1. Final Exam Review Math

2. Commission Calculations
Percentage problems that determine your paycheck!

3. Notes
Some Realtors get a flat rate for selling a house – such as $4,500 for selling a $100,000 house
More typical is the percentage fee – say 6% of the sales price
Example – home sells for $200,000 and the fee is 6%. Commission is: 200,000 x .06 = $12,000

4. Can you keep all the money?
Sorry  – money is divided up as shown below. This is known as the “splits”
There are usually 4 parts/people receiving some money
Selling company
Selling agent
Listing company
Listing agent

5. Sample commission division
Sale price is $200,000 and commission rate is 6%. Listing side gets 60% and buying side gets remainder. How much does each group get?
Commission
200,000 x .06
12,000
Selling side
.4 x 12,000
4,800
Listing side
.6 x 12,000
7,200

6. agent commission split
Sale price is $200,000 and commission rate is 6%. Listing side gets 60% and buying side gets remainder. Sales agent gets 70% of the sales side. How much does the sales agent get?
Commission
200,000 x .06
$12,000
Selling side
.4 x 12,000
4,800
Selling agent split
.7 x 4,800
$3,360

7. Class Exercise
A small office building sold for $949,000. The listing broker received a commission of $54,990. What was the broker's commission rate?
a. 5.8 percent
b. 6.2 percent
c. 7 percent
d percent

8. $54,990 commission ÷ $949,000 SP = 0.0579 = 5.8% = a
Class Exercise
A small office building sold for $949,000. The listing broker received a commission of $54,990. What was the broker's commission rate?
$54,990 commission ÷ $949,000 SP = = 5.8% = a

9. Class Exercise
A total commission of $4,410 was earned from a sale. The listing broker retained 25 percent of the total commission and paid 5 percent of the total commission to the multiple listing service. Of the balance of the commission, the co-brokering firm retained 45 percent with the balance going to the selling agent. How much commission did the selling agent receive?
a. $1,389.15
b. $1,697.85
c. $1,728.85
d. $2,425.50

10. Class Exercise
A total commission of $4,410 was earned from a sale. The listing broker retained 25 percent of the total commission and paid 5 percent of the total commission to the multiple listing service. Of the balance of the commission, the co-brokering firm retained 45 percent with the balance going to the selling agent. How much commission did the selling agent receive?
$4,410 = 100% gross commission: 100% – 25% listing firm – 5% MLS fee = 70% to co-brokering firm/selling agent
$4,410 × 0.70 = $3,087 × 0.55 to selling agent = $1, (100% – 45% retained by firm = 55%) = b

11. Sections in a Township 6 Miles Square 36 sq. miles 23,040 acres
640 acres = 1 sq. mile
Section 16
for school purposes – rental or sale

12. Locating a Parcel of land in the Government Survey
Compute the acreage of the N ½ of the SE ¼ of the SW ¼
Must remember there are 640 acres in one section.
Divide 640 by the denominators:
640 ÷ 4 ÷ 4 ÷ 2 = 20 acres of land.

13. Locating a Parcel of land in the Government Survey
New Problem:
Compute the acres in the SW ¼ of the NE ¼ of the NE ¼, and the N ½ of the SE ¼ of the SW ¼
The words in the problem indicate that there are two parcels of land. NOTE: comas and semi-colons can be used as shorthand. Thus the problem could also be written as follows:
Compute the acres: SW ¼, NE ¼, NE ¼ ; N ½, SE ¼, SW ¼

14. Locating a Parcel of land in the Government Survey
Compute the acres in the SW ¼ of the NE ¼ of the NE ¼, and the N ½ of the SE ¼ of the SW ¼
NORTH
SW ¼ of the NE ¼ of the NE ¼
WEST
EAST
N ½ of the SE ¼ of the SW ¼
SOUTH

15. Locating a Parcel of land in the Government Survey
Compute the acres in the SW ¼ of the NE ¼ of the NE ¼, and the N ½ of the SE ¼ of the SW ¼
Divide 640 by the denominators, but compute the acreage for the two tracts separately:
640 ÷ 4 ÷ 4 ÷ 4 = 10 acres of land.
640 ÷ 4 ÷ 4 ÷ 2 = 20 acres of land.
= 30 acres of land

16. Per Cent of Gain or Profit
How much did you make (as a percentage) on the sale of your property

17. Formula for % of gain profit = % of profit Investment Profit 20,000 =
Example – you bought a house for $100,000 and sold it for $120,000. What was your percent of profit?
Investment = purchase price of $100,000
Profit = 120,000 less 100,000 or $20,000
Profit 20,000 =
20% profit
Investment 100,000

18. Capital improvements
You bought a house for $100,000 and added a garage for $20,000. Later, you sold the property for $140,000. What is the percent of profit?
Investment is 100, ,000 or 120,000
Profit is 140,000 less 120,000 or 20,000
Profit 20,000 =
16.67% profit
Investment 120,000

19. Compute % gain based on equity change
You bought a house for $110,000 and put 10% down. The house increased in value by 25%. You loan has amortized down to 85% of the original amount.
When you sell what is you per cent of equity increase?

