Real Estate Calculations and Practice of Real Estate
The math that gets tested
Commission problems are multiplication with splits: total fee = price × rate, then divide between brokerage sides and apply the salesperson's split. Prorations split expenses at closing based on the closing date, usually on a 365-day basis for taxes and a monthly basis for rent. Debits and credits must net to zero on the settlement statement: the seller is debited for expenses and credits; the buyer is credited for loans and deposits and debited for the purchase price and costs. Area math uses 43,560 square feet per acre. Income property uses effective gross income (potential rent minus vacancy and collection loss), NOI, cap rate, and gross income multipliers. Points are computed on the loan amount, not the price.
Practice skills
A licensee must be able to estimate seller net proceeds, buyer cash to close, and a qualifying payment. Reconcile using a rough check: if a monthly payment comes out at $180 on a $250,000 loan, a keystroke went wrong. Never quote a rate, an appraisal value, or legal advice outside your scope.
Worked example
Annual property tax is $2,190, and closing is June 15 with the seller responsible through the day of closing. Daily rate: $2,190 ÷ 365 = $6.00. Days January 1 through June 15 = 31 + 28 + 31 + 30 + 31 + 15 = 166. Seller debit = 166 × $6.00 = $996.00, and the buyer is credited the same amount, because taxes are paid in arrears and the buyer will pay the full year's bill.
Rule of thumb
Write down price, rate, and days before computing; label each result as debit or credit to the correct party.