Closing Statement, Prorations, and Seller Net
A duplex in Orlando closes on June 18 at a contract price of $420,000. The buyer obtains a new 80% loan of $336,000. The seller's existing first mortgage payoff is $180,000. The listing agreement provides a 6% commission, with 3.5% to the listing brokerage and 2.5% to the cooperating brokerage. The listing associate has a 60/40 split with her broker. Annual property taxes are $6,240; the contract says the seller bears taxes through the day before closing and uses a 365-day year. The seller pays documentary stamps on the deed at $0.70 per $100, the owner's title policy of $2,100, a $450 closing fee, and a $1,500 credit toward the buyer's closing costs. The buyer pays documentary stamps on the new note at $0.35 per $100. The seller told the listing associate she must net at least $210,000. No other closing costs are charged to the seller.
1. Calculate the documentary stamp taxes on the deed and on the new note, and state who pays each.
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Florida documentary stamp tax on a deed is $0.70 per $100 of consideration, with the consideration rounded up to the next $100. The price is $420,000, which is exactly 4,200 increments of $100. The tax is 4,200 × $0.70 = $2,940. The seller pays the deed tax because the seller is the grantor. The new note is $336,000. The note tax is $0.35 per $100, so 3,360 increments × $0.35 = $1,176. The buyer pays the note tax because the buyer is the borrower. The deed tax is based on the full purchase price, not on the seller's equity or the payoff. The note tax is based on the new loan amount, not on the purchase price. If the price or loan had not been an exact multiple of $100, each calculation would round up to the next $100 before multiplying. These taxes appear as separate settlement charges: the deed tax is a seller debit, and the note tax is a buyer debit. They should not be netted against each other or paid from the other party's funds without a written agreement.
2. Calculate the property tax proration and show the settlement entry.
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The contract makes the seller responsible through the day before closing and uses a 365-day year. Closing is June 18, so the seller bears taxes for January 1 through June 17. The day count is 31 days in January + 28 in February + 31 in March + 30 in April + 31 in May + 17 in June = 168 days. The daily tax is $6,240 ÷ 365 = $17.0959. Multiply by 168: $17.0959 × 168 = $2,872.11. Because the seller used the property during that period, the seller owes the buyer a debit of $2,872.11, and the buyer receives a credit of $2,872.11. The entry is: debit seller $2,872.11; credit buyer $2,872.11. If the contract had made the seller responsible through the day of closing, the seller would bear 169 days and the amount would be slightly higher. The contract controls, so the associate should not use a shortcut such as a 30-day month or a 360-day year. The proration is separate from the documentary stamp tax and should be shown as its own line on the closing statement.
3. Compute the seller's net proceeds and the commission split, and determine whether the seller reaches her $210,000 target.
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Start with the $420,000 sale price and subtract the seller's debits. The mortgage payoff is $180,000. The total commission is 6% × $420,000 = $25,200. The deed tax is $2,940. The tax proration debit is $2,872.11. The owner's title policy is $2,100, the closing fee is $450, and the buyer credit is $1,500. The calculation is $420,000 − $180,000 = $240,000; $240,000 − $25,200 = $214,800; $214,800 − $2,940 = $211,860; $211,860 − $2,872.11 = $208,987.89; $208,987.89 − $2,100 = $206,887.89; $206,887.89 − $450 = $206,437.89; $206,437.89 − $1,500 = $204,937.89. The seller nets $204,937.89, which is $5,062.11 short of $210,000. The commission split is 3.5% to the listing brokerage = $14,700, and 2.5% to the cooperating brokerage = $10,500. The listing associate's 60% share of the listing side is $8,820, and the broker's 40% share is $5,880. The associate should not promise the seller $210,000 or quietly change the settlement statement. She should review the net sheet with the seller before closing and discuss options such as negotiating the buyer credit, reducing the commission, or adjusting the price.