# Topic 14.1: Basic Real Estate Computations

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### Learning Objectives

After successfully completing this topic, you will be able to
â€˘ compute real estate sales commissions, and
â€˘ calculate the percent of profit or loss, given the original cost of the investment, the sale price and the dollar amount of profit or loss.

### Sales Commissions

Itâ€™s widely known in the real estate industry that even those of us who profess to be terrible at math can quickly calculate how much weâ€™ll make on a sale. That may be because we calculate it more often, but is more likely because weâ€™re personally interested in the calculation. To work out commission problems, we should envision the commission equation below.

Part Ă· Total x Rate, or, the shortened form: P Ă· T x R

Cover what you want to find and youâ€™ll see the formula.

To find the commission, cover the P and the formula appears as T x R.

#### Exampleâ€”to find the commission

A broker sells a house for \$350,000. His commission rate is 7%. Whatâ€™s the commission at closing?

Cover the P in the formula to get T x R
T x R = P \$350,000 x .07 = \$24,500.

#### Exampleâ€”to find the rate

A broker sold his listing for \$300,000 and gets a commission of \$18,000. What was the commission rate?(cover the R in the formula.)

Cover the R in the formula to get P Ă· T
P Ă· T = R \$18,000 Ă· \$300.000 = .06 (6%)

#### Exampleâ€”to find the price

A broker received a commission of \$23,800. The commission rate was 7%. What was the price?

Cover the T in the formula to get P Ă· R
P Ă· R = T \$23,800 Ă· .07 = \$340,000

### Commission Splits Between Brokers

In most cases, a cooperating broker sells the listing, so there is a split between brokers.

#### Exampleâ€”to find the commission on a cooperating sale

A broker has listed a house with a 7% commission and offers a 50% commission split to cooperating brokers. Another broker sells the house for \$350,000. What is the selling brokerâ€™s commission at closing?

First, get the total commission:
Cover the P in the formula to get T x R.
T x R = P \$350,000 x .07 = \$24,500.
Then, divide the commission between the brokers: \$24,500 x .50 = \$12,250.

#### Exampleâ€”to find a sales associateâ€™s commission on a cooperating sale

Youâ€™ll be given the commission split between the brokers, then the split between the broker and the sales associate.

A broker lists a house with a 6% commission and offers a 50% commission split to cooperating brokers. A sales associate in another office sells the house for \$265,000. The sales associate receives 60% of the commission received by her broker. What is the sales associateâ€™s commission?

First, get the total commission.
Cover the P in the formula to get T x R.
T x R = P \$265,000 x .06 = \$15,900.
Then, divide the commission between the brokers: \$15,900 x .50 = \$7,950.
Then, get the sales associateâ€™s share: \$7,950 x .60 = \$4,770

#### Exampleâ€”to find the sales price given the sales associateâ€™s commission

A sales associate sells a house for \$240,000. His commission of \$4,320 is 30% of the total commission. What is the total commission percentage?

\$4,320 is 30% of the total commission. To find the total commission: \$4,320 Ă· .30 = \$14,400.
Cover the R in the formula to get P Ă· T = R
P Ă· T = R \$14,400  Ă·  \$240,000 = .06, or 6%.

#### Exampleâ€”to find the total commission on a sliding scale listing

Some brokerage firms have established a graduated listing commission structure because it takes as much work to list and sell an inexpensive home as it does a larger home. A brokerâ€™s commission rate is based on a sliding scale as follows: 8% on the first \$50,000 value, 7% on the second \$50,000, 6% on the next \$150,000, and 5% on all over \$250,000. The broker sells his own listing for \$425,000. What is the brokerâ€™s commission, and what is the commission rate?

The commission is calculated as follows.

To get the commission rate, divide commission by price: \$25,250  Ă·  \$425,000 = .059 or 5.9%.

### Calculating Selling Price, Cost and Profit

When a person sells a property, the profit is calculated by subtracting the cost from the sales price.

#### Example of calculating profit from a sale

When a person sells a property, profit is calculated by subtracting the cost from the sales price. Assume a man sells his property for \$340,000. He paid \$230,000 six months earlier. His profit is calculated as follows: \$340,000 price – \$230,000 cost = \$110,000 made (profit).

#### How to calculate the percent profit on a sale:

Part Ă· Total x Rate, or, the shortened form: P Ă· T x R

To calculate the percent profit, cover the R to get P Ă· T = R

#### Exampleâ€”to find the percent profit on a sale

In the example above, the seller made \$110,000 profit on the sale of a property that cost \$230,000. Always us the cost as the â€śtotalâ€ť in the formula.

Cover the R in the formula to get P Ă· T
P Ă· T = R     \$110,000  Ă·  \$230,000 = .478, or 47.8%.

#### Exampleâ€”to find the percent loss on a sale

A woman bought a building site six months ago for \$40,000. She sold it last week for \$33,500. What was the dollar loss? What was her percentage loss? Always use the cost as the â€śtotalâ€ť in the formula. The loss is the â€śpartâ€ť in the formula.

Her dollar loss was \$6,500: \$40,000 – \$33,500 = \$6,500.

To calculate her percent loss, cover the R in the formula to get P Ă· T
P Ă· T = R  \$6,500  Ă·  \$40,000 = .162, or 16.2%.

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