A seller closes on a property for $320,000. The commission is 6%, other seller closing costs are $5,000, and the existing mortgage payoff is $170,000. What are the seller's net proceeds before any tax effects?
Correct Answer
A) $125,800
Commission = $320,000 × 6% = $19,200. Net proceeds = $320,000 − $19,200 − $5,000 − $170,000 = $125,800.
Why This Is the Correct Answer
Commission = $320,000 × 6% = $19,200. Net proceeds = $320,000 − $19,200 − $5,000 − $170,000 = $125,800.
Why the Other Options Are Wrong
Option B: $130,800
This amount comes from forgetting to subtract the other closing costs.
Option C: $145,000
This amount comes from forgetting to subtract the commission.
Option D: $135,400
This amount comes from cutting the commission in half instead of using the full stated rate.
Deep Analysis of This Real Estate Math Question
Net proceeds calculations test your understanding of cash flow at closing, which is fundamental to real estate transactions. The seller's net proceeds represent the actual cash they'll receive after all obligations are satisfied, making this calculation critical for determining whether a seller can afford to sell and what they'll have available for their next purchase.
Background Knowledge for Real Estate Math
Net proceeds calculations became standardized as real estate transactions became more complex in the mid-20th century. The HUD-1 Settlement Statement (now the Closing Disclosure) was created to ensure transparency in these calculations, helping sellers understand exactly what they'll receive at closing after all deductions.
Memory Technique
Use the acronym 'CCM' for the three deductions: Commission, Closing costs, Mortgage payoff. Think 'Sale price minus CCM equals what's left for me.' Always subtract these three items from the gross sale price to find net proceeds.
Exam Tip for Real Estate Math
Look for all monetary amounts mentioned in the question - there should be exactly four numbers: sale price and three deductions. Calculate commission first (sale price × rate), then subtract all three deductions from the sale price in one equation to avoid errors.
Real World Application in Real Estate Math
A couple selling their $320,000 home needs $130,000 for a down payment on their next house. With a 6% commission ($19,200), $5,000 in other costs, and a $170,000 mortgage payoff, they'll only net $125,800 - forcing them to either negotiate a lower commission or find additional funds for their new home purchase.
Related Topics & Key Terms
Key Terms:
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