CHAPTER 14: BASIC REAL ESTATE COMPUTATIONS

An owner indicates to a sales associate that he or she wants to net $92,000 from the sale of the property. The sales associate estimates that the seller's closing cost, EXCLUDING the commission, will be $2,000. What is the minimum sale price to cover the estimated closing cost, provide a 6% commission, and net the seller $92,000? A. $ 97,520.00 B. $99,640.00 C. $100,000.00 D. $101,123.13

$100,000.00 - Last sentence first: What is the minimum sale price to cover the estimated closing cost, provide a 6% commission, and net the seller $92,000? 1.00- .06 = .94 (This is a formula to the NSP after commission) $100,000 x .94=$94,000 NSP after paying a 6% comission $94,000 NSP after 6% comission - $2,000 Miscellaneous Closing Cost $92,000 = Net to the Seller (After Paying the Commission & Misc. Closing Costs)

A property sells and the real estate commission is 6 percent of the sale price. There is an unpaid mortgage of $75,000. If the seller receives a heck for $25,000 at closing, what is the sale price? A. $100,000.00 B. $104,166.67 C. $106,000.00 D. $106,382.98

$106,382.98 - Last sentence first: If the seller receives a check for $25,000 at closing, what is the sale price? USE PLAN B Try $106,382.98 1. figure out commission first 106,382.98 x .06 commission) = 6,382.98 (commission) 2. Subtract commission from the number used. - 6,382.98 - 106,382.98 = 100,000.00 3. Subtract unpaid mortgage that will be going back to the bank. * 100,000.00 - 75,000 = 25,000 * $25,000 is the check the seller recieved at closing so D was the answer.

The sale price of a house is $148,150. The buyer ASSUMES an existing mortgage with a loan balance of $135,230. The seller takes back a purchase money second mortgage in the amount of $7,600. What are the TOTAL transfer taxes due for documentary stamps and intangible tax? A. $1,037.40 B. $1,510.95 C. $1,537.55 D. $1552.75

$1552.75 This is talking about Documentary Stamps so use SINN S = $148,150 (round up) $148,200 x .007 = $1037.40 I = $7,600 (don't round) $7,600 x .002 = $15.20 (one time fee) N= $7,600 (no need to round up) x .0035 = $26.60 (2nd mortgage fee) N= $135,230 (round up) $135,300 x .0035 = $473.55 (Assumed mortgage fee) $1037.540 + $15.20 + $26.60 + $473.55 = $1552.75

A sales associate sells a commercial tract of land for $350,000. The commission on the first $300,000 is 8%, and a 5% commission is paid on the balance. The sales associate receives a $10,000 commission. How much does the broker net? A. $10,000 B. $16,500 C. $26,500 D. $28,000

$16,500 - Last sentence first: "How much does the broker net?" 1. Sale price = 300,000 x 8% = $24,000 (based on 8% commission) 2. Sale price = 50,000 x 5% = $2,500 (based on 5% commission) 3. Total commission is $26,500 4. Subtract Sales Associate commission of $10,000 26,500 - 10,000 = $16,500

A developer purchases two 100' tracts of land at $40,000 per tract. He divides the tracts into three equal lots and sells them for $480 per FRONT FOOT. What is the percent profit? A. 5% B. 10% C. 20% D. 25%

20% Last sentence first: What is the percent profit? 1. Purchase 2 tracks of land at $40,000 per track = $80,000 for the land. 2. Sells the land for $480 per FRONT foot - Front footage is 100' on each therefore 200' FRONT foot. - 200' x $480 = $96,000 (sell price) $96,000 (sale price) -$80,000 (cost) = $16,000 (profit) Profit / Cost = Percent Profit $16,000 / $80,000 = .20 or 20%

A developer purchase two 200' tracks of land at $30,000 per tract. He divides the tracts into 7 equal lots and sells them at $500 per front foot. What is the percent profit.

