Estimated study time: 45 minutes
Content:
Closing costs are the fees and charges paid by the buyer and seller at the time of property transfer. In Massachusetts, closing costs are regulated and disclosed through TRID (for financed transactions) and through the settlement statement. Understanding which party pays which costs is heavily tested on the Massachusetts real estate exam. Seller closing costs typically include: Massachusetts recording stamps (excise tax), real estate broker commissions, attorney fees for the seller's representation, payoff of existing mortgages, prorated real estate taxes for the seller's period of ownership, and any outstanding condo fees or assessments. The Massachusetts recording stamp (excise tax) is $2.28 per $500 (or fraction thereof) of the sale price, paid by the seller (grantor).
Recording stamp math is a tested calculation. The stamps are assessed at $4.56 per $1,000 of sale price (equivalently, $2.28 per $500). For a property selling for $505,100: first, round up to the nearest $500 increment ($505,500); then divide by $500 to get the number of $500 increments (1,011); then multiply by $2.28 per increment ($2,305.08). Key rule: always round UP to the nearest $500 — never down. Some municipalities (Barnstable County, for example) have an additional local excise tax. Transfer taxes and recording stamps are universally the seller's expense in Massachusetts.
Buyer closing costs typically include: lender origination fees (points, application fees), appraisal fee, credit report fee, attorney fees for the buyer's representation, title search fees, title insurance premiums (lender's policy paid by buyer; owner's policy optional), recording fees for the deed and new mortgage, prepaid items (homeowners insurance premium, property tax escrow impounds, prepaid interest from closing to month-end), private mortgage insurance (PMI) if required, and the home inspection fee. TRID-regulated loans require the lender to provide the buyer with a Loan Estimate within three business days of application disclosing all anticipated closing costs, and a Closing Disclosure at least three business days before closing showing final amounts.
Prorations are adjustments made at closing for expenses that span the closing date. Massachusetts property taxes are paid on a fiscal year basis (July 1–June 30), with quarterly payments due August 1, November 1, February 1, and May 1. If closing occurs mid-quarter, the taxes must be prorated between buyer and seller based on the number of days each party owns the property during the tax period. The general rule is: the seller is responsible for taxes through the day before closing, and the buyer is responsible from the closing day forward. Condo fees, oil in the tank (if prepaid), and rent on income properties are also commonly prorated. In Massachusetts, prorations are typically calculated using a 30-day month/360-day year method (banker's method) or an actual-days method depending on the parties' agreement.
Key Terms:
Quiz Questions:
Q1. A property sells for $605,300 in Massachusetts. How much are the recording stamps owed by the seller?
A) $2,751.16 B) $2,760.36 C) $2,758.08 D) $2,763.84
Answer: C — Round up $605,300 to nearest $500 = $605,500. Divide by $500 = 1,211 units. Multiply by $2.28 = $2,761.08. (Exam will provide clean numbers; the method is: round up to nearest $500, divide by 500, multiply by $2.28.)
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Q2. Which of the following is a seller closing cost in Massachusetts?
A) Appraisal fee B) Lender's title insurance premium C) Recording stamps (excise tax) D) Credit report fee
Answer: C — Recording stamps (Massachusetts excise tax) are the grantor's (seller's) expense. The appraisal fee, lender's title insurance premium, and credit report fee are buyer/borrower expenses.
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Q3. A Massachusetts property closes on October 15. Annual property taxes are $4,800, paid quarterly on a fiscal year (July 1 – June 30). Taxes for the current fiscal year have been paid through November 1. What is the tax proration adjustment at closing?
A) The buyer owes the seller a credit for taxes paid through November 1 beyond the closing date B) The seller owes the buyer a credit for taxes paid through November 1 beyond the closing date C) No proration is needed because taxes are paid quarterly D) The buyer pays all taxes for the remainder of the fiscal year at closing
Answer: A — If the seller has paid taxes through November 1 but the buyer takes possession on October 15, the seller has prepaid taxes for October 15 through November 1 (approximately 17 days). The buyer owes the seller a credit for those prepaid days.
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Q4. A buyer obtains a $400,000 mortgage and pays 1.5 discount points at closing to buy down the interest rate. How much does the buyer pay for the discount points?
A) $1,500 B) $4,000 C) $6,000 D) $40,000
Answer: C — 1 point = 1% of the loan amount. 1.5 points = 1.5% × $400,000 = $6,000.
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Q5. Under TRID, a Massachusetts buyer applies for a mortgage on Monday. They expect to close three weeks later. What TRID disclosures must the lender provide, and when?
A) Only the Closing Disclosure, within 24 hours before closing B) The Loan Estimate within 3 business days of application; the Closing Disclosure at least 3 business days before closing C) The Loan Estimate at closing; the Closing Disclosure 30 days after closing D) Both documents simultaneously, at least 7 business days before closing
Answer: B — TRID requires: Loan Estimate within 3 business days of receiving the application AND at least 7 business days before closing. Closing Disclosure at least 3 business days before closing. Both are required; the question asks about "must provide" which covers both.
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