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This form is used by a buyer’s agent when preparing a purchase agreement offer or receiving a counteroffer and disclosing the financial requirements the buyer can anticipate, to prepare a worksheet for review with the buyer estimating the total costs of acquisition and amount and source of funds needed to close the transaction.

311

Your use of RPI Form 311

The analysis of a client’s transaction costs

The most pressing concern sellers of real estate have about the sale of their property is the amount of money they will receive on closing at the price offered by a buyer. Further, sellers know the net sales proceeds they receive on closing will not be the entirety of the price paid by the buyer for the property.

What sellers do not know is the net cash value of their equity in the property at the price before them — the net sales proceeds after debts and charges have been paid to clear title and close escrow. Of course, what amount they will receive in exchange for a deed to their property is a material fact. This is the case in any sale, for any type of property and for any seller. Thus, to provide the net cash value of the seller’s equity in the property, the agent prepares and reviews a seller’s net proceeds disclosure form with the client. [See RPI Form 310]

Likewise, a buyer needs to bring together capital to purchase real estate. That is, they need access to cash to pay the price and associated costs of acquiring property. To document the cash a prospective buyer can gather from all their available sources to fund the purchase of a property, the buyer’s agent uses a worksheet, called a buyer’s cost sheet.

The buyer’s cost sheet, as the name implies, is the other side of the transactional coin from the seller’s net sheet. [See RPI Form 311]

The buyer’s acquisition costs and source of funds

The buyer’s cost sheet is designed as a checklist for the buyer’s agent to identify and estimate in good faith the buyer’s costs of acquisition and financing, as well as the sources of the buyer’s funds. [See RPIForm 311]

The maximum price a prospective buyer is able to offer for a property is determined by the amount of available funds from all sources which remain after deducting the acquisition costs.

Before a cost sheet review with the buyer can go beyond identifying the various sources of cash available to the buyer, the buyer’s agent needs to arrange a meeting for the prospective buyer with a minimum of two mortgage lenders.

Having determined the prospective buyer’s costs of mortgage funding and the transactional charges they will likely incur to acquire a property, the buyer becomes certain about:

  • the price they are willing to pay for a property; and
  • the amount of upfront nonrecurring acquisition and financing costs will be incurred (and who will pay them).

What remains for the buyer’s agent to do is locate qualifying properties and write up a purchase agreement offer agreeable to the buyer on the most suitable property of all. [See RPI Form 150 and 311]

Analyzing the buyer’s cost sheet estimates

The Good Faith Estimate of Buyer’s Acquisition Costs published by RPI is used by buyer’s brokers and their agents to inform their buyer about the cost of acquiring a particular parcel of real estate they have located and have determined is suitable for acquisition by the buyer. The form contains a checklist of bookkeeping items typical of most purchases, including:

  • acquisition costs;
  • financing charges;
  • prorations;
  • funds required for acquisition; and
  • the buyer’s probable sources of funds. [SeeRPI Form 311]

The estimates entered on the form by the buyer’s agent need to be based on concrete information about transaction costs and finance charges both known to them or readily available on an inquiry of others or on minimal investigation. Thus, the figures entered reflect the agent’s honestly held belief that the estimated amount will likely be experienced by the buyer if the buyer acquires the property under consideration.

The cost sheet is used to disclose the crucial financial information the buyer needs to know about the acquisition of a property. With it, the buyer’s agent provides the buyer with a high level of transparency about the costs of acquisition. Thus, the prospective buyer is able to make an informed decision about the financial commitment needed to purchase the property. [See RPIForm 311]

Use of the buyer’s cost sheets

The events triggering the buyer’s agent’s preparation of a cost sheet and a review of the costs with the prospective buyer include:

  • entering into a buyer’s listing agreement [SeeRPI Form 103];
  • pre-approval for a maximum mortgage amount; and
  • entering into a purchase agreement offer or accepting a counteroffer. [SeeRPIForm 150 and 180]

The cost sheet is also used to solicit tenants — residential or nonresidential — to consider the purchase of property. With it, the agent demonstrates how the tenant has the financial capability to occupy a comparable property as an owner instead of as a tenant, be it a home or commercial/business premises. [See RPI Form 311]

Each section in the cost sheet has a separate purpose, which cover:

  • theacquisition costs of the property (cost basis) [See RPI Form 311 §§2-6];
  • theclosing charges (including prorations and adjustments) [See RPI Form 311 §§7-10]; and
  • the buyer’ssource of funds (savings, gifts, mortgages, etc.). [See RPI Form 311 §11]
Revision history

Form navigation page published 12-2015.