65. A buyer will be purchasing an office building in downtown Dubuque, Iowa for $750,000. The banker who is financing the property wants the buyer to deposit 3 months of property taxes into an escrow account. If the taxes are based on 3% of the sale price, what is the dollar amount of taxes the buyer needs to deposit into the escrow account?
Answer: B
The buyer needs to deposit $5,625 into the escrow account for property taxes.
The property taxes are calculated at 3% of the sale price of the office building, which is $750,000. Therefore, the total annual property tax amount is $750,000 multiplied by 0.03, resulting in $22,500. Since the banker requires three months of taxes to be deposited, the buyer will need to deposit $5,625.
A) $5,600
This option is incorrect because it does not accurately reflect the calculation of 3% of the sale price. The annual tax amount calculated to $22,500 divided by 12 months results in $1,875 per month. Multiplying this by three months gives $5,625, not $5,600.
B) $5,625
This option is correct. The annual property tax is $750,000 multiplied by 3%, which equals $22,500. Dividing this by 12 months results in $1,875 per month. Therefore, for three months, the total is $1,875 multiplied by 3, which equals $5,625.
C) $5,650
This option is incorrect as it exceeds the actual calculation of the required tax deposit. The correct calculation of $5,625 reflects the appropriate amount based on the established tax rate and time frame. Thus, $5,650 is not a valid result.
D) $5,675
This option is also incorrect, as it is higher than the calculated amount needed for the escrow account. The correct deposit amount is derived from the precise 3% calculations, which do not result in $5,675.
Conclusion
Option B is definitively correct as it accurately reflects the calculation based on the property’s sale price and the required escrow deposit for three months of property taxes. All other options fail to meet the correct amount calculated from the provided figures, solidifying the necessity of precise mathematical calculations in financial transactions.