Chapter 6 of 612% of exam

Real Estate Math for Texas Agents

Real estate math shows up throughout a transaction, from commissions and down payments to prorations and investment analysis. This chapter teaches the core formulas and shows how to apply them step by step. Mastering a few key relationships lets you handle most exam and real-world calculations with confidence. Always read each problem carefully to identify what is being asked before selecting a formula.

Commissions and Splits

Commissions are a percentage of the sales price and are often divided between brokerages and agents. Working these in steps prevents errors. Always convert percentages to decimals before multiplying.

Total commission

Sales price multiplied by the commission rate; for example, $350,000 x 0.06 = $21,000.

Brokerage split

Divide the total between listing and selling brokerages, commonly 50/50, before applying the agent's share.

Agent share

Multiply the brokerage's portion by the agent's split percentage to find the agent's earnings.

Convert percentages

Move the decimal two places left before multiplying, so 6% becomes 0.06.

Percentages, Down Payments, and Loan-to-Value

Many problems involve a part, a whole, and a rate. Down payments and LTV are two sides of the same purchase. Setting up the base value correctly is the key step.

Percentage change

Divide the amount of change by the original value; a rise from $250,000 to $300,000 is $50,000 / $250,000 = 20%.

Down payment

Multiply the price by the down payment percentage; 15% of $280,000 is $42,000.

Loan-to-value

Loan amount divided by value; with 80% LTV on $325,000, the loan is $260,000 and the down payment is $65,000.

Net-to-seller

Divide the desired net by (100% minus the cost rate); to net $190,000 after 5% costs, price = $190,000 / 0.95 = $200,000.

Area, Interest, and Property Tax

Area problems use simple geometry, while interest and taxes apply rates to a base amount. Memorizing a few conversions saves time. Watch the units the question asks for.

Area of a rectangle

Length times width; a 150 x 200 foot lot is 30,000 square feet.

Acre conversion

One acre equals 43,560 square feet, so 87,120 square feet equals 2 acres.

Simple interest

Principal times annual rate gives yearly interest; divide by 12 for a monthly figure, so 6% on $200,000 is $1,000 per month.

Property tax by rate per $100

Divide value by 100, then multiply by the rate; $180,000 at $2.50 per $100 is $4,500.

Proration at Closing

Proration divides shared expenses, such as taxes, between buyer and seller based on time of ownership. Texas taxes are typically paid in arrears. Many exams use a 360-day year for simplicity.

Identify who owes

With taxes paid in arrears, the seller owes for the days they owned the property up to closing.

Daily or monthly rate

Divide the annual amount by 360 days (or 12 months) to get the proration rate.

Seller's share

Multiply the rate by the seller's ownership period; half a year of $4,800 taxes is $2,400.

Credits and debits

The seller's owed portion is usually credited to the buyer at closing since the buyer will pay the full bill later.

Investment and Value Calculations

Investors evaluate property using income and multipliers. These formulas connect income to value. Keep annual versus monthly figures consistent.

Capitalization rate

Value equals net operating income divided by the cap rate; $24,000 NOI at an 8% cap is $300,000.

Gross rent multiplier

Value equals rent times the GRM; using annual rent of $18,000 and a GRM of 12 gives $216,000.

Cost estimate

Area times cost per square foot; a 2,000 square foot home at $120 per foot is $240,000.

Consistency of units

Convert monthly rent to annual (or vice versa) so it matches the multiplier or rate being used.

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Last updated: July 2026