Real Estate Calculations
The formulas you must own
Commission = price times rate; splits apply sequentially to the brokerage then to the agent. Loan-to-value = loan divided by value or price; down payment = price minus loan. Points = percentage of the loan amount, not the price. Area: one acre = 43,560 square feet; a section is 640 acres; a township is 36 sections. Rental income: gross income minus vacancy equals effective gross income; subtract operating expenses to reach NOI; value = NOI divided by cap rate; value = monthly rent times GRM. Depreciation in the cost approach uses the building's economic life.
Prorations
Prorate at closing using a 365-day year or a 30-day month, and state the convention. Items paid in arrears (property taxes) are charged to the seller for the days owned; items paid in advance (rent, some HOA dues) are credited to the buyer for unused days. The seller typically pays through the day before closing.
Qualifying ratios
Use the housing ratio (28%) and total debt ratio (36%) for conventional qualifying problems. Housing expense is PITI plus HOA dues; total debt adds installment and revolving debt.
Worked examples
Commission: a $300,000 sale at 6% yields $18,000; split 50/50 between brokerages gives $9,000 each; the selling agent on a 60/40 split receives $3,600. Transfer tax: $300,000 at $1.00 per $1,000 = $300. Proration: annual taxes of $2,190 equal $6.00 per day using 365 days. If the seller owns January 1 through June 14 (165 days), the seller is charged $990. Qualifying: $120,000 annual income gives a 28% housing allowance of $2,800 per month and a 36% total debt allowance of $3,600; with $500 of car and card payments, housing is still capped at $2,800.