Real Estate Mathematics and Closing Statements
The closing statement is a balance sheet
Every line is a debit (money paid) or credit (money received) to one party, and a seller's debit is normally the buyer's credit. Seller credits: sales price, prorated rent, deposits held by the seller's agent. Seller debits: loan payoff, commission, prorated taxes, owner's title policy, buyer concessions.
Proration rules of thumb
- Texas taxes are paid in arrears. At closing the seller owes taxes for the part of the year already used, even if no bill has arrived yet.
- The contract controls who owns the closing day; the TREC resale contract generally makes the seller responsible through the day before closing.
- Rent is prorated per diem using actual days in the month; taxes and interest use a 365-day year unless the contract says otherwise.
Formulas to memorize
- 1 acre = 43,560 sq ft; 1 section = 640 acres; a quarter-section = 160 acres.
- Commission = price × rate; an agent's share = commission × split.
- Points = loan amount × percentage; 1 point = 1%.
- LTV = loan ÷ value; down payment = price − loan.
Traps
Confusing a seller credit with a seller debit; skipping the proration entirely; applying the commission rate to the down payment instead of the price; and mixing up gross commission with the agent's split.
Worked example
Price $300,000; annual taxes $3,650; closing June 30 (day 181). Daily tax = $3,650 ÷ 365 = $10. The seller owes Jan 1 through June 30: 181 × $10 = $1,810 - a debit to the seller and a credit to the buyer. At 6% the gross commission is $18,000, or 3% ($9,000) to each side.