The Seller's Closing Statement
Seller's Closing Statement - The following are the general rules on the seller's closing statement.
Normal Credits - Credit entries are any values or payments paid "into" escrow. In the case of the seller, the sale price of the house would be a credit entry. Any payment of costs paid by seller into escrow would be a credit entry.
Selling Costs - The seller is responsible to pay for the selling costs of the property. The seller does not have to make any payments during the sales period. When the property is sold, the costs will be taken out of the net sales proceeds. In most sales, the only sales cost is the selling broker's commission. (debit to the seller)
Commission - Realize that the commission only applies to the value of the real property that was sold; house, land, outbuildings, etc. The sale of the personal property does not pay a commission. (debit to the seller)
Legal Fees - In today's real estate world, only a lawyer can legally draw up contracts, deeds, and mortgages. Since lawyers are only allowed to do this, the costs have gone up considerably. The legal costs ordered by the seller would be paid for by the seller. A debit entry on the closing statement. (debit to the seller)
Clear Liens - When paying off the liens on the seller's property, there are costs to clear the liens on the property. This is necessary in providing a marketable title for the buyer.
Delinquencies : If there are delinquent taxes or assessments on the property, the seller must pay for these costs. The government entities do not allow new owners to assume the delinquent payments. They are paid at closing. This is a debit entry to the seller.
Late Fees : If the seller was late/behind on the water and sewer charges, they must be paid at the time of closing so that the buyer can begin afresh with the utility responsibilities. (debit to the seller)
Outstanding Judgments : If there is an outstanding judgment on the property such as a mechanic's lien, this must be paid to clear the encumbrances and provide marketable title. (debit to the seller)
No Priority - The escrow officer places no priority on the payment of encumbrances/liens on the property. The only time priority comes into play is when the property is being foreclosed on from lack of debt payments.
Debtor Stops Sale - A debtor can stop the voluntary sale of the proceeds if the proceeds are not enough to pay off all the liens. This can be done by a creditor if they properly filed claim against the property.
Filed (recorded) Claims - The filed claims against the property will show on a title search. The escrow officer will then notify these lien holders of the impending sale.
Debits And Credits
Balance Sheets RULES - The buyer has their own balance sheet. The seller has their own balance sheet. Each will have different figures at the bottom. Each will put in differing amounts of money. Each will receive differing amounts of value. EACH balance sheet will have credit entries and debit entries. Each balance sheet will have its total debits and credits BALANCING out at the bottom.
Credits - When the buyer or seller pays money into escrow (pay escrow), or an item of value such as the house, it is a credit entry.
Seller's Closing Statement - The following general rules would appear on the seller's closing statement regarding debit (pay off) entries.
The Buyer's & Seller's Amounts Must Balance
Balance - As you have seen, the amount of value placed into the transaction by the buyer must equal the amount of value that the buyer takes out of the transaction. The amount of value placed into the transaction by the seller must equal the amount of value that the seller takes out of the transaction. This is your Debit and Entry System.
Buyer - The buyer's credits (value put in) must equal the buyer's debits (value taken out). The buyer put in $180,805 (credits) and took out $180,805 (debits).
Seller - The seller's credits (value put in) must equal the seller's debits (value taken out). The seller put in $180,180 of value (credits) and took out $180,180 of value (debits).
Buyer and Seller Balances - The buyer and seller's balances will rarely match. The buyer is usually putting more money into the transaction because of insurance premium and inspection costs.
Proving the Calculations - First of all, the buyer's balance and seller's balance have no relationship to each other. You never mix the buyer's numbers with the seller's numbers. In proving the buyer's numbers and the seller's separate numbers, we use the "Cash-in, Cash-out Method." We only consider those items that were cash items that came in from outside the transaction or the cash that is leaving the transaction. We do not use offsetting debits and credits. They are not considered when proving the calculations. Here is a hypothetical credit and debit situation for the buyer:
" Cash-in Items": $15,000 (E/M deposit) + $120,505 (loan) = $135,505
" Cash-out Items": $175 (Prop Taxes) + $500 (Escrow) + $330 (Title Ins) + $134,500 (Real Property) = $135,505
Balance Statement -These Credit and Debit figures balance out for the buyer and are correct. The same would be done with the seller's figures that would be completely different from the buyer's figures.
On a closing statement, the sales price is a:
A) credit to the buyer and a debit to the seller
B) debit to the buyer and a credit to the seller
C) interest on an assumed loan
D) debit to the buyer and a debit to the seller
A purchase money mortgage is given by the buyer to the seller at closing. What entry should be made on the buyer's closing statement?
A) debit buyer, credit seller
B) debit buyer, credit to broker
C) credit to buyer
D) debit to seller
A buyer's debit on the closing statement always:
A) increases the amount the buyer will pay
B) increases the amount the seller will receive
C) decreases the amount the buyer will pay
D) decreases the amount the buyer will receive
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