An Interesting Adjustment
One of the most important things any home seller wants to know is how much they will net from the sale of their home, their 'walk-away' dollars.
It's a simple mathematical calculation but there are so many variables that a dollar and cents estimate is hard to achieve until a few days before closing.
However, at Help-U-Sell Conejo Valley, we try to calculate a very close estimate of net proceeds at several points during the transaction.
We estimate seller's net:
-At time of listing
-Any time an offer is presented
-When an offer is accepted
-Anytime there is a change between contract and closing
Our estimates are just that: estimates, but we are so well versed in costs of sale and how to calculate them that we tend to be very accurate. Through the years, I've noticed there is one item beyond the prorations and closing costs that surprises or confuses sellers. It is the interest adjustment.
The interest adjustment is a charge made in association with your mortgage. Usually you pay the charge when you buy your home, to set up your mortgage. You also usually pay it when you sell your home, to bring your mortgage current.
You see, mortgage interest is always paid in arrears. That is, when you make your May mortgage payment, you are actually paying interest on the loan for April. At the beginning of a mortgage you usually make a partial payment to cover the month in which the loan closes and then 'skip' a payment. For example, if you buy your home and close on the loan on the 15th of May, you'll pay interest on the mortgage from May 15 to June 1 - 16 days. Since you made this partial payment at closing, there is no payment to make in June. Your first full payment is due July 1, and that payment covers June.
When you sell your home, a similar adjustment has to be made to bring the loan current. For example, if you sell your home and close on August 22, there are 22 days of interest that need to be paid at closing, even though you made your August 1 payment. That August 1 payment was for July, remember?
When you consider the dollars involved, an unanticipated interest adjustment can wreak havoc on the bottom line. For example, a $400,000 mortgage at 4% interest earns a little more than $44 in interest per day. If that was the loan on the last example, the seller would have to pay 22 days of interest at closing, or $977.78. That's why, when we estimate seller's net proceeds we usually build in a full month of mortgage interest until we know exactly when the closing will occur. It is the conservative approach.
My advice to home sellers is this: don't fly blind when you sell. A surprise on the bottom line at closing is rarely pleasant. Work with someone who closes real estate transactions every week to help you anticipate your costs and walkaway dollars. Who? you might ask. Well, the professionals at Help-U-Sell Conejo Valley, of course! We walk every home sellers thorugh the entire closing process and nobody does a better job of helping them anticipate the bottom line!
Help-U-Sell Conejo Valley is a progressive, full service real estate company saving buyers and sellers thousands in Westlake Village, Thousand Oaks, Oak Park, Camarillo, Oxnard, Simi Valley, Los Angeles and all of the Conejo Valley. You may reach us at (805) 379-3300, or by email to [email protected] Visit our website: www.helpusellcv.com.