20. Compute % gain based on equity change
Buy
$110,000.00
loan - 90%
- $99,000.00
down payment
$11,000.00
initial equity
New Value = $110,000 x 1.25 = $137,500
New Loan Balance = $99,000 x 0.85 = $84,100

21. Compute % gain based on equity change
new value
137,500.00
less new loan bal
-84,150.00
new equity
53,350.00
new equity
53,350.00
less initial equity
11,000.00
profit
42,350.00

22. Compute % gain based on equity change
Profit – new equity =
% of profit/gain
Investment – initial equity
43,250 =
385%
11,000

23. Class Exercise
A 40-acre tract was sold for $2,200 per acre. The seller realized a 14.5 percent profit from the sale. What was the original cost of the tract?
a. $75,240.00
b. $76,855.90
c. $100,760.00
d. $102,923.98

24. Class Exercise
A 40-acre tract was sold for $2,200 per acre. The seller realized a 14.5 percent profit from the sale. What was the original cost of the tract?
40 acres × $2,220 SP = $88,000 sales price (present value)
100% + 14½% = = 1.145
$88,000 ÷ = $76, = $76, = b

25. Class Exercise
In 1992, a family purchased their house for $126,500. They made no major improvements during the time they owned the property. Recently, they sold the property for $162,275. What was their percentage of gross profit?
a percent
b percent
c percent
d percent

26. Class Exercise
In 1992, a family purchased their house for $126,500. They made no major improvements during the time they owned the property. Recently, they sold the property for $162,275. What was their percentage of gross profit?
Step 1: $162,275 sales price - $126,500 cost = $53,775 profit
Step 2: $35,775 ÷ $126,500 = = 28.3% = a

27. Ad Valorem Property Taxes
How to calculate the annual taxes on a parcel of real property.

28. What does “Ad Valorem” mean?
Latin for “to the value”
This tax is levied annually by cities and counties
Tax is a lien against the property, not the owner
Failure to pay will result in foreclosure.

29. Tax Components Assessed value – also called tax value
Tax Rate – always stated as so many dollars per $100 of tax value
Memorize this formula!
Tax value
X tax rate =
Annual real tax
100

30. Sample Tax Computation
Tax value is $200,000 and tax rate is $.80 per $100 of tax value.
Compute the annual real tax
Tax value
X tax rate =
Annual real tax
100
Now apply the formula
200,000
X $.80 =
$1,600 yearly
100

31. Other Points to Ponder
If you live in the city you also live in the county.
If you are given city & county tax rates, combine them to calculate the total annual bill (city and county).

32. Personal Property Tax Calculations are worked same way.
Ignore this unless owner is selling personal property to the buyer.

33. Class Exercise
Property purchased five years ago was assessed for tax purposes at 50 percent of market value. The tax rate has remained at $4.90 per $100 of assessed value. The current taxes have increased by $637 in the last five years. How much has the market value of the property increased?
a. $3,121.30
b. $6,242.60
c. $13,000.00
d. $26,000.00

34. Class Exercise
Property purchased five years ago was assessed for tax purposes at 50 percent of market value. The tax rate has remained at $4.90 per $100 of assessed value. The current taxes have increased by $637 in the last five years. How much has the market value of the property increased?
$637 annual taxes ÷ = $13,000 AV
$13,000 AV ÷ 0.50 = $26,000 MV = d

35. Calculating Simple Interest

36. Calculating Simple Interest
Use the formula:
I = P x R x T
I = Interest
P = Principal
R = Rate
T = Time

37. Calculating Simple Interest
Loan amount (P) is $30,000 and the interest rate (R) is 7% is to be repaid over 15 years (T). How much interest will be owed the first month?
Step 1:
I = P x R x T
I = $30,000 x 0.07 x 15 = $31,500
This is the total interest

38. Calculating Simple Interest
Loan amount (P) is $30,000 and the interest rate (R) is 7% is to be repaid over 15 years (T). How much interest will be owed the first month?
Step 2:
$31,500 total interest ÷ 15 years = $2,100
This is the yearly interest payment

39. Calculating Simple Interest
Loan amount (P) is $30,000 and the interest rate (R) is 7% is to be repaid over 15 years (T). How much interest will be owed the first month?
Step 3:
$2,100 yearly interest ÷ 12 months = $175
This is the first monthly interest payment

40. Simple Interest Example – Month 1
Current Outstanding Loan Balance (P) is $70,000 and the interest rate (R) is 6 ¾ % per year and the monthly P & I payment is $ Calculate the interest and principal due on the next payment.
Step 1:
I = P x R x T
I = $70,000 (P) x (R) x 1 (T) = $4,725
This is the annual interest

