Real Estate Calculations and Closing Math
Core formulas
Commission = price × rate. Splits cascade: brokerage split, then the salesperson's split with the broker. Loan amount = price × LTV; points = loan × point percentage. Area: 43,560 sq ft per acre, 640 acres per section, 5,280 ft per mile. NOI = gross income − operating expenses; value = NOI ÷ cap rate; GRM = price ÷ gross rent.
Prorations
Prorate on a 365-day year unless the contract says otherwise. Determine who owns the property on the closing day, compute the daily rate (annual amount ÷ 365), and multiply by the days owned. Taxes paid in arrears create a debit to the seller and a credit to the buyer; prepaid rent creates a credit to the seller. Alaska has no state real estate transfer tax, but recording fees and municipal taxes still appear on the closing statement.
Traps
- Using a 360-day year when the contract specifies actual days.
- Prorating to the wrong party (charging the buyer for days the seller owned).
- Applying points to the purchase price rather than the loan amount.
- Mixing monthly and annual figures in a GRM calculation.
Worked example
A home sells for $425,000 at a 6% total commission: $25,500. The listing and cooperating brokers split 50/50, so each receives $12,750. The listing salesperson has a 60/40 split with her broker, so she earns 0.60 × $12,750 = $7,650.
Worked example (proration)
Annual property taxes are $3,650, or $10 per day. Closing is June 30 in a non-leap year; the seller owns January 1 through June 30 - 181 days × $10 = $1,810. Because taxes are paid in arrears, that $1,810 is debited to the seller and credited to the buyer.