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.
To calculate the amount the buyer needs to deposit, first, the annual property taxes based on the sale price of $750,000 at a rate of 3% must be determined. The total amount for taxes is $22,500, and for three months’ worth, the buyer must deposit $5,625.
A) $5,600
This option is incorrect because it does not accurately reflect the calculation of the property taxes. The annual tax amount is $750,000 multiplied by 3%, which equals $22,500. Dividing this by 4 to find the quarterly tax amount results in $5,625, not $5,600.
B) $5,625
This option is correct. The annual property taxes on the office building amount to $22,500 when calculated as 3% of the sale price of $750,000. Dividing the annual tax amount by 4 gives the quarterly deposit needed for escrow, which is $5,625.
C) $5,650
This option is incorrect because it overestimates the quarterly tax amount. The correct quarterly calculation based on the annual tax of $22,500 is $5,625, not $5,650.
D) $5,675
This option is also incorrect. Similar to option C, it inaccurately calculates the quarterly tax amount. The correct amount to be deposited into the escrow account based on the annual tax of $22,500 is $5,625, not $5,675.
Conclusion
The correct answer is $5,625, as it accurately represents the required quarterly deposit based on the calculated property taxes. All other options fail to align with the proper calculation derived from the given sale price and tax rate, thus reinforcing the importance of accurate financial computations in real estate transactions.