41. Simple Interest Example – Month 1
Current Outstanding Loan Balance (P) is $70,000 and the interest rate (R) is 6 ¾ % per year and the monthly P & I payment is $ Calculate the interest and principal due on the next payment.
Step 2:
$4,725 annual interest ÷ 12 months = $393.75
This is the monthly interest

42. Simple Interest Example – Month 1
Current Outstanding Loan Balance (P) is $70,000 and the interest rate (R) is 6 ¾ % per year and the monthly P & I payment is $ Calculate the interest and principal due on the next payment.
Step 3:
$ monthly P & I payment - $ monthly interest = $60.55
This is the monthly principal

43. Simple Interest Example – Month 1
Current Outstanding Loan Balance (P) is $70,000 and the interest rate (R) is 6 ¾ % per year and the monthly P & I payment is $ Calculate the interest and principal due on the next payment.
Step 4:
$70,000 Beginning loan balance - $60.55 monthly principal = $69,939.45
This is the remaining loan balance after payment.

44. Simple Interest Example – Month 2
Current Outstanding Loan Balance (P) is now $69, and the interest rate (R) is 6 ¾ % per year and the monthly P & I payment is $ Calculate the interest and principal due on the next payment.
Step 1:
I = P x R x T
I = $ 69, (P) x (R) x 1 (T) = $ annual interest

45. Simple Interest Example – Month 2
Current Outstanding Loan Balance (P) is now $69, and the interest rate (R) is 6 ¾ % per year and the monthly P & I payment is $ Calculate the interest and principal due on the next payment.
Step 2:
$ annual interest ÷ 12 months = $
This is the monthly interest

46. Simple Interest Example – Month 2
Current Outstanding Loan Balance (P) i is now $69, and the interest rate (R) is 6 ¾ % per year and the monthly P & I payment is $ Calculate the interest and principal due on the next payment.
Step 3:
$ monthly P & I payment - $ monthly interest = $60.89
This is the monthly principal

47. Simple Interest Example – Month 2
Current Outstanding Loan Balance (P) is now $69, and the interest rate (R) is 6 ¾ % per year and the monthly P & I payment is $ Calculate the interest and principal due on the next payment.
Step 4:
$69, Beginning loan balance - $60.89 monthly principal = $ 69,
This is the remaining loan balance after payment.

48. Simple Interest Level Payment
The process continues until the loan is fully paid

49. $6,825 annual interest ÷ $136,500 loan = 0.05 = 5% = c
Class Exercise
If the borrower paid $ interest last month on a $136,500 loan, what is the interest rate?
a. 4½ percent
b. 4¾ percent
c. 5 percent
5¼ percent
$ × 12 months = $6,825 annual interest
$6,825 annual interest ÷ $136,500 loan = 0.05 = 5% = c

50. Loan Origination Fees

51. Loan Origination Fees
Lenders charge various fees when processing a loan. The origination fee is normally 1 % of the loan amount and is often combined with discount points to increase the yield to the lender.

52. Loan Origination Fees
The Loan amount (P) is $90,500. The lender will charge a 1 % loan origination fee. Market interest rates are 6.5%, but the buyer wants to get a rate of 6%, which the lender has approved with the appropriate amount of discount points. How much are the total fees to be paid by the buyer?
Step 1:
$90,500 P x 0.01 = $905 origination fee

53. Loan Origination Fees
The Loan amount (P) is $90,500. The lender will charge a 1 % loan origination fee. Market interest rates are 6.5%, but the buyer wants to get a rate of 6%, which the lender has approved with the appropriate amount of discount points. How much are the total fees to be paid by the buyer?
Step 2:
6.5 % – 6.0 %= 0.5 % = 4/8 % =
4 discount points

54. Loan Origination Fees
The Loan amount (P) is $90,500. The lender will charge a 1 % loan origination fee. Market interest rates are 6.5%, but the buyer wants to get a rate of 6%, which the lender has approved with the appropriate amount of discount points. How much are the total fees to be paid by the buyer?
Step 3:
$90,500 P x = $3,620 discount points

55. $905 origination fee + $3,620 discount points = $4,525 total loan fees
Loan Origination Fees
The Loan amount (P) is $90,500. The lender will charge a 1 % loan origination fee. Market interest rates are 6.5%, but the buyer wants to get a rate of 6%, which the lender has approved with the appropriate amount of discount points. How much are the total fees to be paid by the buyer?
Step 4:
$905 origination fee + $3,620 discount points = $4,525 total loan fees

56. What do they cost and who pays them?
Loan Discount Points
What do they cost and who pays them?

57. Defined Prepaid interest
This is a buyer expense shown on the back side of the HUD-1 form

58. Formula for cost of points
Loan discount points cost 1% of the buyers loan amount
Example:
Buyer is borrowing $400,000 and will be paying 2 loan discount points.
loan amount
400,000
points
X .02
total cost
$8,000