233% Last question first: What is the percent profit? 1. Purchase 2 tract of land at $30,000 per tract = $60,000 for the land 2. Sells the land for $500 per front foot Front foot is 200' on each therefore 400' FRONT foot. - 400' x $500 = $200,000 $200,000 (Sell price) $60,000 (purchase price) "COST" $140,000 (PROFIT) Profit / Cost = Percent Profit 140,000 / 60,000 = 233%

A developer purchases three lots, each measuring 80 by 150 feet. The purchase price is $18.50 per square foot. He later sells the lots for $277,500 each. What was the percentage of profit on the sale of the three lots? (Round to the nearest percent). A. 18% B. 20% C. 22% D. 25%

25% Last sentence first: What was the percentage of profit on the sale of the three lots? 1. 80 x 150 = 12,000 2. 12,000 x 3 = 36,000 SF 3. 36,000 x 18.50 = $666,000 total cost of property. $277,500 x 3 = $832,500 (Sell Price) 832,500 (sell price) -666,000 (Cost) $166,500 Profit Proft / Cost = percentage 166,500 / 666,000 = 0.25 or 25%

A home sells for $110,000. The sales associate is paid a commission of $3,000 which represents 40% of the total commission. What is the percentage commission of the sale? A. 6.25% B. 6.82% C. 7.00% D. 9.25%

6.82% - Last sentence first: What is the percentage commission of the sale? USE PLAN B (Means to work from the answer to the question) - look at it like this: One of the answers will equal the commission of $3,000. (find the number) or which of the answers when multiplied by 40% and $110,000 will equal $3,000 .0682 x .40 x 110,000 = 3,000 or which if the answers equals a number that 40% is 3,000 0682 x 110,000 = $7,502 (this is the number you're looking for) 7,502 x .40 = 3,000

On a Closing Disclosure, which is a credit to the seller? A. An existing mortgage assumed by the buyer B. An expense item prepaid by the seller C. Mortgagee's title insurance premium D. Prorated rent where the rent was collected June 1st and the closing date is June 14th.

An expense item prepaid by the seller - This is one of the listed items that are customarily charged (debit) to the Buyer. It becomes a 'CREDIT' to the seller.

Purchase Price

CHARGES (debit) the BUYER with the Purchase Price therefore (INCREASES) the ASSET account of the BUYER CREDIT the SELLER (REDUCES) the ASSET account of the seller

Assumption of EXISTING Mortgage

CREDIT THE BUYER for any "assumption of" or "subject to" an EXISTING MORTGAGE BALANCE and DEBIT the SELLER the same amount.

NEW Purchase Money Mortgage to the Seller

CREDIT THE BUYER for any new PURCHASE MONEY MORTGAGE given to the SELLER and DEBIT THE SELLER the same amount.

Binder Deposit

CREDIT the BUYER for any EARNEST MONEY DEPOSIT PAID

On a Closing Disclosure, the interest on an ASSUMED mortgage which is paid in arrears is a

DEBIT to the seller and CREDIT to the buyer

The loan balance on an EXISTING MORTGAGE, which is to be ASSUMED, is $70,000. The interest on the existing mortgage is paid in ARREARS. The interest rate is 8% and the monthly payment is $540.27. The monthly payment is due on the first day of each month. What are the appropriate debit and credit entries? 11 Days Arrears (to the left on a timeline)

Last sentence first: What are the appropriate debit and credit entries? $70,000 x .08 $5,600 (This is the yearly interest amount) 5,600 / 12 = 466.67/mo (This is the monthly interest amount) 466.67/30 = 15.555667 (This is the daily interest amount) 15.555667 x 11 = $171.11 Charge (debit) Seller $171.11: Credit (buyer) $171.11

On a closing Disclosure, which expense is customarily paid by the buyer? A. Documentary stamps on deed B. Lender's title insurance premium C. Prorated amount of prepaid rent D. Prorated interest on assumed mortgage

Lender's Title Insurance Premium TITLE INSURANCE PAID by the buyer to make sure that the title to the property is free and clear of liens.

