This article reviews the listing agent’s use of a checklist to prepare an estimate and disclose the expenses a seller will likely incur to fix up the property for marketing, provide reports to prospective buyers and close a sale.

A full copy of the form is available form-310.pdf so you can follow along with the instructions.


Financial consequences of a sale

Probably the most pressing concern sellers of real estate have about selling is the amount of money they will receive for their property on a sale since what sellers receive on closing is not the full amount of the purchase price, although the amount they will receive is a calculable part of the price.

While a seller may not straight out ask the listing agent what amount escrow will hand him in exchange for conveying his property to a buyer, the serious nature of the unspoken concern the seller has about the amount of money he will carry away from the closing is implicit. Sellers always want to know the amount of money they will actually receive as net sales proceeds for transferring ownership.

The sole reason for employing an agent is to convert the seller’s equity into cash by selling the property at the highest possible price.

Significantly, a seller on listing his property for sale has a motive which drives his decision to acquire cash, if only for the opportunities cash makes available to him. The motives range from the disposal of real estate no longer of use to the owner or now threatened with loss to foreclosure, to the need for cash to accomplish a personal, business or investment objective, such as acquiring a replacement home or a premises for the operation of a trade or business, investing in the equities, bonds or commodities market, or simply putting the cash into savings.

However, the ordinary seller has little idea how to figure the dollar amount of net proceeds a sale of his property will bring. A seller’s initial belief is that the net sales proceeds will be roughly equal to his equity in the property, less a brokerage fee. The notion of retrofitting property and complying with governmental safety regulations, as well as lender payoff penalties or buyer’s demands for repairs, is not known to most sellers.

Further, the asking price is unadjusted for the need to fix up the property and to clear the property of structural pests and accumulated defects so the property can be properly marketed. In other words, most sellers who have not sold real estate within the last several years, if ever, are without a clue as to how to estimate their net sales proceeds.

On the other hand, agents routinely sell properties and review closing statements. They have a working understanding of all the expenses a seller is most likely to be confronted with to market, sell and close escrow on a property.

The expertise of an agent is more than sufficient to marshall the information needed to make a reasonable estimate of the likely net sales proceeds on any sale.

The estimate should be first prepared on a seller’s net sheet at the listing stage and again when reviewing offers or updating the net sheet figures when changes become known.

For a listing agent, a down side always exists when making disclosures regarding net sales figures. The information might cause a prospective client to decide not to sell, or cause a seller of listed property to reject an offer and counter at a price needed by the seller but unacceptable to a buyer. It is for these pricing decisions that the net sheet information is a material fact requiring an affirmative disclosure by the listing agent of the figures which comprise the seller’s net sheet and the seller’s bottom line.

Costs of sale as a material fact

A material fact is information which, if known to a client, might affect the client’s decisions, such as a seller’s decision to enter into a listing or accept an offer to buy.

If the information, such as sales expenses, closing costs or the net proceeds of a sale, is known to the seller, the listing agent has no obligation to disclose. However, if the information may affect a decision to be made by the seller and the information about sales costs is not fully known to the seller or is not more readily available to the seller than it is to the listing agent, the costs must be disclosed to the seller to meet the listing agent’s obligations under his special agency duties owed to his client.

It is best to prepare and review a net sheet with a seller, regardless of whether or not the seller requests or even declines to receive a net sheet. The time and effort needed to prepare a net sheet is a small premium to pay to assure the agreed fee is not attacked should the seller, at the time of closing, claim he thought he would receive a greater amount as net proceeds.

Analyzing the net sheet estimates

A listing agent prepares a Seller’s Net Sheet, first tuesday Form 310, to inform his client about the expenses the seller will likely incur on the disposition of his real estate by sale. The sheet lists expenditures typically incurred for most sales of real estate, including expenses for readying the property for marketing, preparing third-party reports on investigations covering the nature and condition of the property, complying with government requirements or buyer demands to correct defects, and for escrow charges on the sales transaction.

The estimates entered on the form by the seller’s broker or listing agent must be based on information known by them or readily available to them on the inquiry of others or on minimal investigation about each item of expense they anticipate the seller will incur. Thus, the figures entered as estimates reflect the listing agent’s honestly held belief that the amounts estimated will likely be experienced by the seller.