59. Lenders “Rule of Thumb”
For each 1% drop (discount) in your rate, lender will charge 8 points.
Example:
Market rates are 8% and you want a 7 ½% loan . How many points are charged?
Market rate 8%
Less Discounted rate
- 7 4/8%
Discount
4/8%
½ of 8 is 4 – charge 4 points

60. More on Lenders Rule of Thumb
Change the denominator of all fractions to eighths.
After subtracting, the numerator will give you the answer to “how many points”?
7 ¾ =
7 6/8 7 6
numerator 8
denominator

61. Another angle on “rule of thumb”
Use a “number line” – mark it off in eighths.
Moving left from market rate to the discounted rate, charge one point for each eighth of a percent you move over.
Example: you want to reduce your rate from 8% to 7 ½%. How many points? FOUR
7 3/8
7 4/8%
7 5/8
7 6/8
7 7/8 8%
Discount
rate
Market
rate

62. Discount Points – Investor Yield
From the standpoint of the investor, 1 discount point increases the yield on the loan by 1/8 %. If an investor requires a 10 ½ % yield on a loan with an interest rate of 10 ¼ %, Calculate the discount points required:
Step 1:
10 ½ % = 10 4/8 %

63. Discount Points – Investor Yield
From the standpoint of the investor, 1 discount point increases the yield on the loan by 1/8 %. If an investor requires a 10 ½ % yield on a loan with an interest rate of 10 ¼ %, Calculate the discount points required:
Step 2:
10 4/8 % /8 % = 2/8 %
2/8 % = 2 discount points

64. Class Exercise
A lender requires the buyer to pay $1,875 in discount points for a $75,000 loan. Using the general rule of thumb, how many discount points are being charged?
a. 2 b c
d. 5

65. Class Exercise
A lender requires the buyer to pay $1,875 in discount points for a $75,000 loan. Using the general rule of thumb, how many discount points are being charged?
$1,875 pts. ÷ $75,000 LV = = 2.5 points = b

66. Class Exercise
If a mortgage lender intends to yield 10 3/8 percent on a 30-year loan and charges 9¾ percent interest, how many points should the lender charge?
a. 4 points
b. 5 points
c. 7 point
d. 8 points

67. Class Exercise 10⅜% = 10.375% 9¾% = 9.75%
If a mortgage lender intends to yield 10 3/8 percent on a 30-year loan and charges 9¾ percent interest, how many points should the lender charge?
10⅜% = %
9¾% = 9.75%
– 9.75 = × 8 = 5 points OR
10 3/ /8 = 5/8 % = 5 points = b

68. Conventional Programs
Classified by percentage of down payment
Loan-to-value: Amount borrowed compared to property value
Lesser of sales price or appraised value
Higher LTV = lower down payment = more risk
Standard 80% conventional loan requires 20% down

69. Class Exercise
A buyer deposited 10 percent of the sales price with the broker as earnest money for purchase of a lot. The lender agreed to loan a of 80 percent of the sales price. Principal amount of the loan will be $51,000. How much additional funding must be provided by the buyer in order to complete this transaction?
a. $5,100
b. $5,500
c. $6,125
d. $6,375

70. $12,750 DP – $6,375 EMD = $6,375 cash needed = d
Class Exercise
A buyer deposited 10 percent of the sales price with the broker as earnest money for purchase of a lot. The lender agreed to loan a of 80 percent of the sales price. Principal amount of the loan will be $51,000. How much additional funding must be provided by the buyer in order to complete this transaction?
$51,000 ÷ 0.80 = $63,750 SP × 0.10 = $6,375 EMD
$63,750 SP – $51,000 LV = $12,750 Total Down Payment
$12,750 DP – $6,375 EMD = $6,375 cash needed = d

71. “Qualify the Buyer.”
Debt ratio is the percentage of monthly income that can be applied toward monthly long-term obligations.

72. “Qualify the Buyer.”
Housing Expense-to-income Ratio includes not only the minimum required loan payment for principal and interest, but also inclusion of property taxes, hazard insurance, flood insurance, private, mortgage insurance, special assessments and HOA dues if applicable. Historically, 28 – 32% or less.

73. “Qualify the Buyer.”
Debt-to-Income (DTI) Ratio includes the borrower’s proposed monthly housing expense and any recurring debt or expenses that will remain after the loan has closed. Historical guidelines have been 36 – 41%

74. Housing Expense-to-income Ratio
PITI =
Housing Expense Ratio
Monthly Gross Income

75. Debt-to-Income (DTI) Ratio
PITIO =
DTI
Ratio
Monthly Gross Income
Also known as the Total Obligations Ratio = PITI plus other monthly non-housing long-term obligations.

