Real Estate Calculations and Closing Statement Math
The debit and credit logic
A debit is money charged to a party; a credit is money owed to a party. The seller is debited for items the seller owes and credited for the sales price and for buyer-paid prorations. The buyer is debited for the price and for seller-paid prorations, and credited for the loan amount and deposits. Every closing statement balances when each column totals the same.
Proration conventions
Use the convention the question or contract states. The common default is a 365-day year for taxes, insurance, and interest, and the seller pays through the day of closing with the buyer paying from that day forward. Rent is usually prorated on a monthly basis using the actual days in the month or a 30-day month - read for which.
Worked example: annual property taxes are $2,190 and closing is June 30 (non-leap year). The seller owns January 1 through June 30, which is 181 days. Daily rate = $2,190 / 365 = $6.00. Seller's share = 181 x $6.00 = $1,086, debited to the seller and credited to the buyer.
Commission math
Worked example: price $420,000 at 6% total commission = $25,200. Split 50/50 between brokerages gives $12,600 to each side; if the listing salesperson receives 60% of the listing side, that is $7,560, with $5,040 to the listing broker.
Other frequent calculations
Loan-to-value = loan / lesser of price or appraisal; points = loan amount x point percentage; monthly interest = unpaid balance x rate / 12; equity = value minus liens; net to seller = price minus loan payoff, closing costs, and prorations, minus commission. Montana has no transfer tax, so leave that line out.
Rule of thumb: write down who owns the property on the closing date, count the days, and multiply by the daily rate before you touch the calculator.