Brokerage events triggering a listing agent’s preparation of the net sheet and a review of its contents with the seller for the sale of property include:

  • soliciting or entering into a seller’s listing agreement;
  • submitting a buyer’s purchase agreement offer;
  • entering into a counteroffer; and
  • entering into an exchange agreement offer or acceptance.

The net sheet is used by a listing agent for the purpose of disclosing to the seller the crucial financial information surrounding expenditures required to:

  • put the property in a condition attractive to the greatest number of prospective buyers;
  • comply with local retrofit ordinances and current safety standards;
  • eliminate defects and infestation; and
  • provide the listing agent with reports for delivery to prospective buyers which contain information on the physical condition of the property, the nature of the property’s location, the expenses of ownership and any other aspects regarding the integrity of the property that have a measurable impact on the property’s value.

The Seller’s Net Sheet consists of four sections, each serving an entirely separate purpose in the setting of the amount of net proceeds to be received by a seller on a sale. The sections list:

  1. The encumbrances of record, including any improvement district bonds, trust deeds and possible abstracts of judgment or tax liens to be assumed, reconveyed or released;
  2. The expenses of a sale, including repair and renovation expenditures, fees for investigative reports and closing charges paid by the seller;
  3. Adjustments and prorates for unpaid or prepaid items and any tenant deposits taken over by the buyer; and
  4. The net proceeds remaining after deducting all sales-related expenses, fees and charges, as well as the form of the net proceeds.

Preparing the seller’s net sheet

The following instructions are for the preparation and use of the Seller’s Net Sheet, first tuesday Form 310, with which a seller’s agent may prepare an estimate for an analysis of the costs the seller will likely incur in the preparation, marketing and sale of the property. The disclosure of this data to the seller is necessary for the seller to make an informed decision regarding whether to sell, and if so, on what terms and conditions. A full copy of the form is available so you can follow along with the instructions.

The instructions correspond to the provision in the form bearing the same number.

Editor’s note — Enter figures throughout the net sheet in the blanks provided, unless the item is not intended to be included in the final estimate, in which case it is left blank.

Document identification:

Check the appropriate box to indicate the underlying agreement which is the subject of this disclosure. Enter the name(s) of the parties to the underlying agreement, the identification date and place of preparation of the underlying agreement, the address or parcel number identifying the property for sale, and the day of the month on which escrow is to close for prorations and adjustments.

SALES PRICE:
1. Price received: Enter the amount of the sales price to be paid by the buyer.
ENCUMBRANCES:
2. First trust deed note: Enter the dollar amount of the principal balance remaining due on any first trust deed loan of record as noted on loan payment records held by the seller, whether the loan is to be assumed or paid off on closing.
3. Second trust deed note: Enter the dollar amount of the principal balance remaining due on any second trust deed loan of record as noted on loan payment records held by the seller, whether the loan is to be assumed or paid off on closing.
4.

Other liens/bonds/UCC-1: Enter the total dollar amount of the principal balance and any accrued unpaid interest on any judgment liens, tax liens and improvement district bond liens encumbering the property, and any UCC-1 liens on any personal property which are part of the sale, whether the liens will be assumed or paid off on closing.

Editor’s note — Some purchase agreements, in their provisions for handling improvement district bond liens, omit any accounting on the transfer of title subject to a lien for the balance of an improvement district bond with annual installments. Annual installments on the improvement bond lien are treated in these purchase agreements as prorates of both the principal and interest installment amounts, without concern for an accounting of the principal balance which remains unpaid.

5. Total encumbrances: Add the figures entered in sections 2 through 4. Enter the total as the dollar amount of debts encumbering the property, whether assumed by the buyer or paid off on closing.
SALES EXPENSES AND CHARGES:
6. Fix-up cost: Enter the dollar amount estimated to cover the costs it is anticipated the seller will incur to ready the property for previews by other agents, caravans, walk-throughs by prospective buyers and open house viewings, such as the cost to add color to the landscaping, paint outside trim and any interior walls showing wear and tear, and replace any plumbing or electrical fixtures which are beyond repair or of unacceptable appearance.
7. Structural pest control report: Enter the dollar amount of the fee a pest control operator will charge to conduct a physical inspection and submit a report on his findings and provide an estimate of the costs of repairs necessary to eliminate any infestation and repair any existing damage or condition allowing for infestation. These are property conditions most buyers do not want to acquire.
8.