A real estate sale is scheduled to close June 11. How are ad valorem real property taxes usually treated at closing? A. Credit to the seller only B. Debit to the buyer only C. Prorate debit to the buyer and credit to the seller D. Prorated debit to the seller and credit to the buyer

Prorated Debit to the Seller and Credit to the Buyer -We know that all ad valorem taxes are due NOV 1. The AD VALOREM TAXES on a home purchased BEFORE NOV 1 must be PRORATED because new homeowners DID NOT OWN THE HOME A FULL TAX YEAR. The TAXES MUST BE PRORATED (A & B are eliminated) The SELLER OWNED THE HOUSE before the closing date and he is LOSING AN ASSET. THEREFORE: (DEBIT TO THE SELLER) - Since a house is an ASSET, it IS a: (CREDIT TO THE BUYER) because they have gained an ASSET. So, AD VALOREM taxes will be prorated as a DEBIT to the seller because they are LOSING the asset and treated as a CREDIT to the buyer because they are GAINING an ASSET.

The documentary stamp tax on the deed is computed on the A. Amount of the loan assumption plus the amount of any new financing B. existing indebtedness plus the earnest money deposit C. sale price minus the earnest money deposit. D. sale price of the property.

Sale price of the property. - The key word is DEED which should mean WHOEVER HOLDS DEED HAS PAID MONEY TO OWN THIS PROPERTY.

On a Closing Disclosure, the sale price of the property is a

credit to the seller (because he is walking away with money) debit to the buyer (because he now OWES something)

An owner sells a property subject to several lease agreements. At closing, security deposits and advance rents A. are a debit to the buyer and credit to the seller B. are prorated between the seller and the buyer C. must be transferred to the NEW property owner D. remain in the seller's escrow account until each tenant's lease expires

must be transferred to the NEW property owner - the OLD owner sells the property and everything that goes along with it including lease agreements, deposits and advance rents.

Liz submits an offer to purchase a house for $100,000 and pays a $2,000 earnest money deposit. Her offer is accepted by the seller. Liz qualifies for a 95% loan-to-value ratio loan at 6 1/2 fixed interest rate. She agrees to pay the lender 1 1/2 discount points. Miscellaneous other loan costs are $950. Liz will need to bring a check to closing in the amount of ... A. $950 B. $2,375 C. $5,375 D. $7,375

$5,375 - Last sentence first: Liz will need to bring a check to closing in the amount of? 1. Liz qualifies for 95% LTV therefore, SHE has to provide a down payment of $5,000. She agrees to pay the LENDER 1 1/2 discount points on top of the loan. 2. $95,000 (Loan Amount) x 1.50 (Discount points) $1,425 (This amount is paid to the lender) $950 (Miscellaneous other loan costs.) $2,375 + 5000 (down payment) = $7,375 Subtract the (EARNEST MONEY DEPOSIT) of $2000 $7,375 - $2000 $5,375

A house sells for $92,250. The buyer assumes an existing mortgage for $72,250. The seller agrees to take back a purchase money second mortgage for $10,250. What is the documentary stamp tax on the deed?

- What is the documentary stamp tax on the deed? Deed Tax = .007 $92,300 (round up) x .007 = $646.10

Intangible Personal Property Tax on NEW MORTGAGE is at what Tax rate on the EXACT AMOUNT?

.002

Documentary Stamp on a NEW NOTE is at what tax rate?

.0035

Documentary Stamp on an ASSUMPTION of (Mortgage) Note is at what tax rate?

.0035

Documentary Stamp on a DEED is at what tax rate?

.007

On a Closing Disclosure; earnest money deposit is a credit to

buyer ONLY

The sale price of a property is $190,250. An existing mortgage balance of $171.123.32 is assumed by the buyer. The seller agrees to hold a purchase money second mortgage for $10,050. Calculate all applicable documentary stamp taxes and intangible taxes associated with the sale and financing transactions. A. $599.20 B. $634.55 C. $654.65 D. $1,986.75

$1986.75 - This problem is talking about DOCUMENTARY STAMPS Documentary stamps are the ADMINISTRATIVE costs for the state dealing with MONEY and REALESTATE. USE: SINN S= Stamp price on DEED: 190,250 (round up and use .007) ((.70 for every $100 when registering a Deed)) I = Intangibles & New Mortgages ( don't round up and use .002) ((One-time fee of .002 cents for every $1 of debt)) N = New Notes (round up and use .0035) (($.35 for every $100 of new loan amount)) N = Assumed Notes (round up and use .0035) (($.35 for every $100 of assumed loan amount)) S = $190,250 rounded up is $190,300 x .007 = $1332.10 I = $10,050 (don't round) x .002 = $20.10 (One time fee for new loan) N = $10,050 (round up) is 10,100 x .0035 = $35.35 (Second Mortgage fee) N = $171,123.32 (rounded up is) $171,200 x .0035 = $599.20 Add all answers together: $1332.10 + $20.10 + $35.35 + $599.20 = $1986.75

