Real Estate Calculations
Real estate math appears throughout a transaction, from commissions to closing. This chapter reviews the most common calculations agents perform, using a consistent step-by-step method.
Commissions and Percentages
Commission equals the sale price multiplied by the commission rate expressed as a decimal (for example, 6% = 0.06). Total commission is then split between the listing and selling brokerages, and each brokerage splits with its agent. Remember to identify which base a percentage applies to before calculating.
Area, Measurement, and Prorations
Area of a rectangle is length times width, and larger lots may be measured in acres (one acre = 43,560 square feet). At closing, shared costs such as property taxes and prepaid items are prorated between buyer and seller based on the number of days each owns the property, so each pays only for their period of ownership.
Loan, Interest, and Tax Calculations
Simple annual interest equals principal times the annual rate; divide by 12 for a monthly figure. Loan-to-value ratio is the loan amount divided by the property value. Property tax is found by applying the assessment ratio to market value to get assessed value, then applying the tax rate (often stated per $100 or per $1,000, called mills) to that assessed value.