Real Estate Math and Calculations
This domain tests arithmetic that appears in listing, closing, financing, and investment decisions. Accuracy depends on identifying the base, the rate, and the time period.
Core formulas
Area of a rectangle = length × width. One acre = 43,560 square feet. Commission = sale price × commission rate. Seller net = sale price − commission − payoff − closing costs. Loan amount = price × LTV. Points = loan amount × point percentage. Property tax = assessed value × mill rate ÷ 1,000. NOI = effective gross income − operating expenses; value = NOI ÷ cap rate; GRM = price ÷ gross rent.
Prorations
Prorations allocate taxes, rent, or interest between buyer and seller. Use the contract's day-count method; many closings use 365-day actual or 30-day months. The seller usually pays through the day before closing and the buyer pays closing day, unless the contract says otherwise.
Worked example
A property sells for $250,000 at a 6% commission. Total commission = $250,000 × 0.06 = $15,000. The listing brokerage and buyer brokerage split 50/50, so each receives $7,500. If the listing agent has a 60/40 split with her broker, she receives $7,500 × 0.60 = $4,500 and the broker receives $3,000.
Area example: a lot is 150 feet by 200 feet = 30,000 square feet. 30,000 ÷ 43,560 = 0.689 acres, about 0.69 acre. Tax example: assessed value $240,000 at 25 mills = $240,000 × 25 ÷ 1,000 = $6,000.
Traps
Compute commission on gross sale price, not seller net. Use loan amount for points, not purchase price. Do not confuse mills with percent: 25 mills = 2.5%. Check whether proration uses 360, 365, or actual days. Round only at the end.