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.
The analysis of client transaction costs
The most pressing concern sellers 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. The amount they will receive in exchange for a deed to their property is naturally 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 seller’s 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. Essentially, 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 parallel 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 RPI Form 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. [See RPI Form 150 and 311]
Analyzing the buyer’s cost sheet estimates
Buyer’s brokers and their agents use the Good Faith Estimate of Buyer’s Acquisition Costs published by RPI 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. [See RPI e-book Real Estate Practice Chapter 38]
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. [See RPI Form 311]
The estimates entered 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 when 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 RPI Form 311]
Use of the buyer’s cost sheet
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 [See RPI Form 103];
- obtaining pre-approval for a mortgage; and
- entering into a purchase agreement offer or accepting a counteroffer. [See RPI Form 150 and 180]
The cost sheet is also used to solicit tenants — residential or commercial — 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:
- the acquisition costs of the property (cost basis) [See RPI Form 311 §§2-6];
- the closing charges (including prorations and adjustments) [See RPI Form 311 §§7-10]; and
- the buyer’s source of funds (savings, gifts, mortgages, etc.). [See RPI Form 311 §11]
Form navigation page updated 12-2021.
Form last revised 2017.
Book: Real Estate Practice Chapter 38
Form-of-the-Week: Good Faith Estimates of Seller’s Net Sales Proceeds and Buyer’s Acquisition Costs – Forms 310 and 311
Article: Keep your clients informed for smooth transactions
Article: Material facts and your opinions – liability exposure minimized
Blog: California’s hidden homeownership expenses are a tough sell for buyers
Blog: California homebuyers think twice about high homeownership costs
Blog: First-time homebuyers overestimate the costs of homeownership
