Closing Day Prorations and Commission Splits
Closing on a Missoula house is set for Friday, March 14. Price: $485,000; the buyer finances $388,000 and pays the remainder in cash. The seller already paid the full-year property tax bill of $3,650 in November, and there are no delinquencies. The seller's existing loan payoff is $212,450 as of the closing date, and the title company will charge the seller a $425 closing fee. Total commission is 6%, split 3.5% to the listing firm and 2.5% to the buyer's firm; the buyer's salesperson has a 60/40 split with her broker. The buyer's new loan carries 6.5% interest, with per-diem interest collected at closing for March 14 through March 31 (17 days). Prorations use a 365-day year, and the seller pays for the day of closing.
1. Compute the property tax proration: who credits whom, and how much?
Read the worked answer
Step 1 - day count. Seller pays the day of closing, so the seller owns January 1 through March 14: 31 + 28 + 14 = 73 days. The buyer owns the remaining 292 days (365 − 73).
Step 2 - per diem. $3,650 ÷ 365 = $10.00 per day.
Step 3 - direction. The seller already paid the entire year, so the seller prepaid taxes for days the buyer will occupy. The buyer must reimburse the seller.
Step 4 - amount. 292 days × $10.00 = $2,920 credited to the seller, debited to the buyer.
Sanity checks that catch most exam errors:
- The credit can never exceed the annual bill ($2,920 < $3,650 ✓).
- The seller's own share is 73 × $10 = $730, and $730 + $2,920 = $3,650 ✓.
- Had the closing been in July or later, the seller would be short and the buyer would owe the seller for the balance of the year instead - direction is decided by who paid and how much of the year has run, not by habit.
2. Compute each firm's commission and the buyer-side salesperson's share.
Read the worked answer
Total commission: 6% × $485,000 = $29,100.
Listing firm: 3.5% × $485,000 = $16,975.
Buyer's firm: 2.5% × $485,000 = $12,125.
Check: $16,975 + $12,125 = $29,100 ✓ (3.5 + 2.5 = 6.0).
Buyer's salesperson (60/40 split): 0.60 × $12,125 = $7,275 to the salesperson; $4,850 to her broker.
Common errors: applying the split before the co-broke percentage, or splitting the total 6% instead of the buyer-side share. The contractual chain runs price → total fee → co-broke share → salesperson split, one step at a time. Also note the co-broke is paid to the buyer's firm; the salesperson is paid by her own broker, not by the listing firm.
3. Compute the buyer's per-diem interest and minimum cash due at closing, then the seller's net proceeds.
Read the worked answer
Buyer's per-diem interest: $388,000 × 6.5% = $25,220 annual interest ÷ 365 = $69.10 per day (69.0959 unrounded) × 17 days = $1,174.63.
Buyer's minimum cash: $485,000 − $388,000 loan = $97,000 down, + $1,174.63 interest = $98,174.63, plus the buyer's own closing costs, prepaid escrows (taxes/insurance), and any lender fees not given here.
Seller's net:
| Item | Amount |
|---|---|
| Sale price | +$485,000 |
| Commission (6%) | −$29,100 |
| Existing loan payoff | −$212,450 |
| Title closing fee | −$425 |
| Tax proration credit | +$2,920 |
| Net to seller | $245,945 |
Working the arithmetic: 485,000 − 29,100 = 455,900; 455,900 − 212,450 = 243,450; 243,450 − 425 = 243,025; 243,025 + 2,920 = $245,945.
Exam discipline: keep prorations in their own column mentally - a credit to the seller is a debit to the buyer and nets to zero on the settlement statement. Folding a proration into the wrong side turns a $2,920 credit into a $2,920 charge and misses the answer by $5,840.