76. Debt-to-income Ratio problem
A couple has a combined gross monthly income of $3,600. Loan P&I=$ Prop. Tax=$130/mo. $60/mo for insurance. Can they qualify for the loan if they have a car payment of $245?
$ $130+
$60 + $245 =
39.8%
$3,600
The 39.8% does not exceed 41% so the couple qualifies.

77. Simple loan qualification problem
Roy and Rita wish to obtain a new loan. Their combined monthly income is $4,200. What amount of monthly payment can they qualify for if the lender uses the 28/36 ratios and they have no other debts?
$4,200 x .28 = $1,176

78. Simple loan qualification problem
John and Debbie Buyer have been told that the monthly payment for PITI on the house they have selected is $1, If the lender is looking for a 28/36 ratio, what is the required monthly income for John and Debbie? $ =
$4,409.14
0.28

79. Simple loan qualification problem
Kit and Charlie’s combined monthly income is $5,000. What monthly PITI can they qualify for if area conventional lenders are qualifying at 28/36?
$5,000 x .28 = $1,400.00

80. Class Exercise
A couple has applied for a 6½ percent conventional fixed-rate, level-payment mortgage loan to finance the purchase of a house with a sales price of $295,000. They wish to obtain an 80 percent LTV loan, and the lender is using qualifying ratios of 28 and 36. The couple has the following monthly obligations: a $335 car payment, a $125 student loan payment, and a $250 credit card payment. What is the minimum annual income needed to qualify if the loan factor is 6.32 and there is a required monthly escrow deposit of $263?
a. $63,922
b. $75,194
c. $82,151
d. $91,174

81. Class Exercise $295,000 SP × 80% = $236,000 LV
A couple has applied for a 6½ percent conventional fixed-rate, level-payment mortgage loan to finance the purchase of a house with a sales price of $295,000. They wish to obtain an 80 percent LTV loan, and the lender is using qualifying ratios of 28 and 36. The couple has the following monthly obligations: a $335 car payment, a $125 student loan payment, and a $250 credit card payment. What is the minimum annual income needed to qualify if the loan factor is 6.32 and there is a required monthly escrow deposit of $263?.
$295,000 SP × 80% = $236,000 LV
$236,000 LV ÷ 1000 × 6.32 = $ monthly PI payment
$ monthly PI payment + $263 monthly escrow payment = $1, monthly PITI
$1, monthly PITI ÷ 28% = $75,194 minimum
income – H.E. Ratio

82. Must qualify on both ratios and the higher $ is =
Class Exercise
A couple has applied for a 6½ percent conventional fixed-rate, level-payment mortgage loan to finance the purchase of a house with a sales price of $295,000. They wish to obtain an 80 percent LTV loan, and the lender is using qualifying ratios of 28 and 36. The couple has the following monthly obligations: a $335 car payment, a $125 student loan payment, and a $250 credit card payment. What is the minimum annual income needed to qualify if the loan factor is 6.32 and there is a required monthly escrow deposit of $263?.
$ = $710 monthly debt + $1,754.52
monthly PITI = $2,464.52
$2, ÷ 36% = $82,151 min. income requirement under – D.T.E. Ratio
Must qualify on both ratios and the higher $ is =
$82,151 min. income = c

83. PRORATIONS

84. PRORATION
The proportional division of on-going expenses between buyer and seller.

85. ITEMS COMMONLY PRORATED
Ad valorem Taxes
Interest
Rents
HOA Fees
Loan interest, when there is an assumption of an existing loan, insurance premiums,
Maintenance fees, and
Propane, fuel oil, coal, and so on

86. IN ADVANCE
Before the fact
IN ARREARS
After the fact

87. TYPICALLY In ADVANCE In ARREARS HOA Fees Due Jan 1 Rent Due Jan 1
Ad valorem Tax Due Dec 31
Interest Due 1 of month following

88. TO PRORATE, Determine The annual cost (monthly cost for rent)
The number of days to be charged
Whether to use calendar or banker’s year
Whether to prorate TO or THROUGH day of closing
How much to be credited or debited ?
To who is to receive the credit & to whom is it to be debited ?

90. (don’t clear calculator – don’t round)
TO PRORATE
Calculate the days due:
Calculate the $ per Day
i.e. Annual Tax ÷ Days in year
(don’t clear calculator – don’t round)
Calculate the proration
$ per day x days due = proration
Step 2 x Step 1 = proration
$ x $ = $

91. Calculating Prorations
When calculating prorations, some areas of the country typically use a banker's or a statutory year
1 year = 12 months of 30 days 1 year = 360 days
Other areas use a calendar year in the calculation of prorations. This is the most accurate and usually used in NC in practice.
1 year = 12 months of 28 to 31 days
1 year = 365 days in a regular calendar year 366 days in a leap year

92. Calculating Prorations
In North Carolina, in calculating prorations the actual closing date is allocated to the seller, i.e. the seller is treated as if he or she owns the property throughout the entire day of closing.

