Real Estate Basics-Real Estate Math Pt.1

Posted by admin on August 21, 2010 under Real Estate License Basics | Be the First to Comment

One very important part of your real estate training is the math associated with real estate transactions. There are many formulas you should get to know before you will be able to earn your real estate license. In this three part installment of Real Estate Basics we will review the real estate math that you will need to understand in order to pass your real estate license exam. In part one of this installment we will cover the how to calculate commissions and loan interest.

Calculating commissions

Calculating commissions involves the purchase price of the property and the commission rate on the contract to determine the amount of commission to be paid. For the purposes of our example, we will use a purchase price of $150,000.00 and a commission rate of 5%. Use the T to help with your calculations.

_____________COMMISSION____________

  Sales price              |       Commission rate

A commission rate is generally a percentage of the purchase price of a property. If you have the purchase price and the commission rate, simply multiply the commission rate by the purchase price to find the commission.

$150,000.00 X .05 = $7500.00 commission on the sale

 If you have been given a commission amount and the purchase price you need to divide the amount of commission paid by the purchase price to determine the commission rate.

$7500 / 150,000 = .05 or 5% commission

If you are only given the commission rate and the commission amount, divide the amount of commission by the commission rate to determine the purchase price.

$7500 / .05 = $150,000.00

Financing

Math for financing is a little bit different. The calculations are usually to determine interest rates and the principle and interest paid on a mortgage payment. It is important to remember that when you are dealing with interest rates they are expressed in annual rates. Our T for these calculations looks like this:

_________________INTEREST_________________

LOAN AMOUNT      |       INTEREST RATE

To determine the interest amount, simply multiply the loan amount by the interest rate. Assuming the interest rate for a $150,000.00 loan is 6% you can calculate the interest.

$150,000 X .06 = $9000.00 in interest

If you have only the rate and the interest amount, divide the interest by the interest rate to determine the purchase price.

$9000 / .06 = $150,000.00

If you have only the loan amount and the interest amount, divide the interest amount by the loan amount for the interest rate.

$9000 / 150,000 = .06 or 6% interest

In the next part of Real Estate License Math we will the calculations used on a settlement sheet for things like interest and taxes as well as when and who to debit and credit at closing.