Real Estate Calculations and Problem Solving
The calculation toolkit
Maryland calculation items cluster into commissions, prorations, transfer and recordation taxes, and financing math. Work from the contract: commission is a percentage of gross sales price, not net proceeds; points are a percentage of the loan amount; prorations use the contract's day-count, commonly a 365-day year, with the seller typically charged through the day of settlement unless the contract says otherwise.
Formulas worth memorizing
- Commission = price times rate; agent share = side commission times split.
- Proration = annual amount divided by 365, times days.
- LTV = loan divided by price; down payment = price minus loan.
- Cap rate = NOI divided by price; GRM = price divided by gross rent.
- Transfer tax = price times the applicable state and county rates.
Worked example
A home sells for $450,000 at a 6 percent total commission, split evenly between listing and buyer sides. The listing agent has a 60/40 split with her broker. Annual property tax is $4,380 and closing is June 15, with the seller paying through the day of closing, which is 165 days.
Side commission: $450,000 times 0.06 = $27,000 total; listing side = $13,500; agent share = $13,500 times 0.60 = $8,100. Proration: $4,380 divided by 365 = $12 per day; 165 days times $12 = $1,980 charged to the seller at closing.
Traps that cost marks
Applying the split to the entire commission instead of one side; prorating on gross income rather than net; assigning the buyer a seller's customary charge; using 360 days when the contract specifies 365; forgetting that the agent's share is computed after the broker's side is fixed.