Structural pest control clearance: Enter the dollar amount estimated to cover the cost it is anticipated the seller will incur for fumigation or to correct damage from an infestation or conditions supporting an infestation. The amount estimated will need to be reviewed and updated on receipt of the structural pest control report.

Also, the amount estimated should be considered when setting any ceiling in a counteroffer on the costs the seller might be willing to incur to correct the adverse condition of his property.

9. Property/home inspection report: Enter the dollar amount of the fee a home inspection company will charge to conduct a physical inspection of the property and submit a report on their observations of defects existing on the property.
10.

Elimination of property defects: Enter the dollar amount estimated to cover the cost it is anticipated the seller will incur to eliminate, by repair or replacement, any conditions not up to building or safety codes, such as malfunctioning or defective components, e.g., the roof, electrical wiring, plumbing, heating, the foundation, walls, fences, doors, and appliances. The amount estimated will need to be reviewed and updated on receipt of a property/home inspection report.

Also, the amount estimated should be considered when setting any ceiling in an offer or counteroffer of the amount of costs the seller might be willing to incur to correct the condition of his property for transfer.

11. Local ordinance compliance report: Enter the dollar amount of the fee a local government agency charges to inspect the property and submit a report on its findings and the corrections required to be completed before transfer of ownership and occupancy may occur.
12. Compliance with local ordinances: Enter the dollar amount estimated to cover the cost it is anticipated the seller will incur for retrofitting, curative permits, and any repairs necessary to meet local ordinance standards as a requisite to a change in ownership or occupancy. The amount estimated will need to be reviewed and updated on receipt of the local agency’s compliance report.
13. Natural Hazard Disclosure report: Enter the dollar amount of the fee charged by a third party for a review of the county records and the preparation and submission of a report on the natural hazards the property is subjected to due to its location.
14. Smoke detector/water heater safety compliance: Enter the dollar amount of the cost it is anticipated the seller will incur to install smoke detectors and the water heater anchors or bracing which are necessary to comply with safety standards.
15. Owners’ association document charge: Enter the dollar amount of the fees charged by any owners’ association connected to the property for their delivery of a complete marketing packet of documents comprised of restrictions, operations, budgets, insurance and other documents mandated to be handed to the prospective buyer, and their delivery to escrow of their statement of condition of assessments.
16. Mello-Roos assessment statement charge: Enter the dollar amount of the fee charged for a statement of assessments to be provided by any improvement district which holds a lien on the property to secure the repayment of bonds issued by the improvement district.
17. Well water reports: Enter the dollar amount of the combined fees which will be charged by a licensed well-drilling contractor to test and certify the capacity of any well on the property, and by a licensed water testing lab to test and report on the quality of the water produced by the well.
18. Septic/sewer reports: Enter the dollar amount of the fee charged by a licensed plumbing contractor to test and certify the function of the sewage disposal system, and if it contains a septic tank, whether it is in need of pumping.
19. Lead-based paint report: Enter the dollar amount of the fee charged by an environmental testing company to investigate and report on the lead content of paint on the premises.
20. Marketing budget: Enter the dollar amount of any contribution (to be) made by the seller toward the expenses of marketing the property and locating prospective buyers.
21. Home warranty insurance: Enter the dollar amount of the premium the seller agrees to pay as charged by a home warranty insurance company to issue a policy to the buyer.
22. Buyer’s escrow closing costs: Enter the dollar amount of the combined escrow closing costs incurred by the buyer which the seller agrees to pay.
23. Loan appraisal fee: Enter the dollar amount of any loan appraisal fee the seller will agree to pay which will be charged to determine the property’s qualification for the purchase-assist loan which will be applied for by the buyer.
24. Buyer’s loan charges: Enter the dollar amount of any loan charges the seller will agree to pay which the buyer will incur for the purchase-assist loan needed to fund the price to be paid for the property. These loan charges are also referred to as non-recurring loan charges.
25. Escrow fee: Enter the dollar amount of the charge the seller will incur for escrow services to process the closing of the sale.
26. Document preparation fee: Enter the dollar amount of the charge the seller will incur, usually with escrow, for a third party to prepare the documents necessary for the seller to convey the property, such as grant deeds and bills of sale.
27. Notary fees: Enter the dollar amount of the charge the seller will incur for services provided by a notary to acknowledge the seller’s signature on documents which are to be recorded to accomplish the transfer of the property (grant deed, spousal quit claim deed, release of recorded instruments, power-of-attorney, etc.).
28. Recording fees/documentary transfer tax: Enter the dollar amount of the combined recording charges and transfer taxes collected by the county recorder and paid by the seller to convey title.
29. Title insurance premium: Enter the dollar amount of the premium the title insurance company will charge for issuance of a policy of title insurance conveying the seller’s conveyance of the property.
30. Beneficiary statement/demand: Enter the dollar amount of the combined fees the trust deed lender of record will charge for delivering a beneficiary statement or payoff demand to escrow which is needed to either confirm the loan balance on an assumption or subject-to transaction, or the amount of a payoff of the loan on closing a sale.
31. Prepayment penalty (first): Enter the dollar amount of any penalty the first trust deed lender will charge on a payoff of the loan on close of a sale.
32. Prepayment penalty (second): Enter the dollar amount of any penalty the second trust deed lender will charge on a payoff of the loan on close of a sale.
33. Reconveyance fees: Enter the dollar amount of reconveyance fees and recording fees the trustees on the trust deeds of record will charge to release the trust deed liens from the record title to the property sold.
34. Brokerage fees: Enter the dollar amount of the fees earned by the brokers which will be paid by the seller on the close of escrow for the sale of the property.
35. Transaction coordinator fee: Enter the dollar amount of the fee charged the brokers which the seller will pay for a third party to assist the listing agent in the preparation of the listing package and the sales package to provide all the documentation necessary to close the transaction.
36. Attorney/accountant fees: Enter the dollar amount estimated as the attorney fees and accounting fees the seller will incur as a result of their advice and assistance in the sale.
37. Miscellaneous expense: Enter the name of the further expense. Enter the dollar amount of the expense.
38. Miscellaneous expense: Enter the name of the further expense. Enter the dollar amount of the expense.
39. Total expenses and charges: Add the figures entered in sections 6 through 38. Enter the total as the dollar amount of the expenses and charges on the sale.
40. Estimated net equity: Subtract the figures entered in sections 5 and 40 from the figure entered at section 1. Enter the difference as the dollar amount of the estimated net equity, an amount against which prorates and adjustments are next made to calculate the estimated net sales proceeds generated by the sale.
PRORATES DUE BUYER:
41.

