Real Estate Math
Licensees regularly calculate commissions, prorations, area, and investment returns. This chapter reviews the core formulas and problem-solving methods needed to work through common transaction math with confidence.
Commissions and Percentages
Commission is the sale price multiplied by the commission rate, and it is then split among brokerages and agents according to agreement. To find a rate, divide the commission by the sale price; to find the price, divide the commission by the rate. Many problems use the base, rate, and part relationship, so identifying which value is unknown is the key first step to avoiding errors.
Area, Volume, and Measurement
Area of a rectangle is length times width, measured in square feet, and an acre equals 43,560 square feet. Price per square foot equals total price divided by area, a useful tool for comparing properties. Converting between units, such as square feet to acres, is a frequent task. Careful attention to units prevents mistakes when comparing lots or estimating construction costs.
Investment and Proration Calculations
Value equals net operating income divided by the capitalization rate, so a property earning $36,000 at a 9% cap rate is worth $400,000. Prorations divide shared costs like taxes and insurance between buyer and seller based on days of ownership. Return on investment compares annual income to the amount invested. Setting up the correct formula and dividing rather than multiplying by the rate avoids the most common errors.