Sale price $400,000 × 6% commission = $24,000 total. Split 50/50 between listing and selling broker = $12,000 each. Each broker splits with their agent (e.g., 60/40): listing agent gets $7,200. Always work from the total commission down through each split.
T-Bar Formula
T-Bar method: Part ÷ Whole = Rate. Part = Whole × Rate. Whole = Part ÷ Rate
T-Bar Formula
One formula that solves commission, tax, and percentage problems
Draw a T. Top = Part. Bottom left = Whole. Bottom right = Rate. Cover what you want to find. Top covered: Part = Whole × Rate. Bottom left covered: Whole = Part ÷ Rate. Bottom right covered: Rate = Part ÷ Whole. Works for commissions, tax rates, down payments, profit calculations.
Proration Calculations
Proration: divide annual cost by 365 (or 360 in banking) to get daily rate × days
Proration Calculations
How to split ongoing costs between buyer and seller at closing
Proration splits recurring costs (taxes, HOA dues, insurance, rent) proportionally between buyer and seller based on closing date. Step 1: annual amount ÷ 365 = daily rate. Step 2: daily rate × number of days = prorated amount. Closing day typically belongs to buyer. 30-day month method: annual ÷ 360.
Loan-to-Value Ratio
LTV = Loan amount ÷ Appraised value × 100. 80% LTV = 20% down payment.
Loan-to-Value Ratio
LTV determines if PMI is required and affects interest rate
LTV = Loan amount ÷ Property value. $320,000 loan on $400,000 property = 80% LTV = 20% down. LTV above 80%: usually requires Private Mortgage Insurance (PMI). FHA loans: allow up to 96.5% LTV. VA loans: up to 100% LTV for qualifying veterans.
Area Calculations
Area of rectangle = length × width. Triangle = ½ × base × height. Irregular: break into shapes.
Area Calculations
How to calculate square footage for exam problems
Rectangle/square: L × W. Triangle: ½ × base × height. Trapezoid: ½ × (base₁ + base₂) × height. Irregular lot: divide into rectangles and triangles, calculate each, add together. Convert to acres: square feet ÷ 43,560 = acres. 1 acre = 43,560 sq ft. 1 mile = 5,280 ft.
Mortgage Points
Points: 1 point = 1% of loan amount. Each point typically lowers rate by 0.125%
1 discount point = 1% of the loan amount. On a $300,000 loan, 1 point = $3,000. Points are prepaid interest paid at closing to get a lower interest rate. Break-even: monthly savings ÷ cost of points = months to break even. If you sell before break-even, points weren't worth it.
Straight-Line Depreciation
Depreciation (cost approach): (Cost - Land value) ÷ Economic life = Annual depreciation
Straight-Line Depreciation
How to calculate depreciation in the cost approach
Land never depreciates — only improvements. Building cost $200,000, economic life 40 years: annual depreciation = $5,000/year. After 10 years: $50,000 accumulated depreciation. Building value = $200,000 - $50,000 = $150,000. Add land value for total property value in cost approach.
Equity Calculation
Equity = Market value - Loan balance. Grows as value increases and loan pays down.
Equity Calculation
How much of the property the owner actually owns
Equity: the owner's financial interest. Property worth $400,000 with $250,000 remaining on mortgage = $150,000 equity. Equity grows two ways: appreciation (value rises) and amortization (loan balance falls). Negative equity ('underwater'): loan balance exceeds property value.
How to calculate net profit from a real estate sale
Selling price minus all costs = profit. Costs include: original purchase price, capital improvements (not repairs), selling costs (commission, closing costs, staging). Example: bought for $200,000, improvements $30,000, selling costs $24,000, sold for $350,000 → profit = $96,000.
Property Tax Calculation
Mill rate: property tax = assessed value × mill rate ÷ 1,000. 1 mill = $1 per $1,000.
Property Tax Calculation
How to calculate property taxes using the mill rate
Mill = 1/1000th of a dollar. Tax = Assessed value × Mill rate ÷ 1,000. Assessed value $200,000 × 25 mills ÷ 1,000 = $5,000 annual tax. Or: convert mill rate to decimal (25 mills = 0.025) × assessed value. Assessment ratio: if 80% ratio, market value $250,000 → assessed value $200,000.
Transfer Tax
Transfer tax/Documentary stamp tax: charged per $500 or $1,000 of sale price — varies by state
Transfer Tax
The tax charged when property changes hands
Varies by state. Common: $1.00 per $1,000 or $0.55 per $500 of sale price. $350,000 sale at $1/$1,000 = $350. Some states: buyer pays, some: seller pays, some: split. Know your state's rate. Round up to the next $500 or $1,000 increment (use the next higher bracket, not round down).
PITI
PITI: Principal, Interest, Taxes, Insurance — the four components of a monthly mortgage payment
PITI
The complete monthly mortgage payment broken into its four parts
Principal: reduces the loan balance. Interest: cost of borrowing. Taxes: property taxes collected monthly, held in escrow. Insurance: homeowner's insurance (and PMI if applicable) collected monthly, held in escrow. Lenders require PITI to calculate qualifying ratios.