Chapter 14 - Real Estate-Related Computations and Closing of Transactions

Entry on the closing statement for an expense to either the buyer or the seller

Debit (money paid)

Entry on the closing statement for money to be received by either the buyer or the seller

Credit (money recieved)

Closing statement entry that reduces the amount the seller receives at closing

Debit Seller

Closing statement entry that reduces the amount the buyer must pay at closing

Credit buyer

Payment from the buyer to the seller would appear on the closing statement

Double-line entry: Debit buyer, Credit seller

Credit from seller to buyer on the closing statement

Double-line entry: Credit buyer, Debit seller

Seller’s brokerage fee on the closing statement

Single-line entry, Debit seller, Credit (disbursement)  on brokers statement

Binder (or earnest money) deposit held in an escrow account would appear on the closing statement

Single-line entry, Credit buyer, Debit (receipt) on brokers statement

Assumed mortgage would appear on the closing statement

Double-lne entry, Debit seller, Credit buyer

How a new loan (not involving the seller) would appear on the closing statement

Single-line entry, Credit buyer, Debit (receipt) on brokers statement

Expenses (debits) and receipts (credits) that are divided proportionately between the buyer and seller

Prorations, Examples: Rent, property taxes, HOA dues

The party that “owns” the day of closing

Either the seller or buyer, by agreement in the contract

Number of buyer and seller days for a closing on March 18 when the seller owns the day of closing

Seller: 18 days

Buyer: 13 days (31-18=13)

Number of buyer and seller days for a closing on March 18 when the buyer owns the day of closing

Seller: 17 days

Buyer: 14 days (31-17=14)

Proration entries on the closing statement

Double entries

Examples: Debit buyer, Credit seller or Credit buyer, Debit seller

Payment for a service after it is received

Paid in arrears;

Example: Florida real estate taxes, where the payment is due April 1 of the year following the tax year

Rent is proration between  buyer and seller, (paid in advance)

Debit seller, Credit buyer for the number of days they own the property in the closing month

Calculated for rent prorations

Divide monthly rent by days in the closing month, multiply the result by days buyer own the property in the closing month. Debit seller, Credit Buyer

Real estate tax proration (closing before Nov 1)

Debit seller, Credit buyer;

When the closing takes place before the taxes are paid, the buyer is responsible for paying the tax. The seller must credit the buyer for the seller ownership days in the tax year.

Calculated real estate taxes using the 365-day method

Divide annual taxes by 365 days; multiply the result times the number of days seller or buyer owes to the other party

Three types of state taxes due at closing, when applicable

• Documentary stamp tax on the deed

• Documentary stamp tax on a promissory note

• Intangible tax

State tax(es) typically paid by seller at real estate closing

State documentary stamp tax on the deed

State tax(es) typically paid by buyer at real estate closing

Documentary stamp tax on a promissory note and Intangible tax

State documentary stamp tax on the deed calculation

Purchase price divided by 100; round up to the nearest whole number, multiply by $0.70 (or $0.60 in Miami-Dade County)

State documentary stamp tax on the promissory note is calculated

Mortgage (note) amount divided by 100, round up to the nearest whole number,  multiply  by $0.35

State intangible tax calculation

Multiply the new mortgage amount by 0.002

State tax(es) that apply for an all-cash real estate purchase

State documentary stamp transfer tax on the deed (seller)

State tax(es) that apply for real estate purchased with a new loan

• State documentary stamp transfer tax on the deed (seller)

• State documentary stamp tax on the new note (buyer)

• Intangible tax on the new mortgage (buyer)

State tax(es) that apply for real estate purchased with an assumed loan

• State documentary stamp transfer tax on the deed (seller)

• State documentary stamp tax on the assumed note (buyer)

Party responsible for providing marketable (clear) title

Seller;

If the title proves to be defective, the seller would need to clear the title before conveying the property to the buyer

Seller proceeds calculation

Subtract the seller’s total debits from the seller’s total credits

Buyer funds necessary for closing calculation

Subtract the buyer’s total credits from the buyer’s total debits