Practice Settlement Costs

You might see one or two (or several) closing cost calculations on your license exam. Here's your chance to practice before your
unit exam. You'll have the advantage of multiple choice on your unit and licensing exams, but we've removed that advantage here
so you can be sure you understand how to get the correct answer. All answers will be rounded, and you'll find the correct answers
with explanations below.

1. Your client, Claude, wants to know how much he'll net on the sale of his property. His property sold for $225,000. He
paid a real estate commission of 5%, his closing costs totaled $2,347, and he had to pay off his loan balance of $43,715.
What's his net?
2. JJ, an investor, wants to net 11% profit after paying a brokerage commission of 5%. If his original purchase price was
$250,750, what is the minimum offer he can accept?
3. Harry received a check for $275,000 from the sale of his property, which he owned free and clear. His closing expenses
were $1,275, and he paid 6% in brokerage fees. What was the sales price of his property? Round to nearest whole dollar.
4. Nat purchased Goldie's home for $312,500, for which Goldie prepaid annual property taxes of $4,235. If closing costs are
calculated on a 365-day year, and the transaction closes on October 10, how much will Nat owe Goldie for property
taxes? Carry numbers out four decimal places, but round to two decimal places for your final answer. The buyer owns on
the day of closing, and be sure and include the last day of the year in your calculations.

Answers
1. $167,688. First, multiply his sales price by 95% to subtract the 5% commission: $225,000 × .95 = $213,750. Then
subtract his closing costs ($2,347) and loan balance ($43,715). $213,750 - ($2,347 + $43,715) = $213,750 - $46,062 =
$167,688.
2. $292,982. Take the original purchase price of $250,750 and add 11% (multiply by 1.11) to get $278,332.50. Now
calculate in a 5% commission (divide $278,332.50 by .95) to get $292,982, rounded.
3. $293,910. 100% - 6% = 94% (.94), and $275,000 + $1,275 (before commission) = $276,275. $276,275 ÷ .94 = $293,910
(rounded).
4. $963.02. Divide $4,235 by 365 to get property tax costs per day: $11.6027. Multiply this by the number of days of
ownership (83 days) = $963.0274 ($963.03).