Unpaid taxes/assessments: Enter the dollar amount of those real estate taxes and improvement district bond assessments which have accrued and have not been paid by the seller if they are to be prorated without a credit to the price for the remaining principal due on bonds under section 4.

Taxes have not been paid for one of two reasons: they are not yet due to be paid to the tax collector or they are past due and delinquent. If they are not yet due, the taxes which accrued during the seller’s ownership will be paid by the buyer at a later date. Thus, taxes are prorated as a credit to the buyer through the last day prior to the date of closing. The proration is calculated as a daily amount of the annual tax based on a 30-day month. The current tax bill or, if it is not yet available, the past year’s amounts are used (and adjusted for up to 2% inflation, etc.) to arrive at the daily amount of the proration.

Editor’s note — For example, if escrow is scheduled to close September 16, the tax billing has not yet been received and (if it has been) it has not been paid. Thus, 75 days of accrued taxes/assessments at the daily rate are credited to the buyer (and charged to the seller).

42. Interest accrued and unpaid: Enter the dollar amount of interest accrued and unpaid on loans assumed under sections 1 through 3 for the number of days during the month the seller will remain the owner prior to closing. The proration will be calculated as a daily amount of interest paid in monthly installments based on a 30-day month. The daily amount of interest accruing is credited to the assuming buyer for each day of the month prior to the day scheduled for closing since interest on loans is paid after the running of the monthly accrual period. Thus, the current installment will become the obligation of the buyer, unless the installment is disbursed by escrow and charged pro rata to each the seller and the buyer.
43.

