Real Estate Calculations and Mathematics
What this domain tests
This domain tests commission, loan-to-value, points, prorations, area conversion, capitalization, gross rent multipliers, and transfer taxes. Accuracy and order of operations matter.
Core formulas
Commission = price x rate. Split = commission x agent share. Loan amount = price minus down payment. LTV = loan divided by price. Points = loan x point percentage. Proration for taxes = annual tax divided by 365 x days. Rent proration = monthly rent divided by days in month x days. One acre = 43,560 square feet. One square mile = 640 acres. Cap rate = NOI divided by price; value = NOI divided by cap rate. GRM = price divided by annual gross rent.
Worked example
A home sells for $320,000 with a 5.5% commission. Commission = $17,600. The listing broker splits 60/40 with the buyer's broker, so the listing side receives $10,560. The buyer puts 20% down, so the loan is $256,000 and LTV is 80%. Two points cost $5,120. Annual taxes are $4,380. The seller owns 120 days of a 365-day year, so the seller's debit is $4,380 x 120/365 = about $1,440.
Traps
Do not apply commission to the loan instead of the price. Do not mix 360-day and 365-day proration methods. Do not forget that points are charged on the loan amount. Do not add a proration when the seller owes it. Do not round too early.