A buyer purchases three lots for a total price of $74,000. The second lot cost $4,000 more than the first, and the third lot cost $6,000 more than the second. What is the cost of the first lot? A. $17,500 B. $19,000 C. $20,000 D. $20,500

$20,000 Last sentence first: What is the cost of the first lot? Try each answer starting with C $20,000 + $4000 = $24,000 $24,000 + $6,000 = $30,000 20,000 + 24,000 + 30,000 = $74,000

The documentary stamp tax on a new promissory note is $595.00. The loan-to-value ratio is 85%. What is the sale price of the property? A. $170,000 B. $190,000 C. $200,000 D. $210,000

$200,000 Last sentence first: What is the sale price of the property? Since we are talking about Doc Stamps, use: SINN 85% of one of the answers, when using SINN will equal $595.00. S = Deed (.007) We are not talking about a deed I = Intangible and first mortgage (we are not talking about first Mortgage) N = New promissory note (YES) therefore we use .0035 Work backward starting with $200,000 x .85=$170,000 $170,000 x .0035 = $595.00 $200,000 is the answer.

The property taxes are paid in arrears. The combined county, city and school taxes for the current year are $2,300. What are the appropriate debit and credit entries? Arrears to the left 101 days

$2300 / 365 = $6.301370 (taxes per day) $6.301370 x 101 = $636.44 Charge (debit) Seller $636.44: Credit Buyer $636.44

A sales associate, who works for broker A, obtains a listing for $215,000 at a 6% commission rate. A second sales associate, who works for broker B, finds a buyer for the property. The listing and selling brokers agree to a 50-50 split between the two brokerage firms. The property sells for $200,000. The selling broker keeps 45% of the commission received by his or her firm. The selling sales associate's commission is A. $2,700 B. $3,000 C. $3,300 D. $3,600

$3,300 - Last sentence first: "The selling sales associate's commission is?" 1. The property SOLD for $200,000. 2. $200,000 x .06 (percentage of commission)= 12000 3. 12000 x .50 (percentage agreed upon) 6000 4. $6000 x .55(amount left after selling broker receives 45% from the sale) = $3,300

The sale price of a house is $200,000. There is an existing mortgage for $110,000 which will be assumed by the buyer. The buyer obtains a new second mortgage loan for $20,000. How much is the intangible tax? A. $40.00 B. $220.00 C. $260.00 D. $400.00

$40.00 (We know by using SINN that Intangible taxes are .002 x #) Use SINN S = $200,000 x .007 = $1400 (Deed tax) I = $20,000 x .002 = $40 (One time fee for new mortgage) N = $110,000 x .0035 = $385 (Assumed Mortage) N = $20,000 x .0035 = $70 (New 2nd Mortgage) Answer: $40

Always assume the day of closing is allocated to who unless told otherwise?

Buyer

On a closing disclosure, the documentary stamp on a new promissory note is a debit to the A. buyer and a credit to the seller B. buyer only C. seller and a credit to the buyer D. seller only.

Buyer only Since it is a NEW PROMISSORY NOTE and a NOTE is a promise to REPAY, the only one that SHOULD have created it is the BUYER.

A buyer purchases an existing house for $200,000. The buyer will assume an existing mortgage of $110,000. The interest rate is 4 1/2%. The day of closing is May 13th with the closing date charge to the seller. Assume a 360-day year. What are the correct Closing Disclosures entries? A. Debit the buyer 176.30 and credit the seller $176.30 B. Debit the buyer $178.75 and credit the seller $178.75 C. Debit the seller $176.30 and credit the buyer $176.30 D. Debit the seller $178.75 and credit the buyer $178.75