Unearned rental income: Enter the portion of the dollar amount of rent from the rent rolls, both prepaid and unpaid, which will remain unearned on the day scheduled for closing. The buyer is entitled to a credit of the unearned portion as a proration. The day of closing is the first day of ownership by the buyer and entitles the buyer to unearned rents for the entire day. The proration is calculated as a daily amount of the rent roll earned (accrued) based on a 30-day month.

Editor’s note — For example, if the rents are $30,000 monthly, the daily proration for earned rents would be $1,000 and be multiplied by the number of days remaining in the month, beginning with and including the day of closing. If closing is on the 16th, the dollar amount of prorated rents credited to the buyer from funds accruing to the seller’s account on closing would be $15,000, the 16th being day one of the remainder of the 30-day month.

For unpaid delinquent rents shown on the rent roll, see section 50 for an offset charge to the buyer by an adjustment.

44.

Tenant security deposits: Enter the dollar amount of all the security deposits held by the seller (as landlord) which belong to the tenants as disclosed on the seller’s rent roll information sheet. This credit is an adjustment in funds, not a proration, which is due the seller on closing since the buyer on transfer of ownership will be the landlord (by assignment of the leases and rent agreements) and responsible for the eventual accounting to the tenants for any deposit held by the seller.

Editor’s note — Include any interest accrued and unpaid on the security deposits from the date of the seller’s receipt of the deposits if mandated by rent control or landlord-tenant law.

45. Total prorates due buyer: Add the figures estimated in sections 41 through 44. Enter the total as the dollar amount of all the “credits” the buyer can anticipate due to prorations and adjustments.
PRORATES DUE SELLER:
46.

Prepaid taxes/assessments: Enter the dollar amount of real estate taxes and improvement assessments prepaid by the seller which have not yet accrued. The calculations are made in the same manner as explained in section 41.

Editor’s note — For example, the seller has paid all installments of taxes/assessments for the entire fiscal year (July through June). A closing of the buyer’s transaction on January 2 requires a proration charge to be paid by the buyer for one-half year’s taxes and assessments since they have been prepaid, but will not accrue until after the buyer closes escrow.

47. Impound account balances: Enter the dollar amount of any impounds held by the lender on loans assumed under sections 2, 3 or 4. The information is readily available as an “escrow account” item on the lender’s monthly statement of the loan’s condition received by the seller from the lender servicing the loan.
48. Prepaid association assessment: Enter the dollar amount of the prepaid and unaccrued portion of the seller’s current installment for any owners’ association assessment. The proration charge is based on a 30-day month for those days remaining in the month beginning with the day of closing as day one of the days remaining in the month.
49. Prepaid ground lease: Enter the dollar amount of the prepaid and unaccrued portion of rent the seller has paid on the ground lease if the property interest being purchased is a leasehold interest transferred by assignment, not a fee interest transferred by grant deed.
50. Unpaid rent assigned to buyer: Enter the portion of the dollar amount of delinquent unpaid rents to be charged to the buyer if the seller will not collect the rent before the close of escrow. These unpaid rents belong to the buyer on closing due to the seller’s assignment of the leases to the buyer, unless other arrangements are made for an accounting of the uncollected rents. Typically, a closing after the tenth of the month will not experience the need for a delinquent rent adjustment. (Rents have been prorated in section 43.)
51. Miscellaneous prorates and adjustments: Enter the name of other items to be prorated or adjusted in the transaction. Enter the dollar amount charged to the buyer.
52. Total prorates due seller: Add the figures estimated in sections 46 through 51. Enter the total as the dollar amount of all the “charges” the buyer is likely to experience due to prorations and adjustments.
53. Estimated proceeds of sale: Add the figures in sections 40 and 52, and then subtract the figure in section 45 from the sum. Enter the difference as the total dollar amount of the estimated net proceeds generated by the sale.
54. Form of net sales proceeds: Enter the dollar amount of the net sales proceeds estimated in section 53 allocated to cash, carryback note, equity received in exchange or other form of consideration the seller will be receiving on the sale.
Signatures:
Broker’s/Agent’s signature: Enter the date the seller’s net sheet is signed, the broker’s name and the agent’s name. Enter the broker’s (or agent’s) signature.

Seller’s signature: Enter the date the seller signs and the seller’s name. Obtain the seller’s signature.