93. Calculating Prorations
REMINDER: For all proration problems, you must determine:
the annual cost (monthly cost for rent),
the number of days to be charged,
the amount to be credited or debited,
the party to receive the credit, and
the party to receive the debit.

94. $ per day x Days due = Proration
Prorating Taxes
Determine the number of days to be charged to or the closing date
Annual tax ÷ Days in year = $ per day
Calculate the proration by multiplying 1 by 2
$ per day x Days due = Proration

95. Prorating Taxes
Using a banker’s or statutory year, prorate the taxes for a June 18 closing. Annual tax is $1,440
Step 1
J+ F+ M+ A+ M+ J
= 168 days due

96. Prorating Taxes
Using a banker’s or statutory year, prorate the taxes for a June 18 closing. Annual tax is $1,440
Step 2 Annual tax ÷ days in year = $/day
$1,440 ÷ 360 = $4 per day

97. Prorating Taxes
Using a banker’s or statutory year, prorate the taxes for a June 18 closing. Annual tax is $1,440
Step 3 $/day x days due = Proration
$4 x 168 = $672 debit seller/credit buyer

98. Prorating Taxes
Using a banker’s or statutory year, prorate the taxes for a June 18 closing. Annual tax is $1,440
Step days
J+ F+ M+ A+ M+ J
= 169 days due

99. Prorating Taxes
Using a banker’s or statutory year, prorate the taxes for a June 18 closing. Annual tax is $1,440
Step 2 Annual tax ÷ days in year = $/day
$1,440 ÷ 365 = $ per day

100. Prorating Taxes
Using a banker’s or statutory year, prorate the taxes for a June 18 closing. Annual tax is $1,440
Step 3 $/day x days due = Proration
$ x 169 = $ debit seller/credit buyer

101. Prorating Taxes – You try it
For a closing on August 28, what would you charge the seller if the annual tax bill is $1,680 and the proration is calculated through the day of closing?
360 day year
365 day year

102. Prorating Taxes
Using a banker’s year, prorate the taxes for a August 28 closing. Annual tax is $1,680
Step 1
J+ F+ M+ A+ M+J+J+A
= 238 days due

103. Prorating Taxes
Using a banker’s year, prorate the taxes for a August 28 closing. Annual tax is $1,680
Step 2 Annual tax ÷ days in year = $/day
$1,680 ÷ 360 = $ per day

104. Prorating Taxes
Using a banker’s year, prorate the taxes for a June 18 closing. Annual tax is $1,440
Step 3 $/day x days due = Proration
$ x 238 = $1, debit seller/credit buyer

105. Prorating Taxes
Using a statutory year, prorate the taxes for a August 28 closing. Annual tax is $1,680
Step 1
J+ F+ M+ A+ M+J+J+A
= 240 days due

106. Prorating Taxes
Using a statutory year, prorate the taxes for a August 28 closing. Annual tax is $1,680
Step 2 Annual tax ÷ days in year = $/day
$1,680 ÷ 365 = $ per day

107. Prorating Taxes
Using a statutory year, prorate the taxes for a June 18 closing. Annual tax is $1,440
Step 3 $/day x days due = Proration
$ x 240 = $1, debit seller/credit buyer

108. Buyer’s Daily Interest
How to determine the daily interest charges for the HUD-1 form.

109. To Calculate Daily Interest
Calculate the days due:
Calculate the $ per Day
Loan amount x Annual Interest Rate ÷ Days in year = $ per Day
(don’t clear calculator – don’t round)
Calculate the proration
$ per day x days due = proration
Step 2 x Step 1 = proration
$ x $ = $

110. Sample problem:
The loan value is $100,000 and the interest rate is 6%.
Closing is on April 25th.
How much will the buyer owe for daily interest?
Use a banker’s year – 360 days per year

111. Daily Interest Computing
The loan value is $100,000 and the interest rate is 6%. Closing is on April 25th - bankers year
Calculate the number of days from the closing to the last day of month.
25, 26, 27, 28, 29, 30 = 6 days or
30 – = 6 days
Calculate the dollar amt. per day
Loan amount x Interest rate÷ Days in year = $ per day
$100,000 x 0.06÷ 360 = $ per day
Calculate the proration by multiplying 1 by 2
$ per day x 6 days = $100

112. Daily Interest Computing
This is a buyer expense on new loans.
Show this on the back side of the HUD-1.
Enter the cost on HUD-1 Line 901.
Buyer owes for the day of closing through and including the end of the month.

113. Distractions to watch out for
Buyer never owes for more than 30 days.
Loan assumptions make daily interest a seller debit and a buyer credit (first day of month through closing)

114. $ per day x Days due = Proration
Prorating Insurance
Calculate the number of days from the closing to the day of expiration of the policy.
Calculate the dollar amt. per day
Calculate the proration by multiplying 1 by 2
$ per day x Days due = Proration

115. Prorating Insurance
A buyer is assuming a one-year homeowner’s policy that was taken out on Jan. 1 for an annual premium of $ Closing is May 27, what amount of money will the seller receive from the buyer at closing to reimburse him for the unused portion of the policy using a bankers year?

