A comparable sold for $350,000. The buyer made a $70,000 down payment and took a $280,000 loan, and the seller paid 2 points on that loan to buy down the buyer's rate. The seller also paid a 6% brokerage commission. Market analysis shows the price rose by the full amount of the points. What is the cash-equivalent sale price?
Correct Answer
A) $344,400
Points are a percentage of the loan amount, so 2 points on $280,000 is $5,600, and the seller received $350,000 - $5,600 = $344,400 net of the buydown. The brokerage commission is a payment for services, not for the real property, so it is not deducted. Distractors come from basing the points on the down payment, misplacing the decimal, or making no adjustment.
Why This Is the Correct Answer
Option A is correct because 2 points on the $280,000 loan equal $5,600, and the seller in effect received $350,000 - $5,600 = $344,400 for the property. The market evidence shows the price rose by the full amount of the points, so a dollar-for-dollar deduction is supported. The 6% commission pays for services and is not a cash-equivalence adjustment.
Why the Other Options Are Wrong
Option B: $348,600
Option B, $348,600, figures the points on the $70,000 down payment (2% x $70,000 = $1,400). Points are charged on the loan, so the deduction is 2% x $280,000 = $5,600, giving $344,400.
Option C: $349,440
Option C, $349,440, treats 2 points as 0.2% of the loan (0.002 x $280,000 = $560). One point is 1% of the loan, so 2 points are $5,600 and the cash-equivalent price is $344,400.
Option D: $350,000
Option D, $350,000, makes no adjustment, as if the points were a service expense like the commission. Seller-paid buydown points reduce what the seller receives for the property, so $5,600 is deducted to reach $344,400.
Points follow the loan
One point is 1% of the loan amount, not of the price or the down payment. Points buy the buyer's financing, so they come off the price; commissions buy a broker's service, so they stay in.
How to use: Use this whenever a sale lists seller-paid points and other seller costs together.
Exam Tip
Write down the loan amount before computing points, and sort each seller payment into financing help (adjust) or service fee (do not adjust).
Common Mistakes to Avoid
- -Computing points on the sale price or the down payment
- -Deducting the brokerage commission as a cash-equivalence adjustment
- -Treating 1 point as 0.1% of the loan
Concept Deep Dive
Analysis
This question takes two steps: compute the points correctly, then decide which seller payments count for cash equivalence. Points are a percentage of the loan amount, and seller-paid points that buy down the buyer's loan reduce what the seller really receives for the property. The commission is a payment for brokerage services and is not deducted.
Background Knowledge
Cash equivalence converts a sale price into what the seller effectively received in cash for the real property. Seller-paid points that let a buyer get or qualify for a loan are a financing concession that can inflate the nominal price. Ordinary selling expenses such as commissions, escrow and recording fees pay for services and do not reduce the price for cash-equivalence purposes.
Real-World Application
A comparable's closing statement shows the seller paid discount points on the buyer's mortgage plus the listing broker's commission. The appraiser confirms with the agent that the buyer's offer was raised to cover the points, deducts the point cost from the price, and leaves the commission alone.
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