Real Estate Calculations
Commissions and proceeds
Commission = price × rate, and splits multiply. Sale proceeds = price − loan payoff − closing costs − commission + prorated credits to the seller.
Prorations
Use a 365-day year on Indiana problems: daily rate = annual amount ÷ 365; count the seller's days of ownership. Taxes paid in arrears mean the seller owes for the days owned, so debit the seller and credit the buyer. Rent paid in advance by a tenant means the seller collected money for days the buyer will own, so credit the seller and debit the buyer.
Loan math
LTV = loan ÷ price or value (when a question gives both price and appraised value, use the lesser). Down payment = price − loan. Points = loan amount × points %. Amortized payment problems usually supply a payment factor; multiply the factor by the loan amount per $1,000.
Income and area
Value = NOI ÷ cap rate. NOI = gross income − vacancy − operating expenses; it excludes debt service, depreciation, and capital improvements. GRM = price ÷ gross rent. Area: 1 acre = 43,560 sq ft, 1 mile = 5,280 ft, a section = 640 acres, a quarter-section = 160 acres. Indiana property tax starts with assessed value, then deductions (homestead and supplemental homestead), then the constitutional 1%/2%/3% caps - Indiana's tax math is not the classic mill-rate formula, so read carefully.
Traps
Prorating on a 360-day month when actual days are requested. Reversing debits and credits. Using gross income in place of NOI. Forgetting who pays the day of closing.
Rule of thumb
Set up three columns - item, seller debit/credit, buyer debit/credit - and balance them before you look at the answer choices.