116. Annual premium of $456.25 (began 01/01/20xx) . Closing is May 27
Prorating Insurance
Annual premium of $ (began 01/01/20xx) . Closing is May 27
Calculate the number of days from the closing to the last day of December.
(7 x 30) + 3 = 213 days
Calculate the dollar amt. per day
Annual fee ÷ Days in year = $ per day
$ ÷ 360 = $ per day
Calculate the proration by multiplying 1 by 2
$ per day x 213 = $269.95

117. Prorating HOA
HOA dues are sometimes paid in advance in January for the entire year. They may also be assessed and collected monthly, quarterly or annually.

118. MAINTENANCE FEES
STEP 1: Calculate the number of days from closing through the last day of December
STEP 2: Calculate the dollar amount per day. Annual fee ÷ Days in a year = $ per day
STEP 3: Calculate the proration by multiplying the total from step 2 by the total from step 1.
$ per day x Days due = proration

119. $ per day x Days due = Proration
Prorating HOA
Calculate the number of days from the closing to the last day of December.
Calculate the dollar amt. per day
Annual fee ÷ Days in year = $ per day
Calculate the proration by multiplying 1 by 2
$ per day x Days due = Proration

120. Annual fee ÷ Days in year = $ per day
Prorating HOA
The annual HOA dues of $360 were paid in January. How much will the buyer be charged for a July 28 closing using a bankers year?
Calculate the number of days from the closing to the last day of December = 152 days
Calculate the dollar amt. per day
Annual fee ÷ Days in year = $ per day
$360 ÷ 360 = $1 per day
Calculate the proration by multiplying 1 by 2
$1 per day x 152 = $152

121. Prorating HOA
The annual maintenance fee of $250 was paid on January 1. What would you credit the seller for a September 15 closing using a banker’s year, with the seller paying through the day of closing?

122. Annual fee ÷ Days in year = $ per day
Prorating HOA
The annual fee of $250 was paid on January 1. September 15 closing
Calculate the number of days from the closing to the last day of December = 105days
Calculate the dollar amt. per day
Annual fee ÷ Days in year = $ per day
$250÷ 360 = $ per day
Calculate the proration by multiplying 1 by 2
$ per day x 105 = $72.92

123. Prorating Rent
Only rents that have been paid before the closing day will be prorated. Seller gives the buyer the rent from the day after closing through the end of the month.
Security deposits are not prorated and should be transferred to the buyer.

124. To Prorate Rent – (never more than 30 days)
STEP 1: MONTH = _______ DAYS
CLOSING - _______ DAYS
= _______ DAYS DUE
STEP 2: RENT ÷ DAYS IN MONTH = PER DIEM
_____ ÷ $ ___________ = $ _______
STEP 3: DAYS DUE X PER DIEM = PRORATION
_________ X $ _______ = $ _________
Debit Seller
Credit Buyer

125. $ per day x Days due = Proration
Prorating Rent
Calculate the number of days from the closing to the end of the month
Total days in month – closing date = Days due
Calculate the dollar amt. per day
Monthly rent ÷ Days in month = $ per day
Calculate the proration by multiplying 1 by 2
$ per day x Days due = Proration

126. Prorating Rent
A duplex with a garage apartment is being sold and will close on September 16. All rents have been paid for September. Each side of the duplex rents for $500 per month and the garage apartment rents for $350 per month. How much will the buyer be credited at closing?

127. Prorating Rent Total days in month – closing date = Days due
Monthly rent ÷ Days in month = $ per day
$1,350 ÷ 30 = $45 per day
$ per day x Days due = Proration
$45per day x 14 Days due = $630

128. Prorations
The taxes for the current year are $1, and have not been paid. If the North Carolina sale is to close on August 12, what is the amount that will be charged to the seller for the taxes based on a 360-day year?
$668.26
$1,075.15
$1,104.05
$1,220.26

129. Prorations
The taxes for the current year are $1, and have not been paid. If the North Carolina sale is to close on August 12, what is the amount that will be charged to the seller for the taxes based on a 360-day year?
Step 1: Jan 1 – Aug 12 = 222 days
Step 2: $1, annual taxes ÷ 360 days = $ day
Step 3: 222 days × $4.843 = $1, seller debit = b

130. Prorations
The settlement for the purchase of a rental house is scheduled for June 18. The June rent of $1,100 was collected by the seller at the first of the month. The seller is also holding the tenant security deposit of $2,200. How would the rent and tenant security deposit be reflected on the settlement statement if a 30-day month, 360-day year is used?
$440 seller debit/buyer credit for rent; $880 seller debit/buyer credit for tenant security deposit
$1,100 seller debit/buyer credit for rent; $2,200 seller debit/buyer credit for tenant security deposit
$440 seller debit/buyer credit for rent; no entry for tenant security deposit
$440 seller debit/buyer credit for rent; $2,200 seller debit/buyer credit for tenant security deposit

