - May (5 X 30) 150 days June 1 - June 14. 14 days Total days Niles. 164 days Step 2: Set up your math equation for fractional multiplication Total amount paid/total days X days used/1 = fractional portion THEREFORE 1,143.62/360 X 164/1 = $187,553.68/360 = $520.98 value of used portion property taxes.. On the Escrow Settlement Sheet there will be a $520.98 debit to Niles and a $520.98 credit to Apple

Schlesinger owns an apartment complex containing 6 bachelor units, 11 single units, and 8 2-bedroom units. The bachelor units rents for $125 per month, the single units for $155 and the 2-bedroom units for $190 per month. What is Schlesinger's gross annual income?

Step 1: Find the gross monthly income from each type unit and then add them. 6 bachelor units X 125 = $750 mth gross 11 single units X 155 = $1,705 mth gross 8 2-bdrm units X 190 = $1,520 mth gross TOTAL gross monthly = $3,975 Step 2: Multiply the total monthly gross income by 12 months to get the annual gross income. $3,975 X 12 = $47,700 gross annual income.

Using the 365-day counting method, how many days in each of the following (do not count the last day) a. August 10-Dec 21 b. Nov. 2 - Aug. 30 Feb. 14 - Jan 3 May 4, 2010 to Oct. 22, 2011

a. 133 b. 301 c. 323 d. 536

Using the 360 counting method, how many days in each of the following (do not count last day.) a. Nov. 2-Aug. 30 b. Feb 14-Jan 3 c. May 4, 2010 to Oct. 22, 2011

a. 298 b. 319 c. 528

Gross Income from a Rental Unit

When trying to determine property value based on its income, we must first find the gross income if all units were rented out for each and every year. This would be the gross annual income

360 day method Lease an office February 20, 2004 and agree to pay the property taxes. You move out on June 18, 2005. How many days of taxes do you owe? (you pay for the day you move in but not the day you move out.)

Feb. 20, 2004-Feb. 19, 2005. 360 days Feb. 20-Feb. 30. 11 days March, April, May (3 X 30) 90 days June 1-June 17. 17 days Total days. 478 days

365 day method Rent a motel on February 20th and leave June 18. How many days were you there? (you use the day you arrive, but not the day you leave)

February 20-February 28. 9 days March 31 days April 30 days May 31 days June 1-17. 17 days Total days 118 days

Counting Days

There are 2 methods of counting days. 1. count each month as it is on a calendar (365 days). 365 day method 2. Each and every month has 30 making for 360 days a year (All real estate prorations uses 360 day calendar) 360 day method