Debit the seller $178.75 and credit the buyer $178.75 * Look at HOME OWNERSHIP as an ASSET TO THE BUYER. Therefore ownership is good and ANY increase ownership is GOOD. - The buyer ASSUMES a mortgage (It already exists) and will increase his asset by $110,000. He will pay 4 1/2 percent interest to the bank for this asset. $110,000 x 4 1/2% or $110,000 x .045 = $4950 per year for use of the ASSUMED mortgage will go to the bank. That's $4950 / 360 days which is equal to $13.75 per day (A MORTGAGE is paid MONTHLY) therefore we know how much will be paid on an ENTIRE MONTH. This is simply the following: $4975 / 12 = $414.58 The house NOW belongs to the buyer, therefore, is the BUYER's ASSET, but for the month of May, the asset was in the hands of the seller for 13 DAYS ... up to May 13 and then to the BUYER afterward. (THE DATE OF CLOSING GOES TO THE SELLER) So, during the first 13 days of May, the house which (NOW) belongs to the buyer, was in the hands of the seller, therefore, since THIS WHOLE DISCLOSURE TRANSACTION IS BEING PERFORMED ((AFTER)) THE SELL, it is a : $178.75 DEBIT to the SELLER (because HAVE LOST AND ASSET) and a $178.75 CREDIT TO THE BUYER (because they HAVE GAINED AN ASSET)

On a Closing Disclosure, the intangible tax on a new mortgage is a A. credit to the buyer B. credit to the seller C. debit to the buyer D. debit to the seller

Debit to the buyer - This is a TAX therefore, it's something OWED. The buyer (new owner) OWES TAXES on the property.

A duplex property rents for $800 per month per unit. The rent is payable in advance on the first day of each month. The date of closing is April 12th and the day of closing belongs to the buyer. Assume a 365 day year and the exact number of days for each month. The closing disclosure entries are ... Advance to the right = 19 days to the buyer

Duplex = 2 units $800 / month x 2 = $1600 / month April has 30 days $1600 / 30 = $53.33 / day $53.33 x 19 days = $1013.33 Debit Seller $1013.33 Credit Buyer $1013.33

The rent is payable on the first day of each month. Rent in the amount of $800 was collected by the seller on April 1st. The date of closing belongs to the buyer and is April 12. What are the appropriate debit and credit entries? Advance to the right 19 days

Last sentence first: What are the appropriate debit and credit entries? 1. The month of April has 30 days. 800 / 30 = $26.66667 per day. Since the day of closing belongs to the BUYER, count from the 12th of April to the 30th of April starting at the 12th. 19 days 19 x $26.66667 /day = $506.67 Charge (debit) Seller $506.67 and Credit Buyer $506.67

Who customarily pays at closing the recording fee for the deed? A. The buyer to provide actual notice of ownership B. The buyer to provide constructive notice of ownership C. The mortgagee to provide constructive notice of a lien D. The seller customarily pays the fee.

The buyer to provide ACTUAL notice of ownership. The buyer must have the deed recorded

The seller agrees to hold a second mortgage in the amount of $10,000. The interest rate on the NEW PURCHASE MONEY mortgage is 7 1/2 % and the monthly payment of P&I is $118.70. The mortgage payments are to be paid in arrears on the first day of each month. The interest for the remainder of the current month is to be PREPAID AT CLOSING. What are the appropriate debit and credit entries? Page 14-14 in the book shows a timeline in April Advance to right 19 days.

Timeline is April 19 days in April to the buyer $10,000 x .075 = $750 $750 / 365 = $2.054795 (365 is used because it's a NEW PURCHASE MONEY MORTGAGE and LENDERS require 365 days to be used) $2.054795 x 19 = $39.04 Debit Buyer $39.04 (Taking money away from the buyer) Credit (Seller) Lender $39.04 (Giving money to the lender) Since it's a PMM (Purchase Money Mortgage) the Lender and the Seller are the same person.

The loan balance on an Existing Mortgage, which is to be ASSUMED, is $70,000. The interest on the existing mortgage is paid in ARREARS. The interest rate is 8% and the monthly payment is $540.27. The monthly payment is due on the first day of each month. What are the appropriate debit and credit entries? Arrears to the left 11 days

What are the appropriate debit and credit entries? $70,000 x .08 = $5600 / year $5,600 / 12 = 466.66 / Month 466.66 / 30 = 15.55555 / day 15.55555 x 11 = $171.11 Charge (debit) Seller $171.11 and Credit Buyer ($171.11)