131. Prorations Step 1: 30 – 18 = 12 days
The settlement for the purchase of a rental house is scheduled for June 18. The June rent of $1,100 was collected by the seller at the first of the month. The seller is also holding the tenant security deposit of $2,200. How would the rent and tenant security deposit be reflected on the settlement statement if a 30-day month, 360-day year is used?
Step 1: 30 – 18 = 12 days
Step 2: $1,100 rent ÷ 30 = $36.67 daily rent
Step 3: $36.67 daily rent × 12 days = $440 rent seller debit/buyer credit;
No proration of TSD, entire $2,200 goes with property ownership
because it’s tenant’s money Answer = D

132. Sales Comparison Approach
The subject property is a 3 bedroom, 2 ½ bath house with no garage. Market research indicates that a 2 car garage adds $7,500 value and a half-bath adds $1,800 value. A 3 bedroom, 2 bath home with a 2 car garage on the next block sold for $115,600 two weeks ago. Using the sales comparison approach, what is the indication of value?
$124,900
$106,300
$121,300
$109,900

133. Sales Comparison Approach
The subject property is a 3 bedroom, 2 ½ bath house with no garage. Market research indicates that a 2 car garage adds $7,500 value and a half-bath adds $1,800 value. A 3 bedroom, 2 bath home with a 2 car garage on the next block sold for $115,600 two weeks ago. Using the sales comparison approach, what is the indication of value?
$115,600 + $1,800 - $7,500 = $109,900 = D

134. COST - + = Building replacement cost Accrued depreciation Site value
Indicated
value - + =

135. Calculate Building Replacement Cost
Square feet
of building x $ per square foot = Replacement Cost
5, x $ = $640,000

136. Calculate Depreciation
$640,000
Replacement cost
(years of estimated
useful life, 40 years) =
Annual depreciation
charge 2.5 %

137. = x Annual depreciation Total Accrued charge Number of Depreciation
2.5 %
Total Accrued
Depreciation
25%
Number of
years 10 = x

138. Total life
100%
Depreciation
25%
Remaining life
75% - =

139. = x Current Building Value $480,000 Replacement cost $640,000
Remaining
75% x =

140. Class Exercise
An appraiser estimated the replacement cost of a building at $560,000. The building has an estimated economic life of 40 years and an estimated remaining life of 30 years. If the appraiser uses the straight-line depreciation method, what will be the indicated current value of the building?
a. $140,000
b. $392,000
c. $420,000
d. $560,000

141. Class Exercise
An appraiser estimated the replacement cost of a building at $560,000. The building has an estimated economic life of 40 years and an estimated remaining life of 30 years. If the appraiser uses the straight-line depreciation method, what will be the indicated current value of the building?
30 years ÷ 40 years = 0.75
$560,000 cost × 0.75 = $420,000 current value = c

142. INCOME CAPITALIZATION
Formula for CAP Rate:
Value x Income Capitalization Rate = NOI
NOI ÷ Income Capitalization Rate = Value
NOI ÷ Value = Income Capitalization Rate
NOI = net operating income

143. $49,200 NOI ÷ 12% cap rate = $410,000 value = c
Class Exercise
If a residential property has a net operating income of $49,200 per year and an appraiser uses a capitalization rate of 12 percent, the estimated property value is
a. $118,800.
b. $232,902.
c. $410,000.
d. $786,060.
$49,200 NOI ÷ 12% cap rate = $410,000 value = c

144. Class Exercise
The effective gross income from an office building is $73,500 with annual operating expenses total $52,300. If the owner expects to receive an 11 percent return on the investment, what is the value of the building?
a. $125,800
b. $192,727
c. $475,454
d. $668,181

145. Class Exercise
The effective gross income from an office building is $73,500 with annual operating expenses total $52,300. If the owner expects to receive an 11 percent return on the investment, what is the value of the building?
$73,500 EGI – $52,300 operating expenses = $21,200 NOI
$21,200 NOI ÷ 0.11 cap = $192, = b

146. Sales Price ÷ Monthly Gross Rental Income = Gross Rent Multiplier
Formula for GRM:
Sales Price ÷ Monthly Gross Rental Income = Gross Rent Multiplier

147. Gross Rent Multiplier Property sales yielded the following:
What is the value a property in the area producing a monthly rent of $675?

148. Gross Rent Multiplier
What is the value a property in the area producing a monthly rent of $675?
Sales Price ÷ Monthly Gross Rental Income = Gross Rent Multiplier
Sales Price = Monthly Gross Rental Income x Gross Rent Multiplier
$675 x = $84,375