BASIC REAL ESTATE

COMPUTATIONS

Sales commissions

Calculating gain on sale

 

(See also Real Estate Math Section)

Sales commissions    

Sales commissions are negotiated between agent and client and are specified in the listing contract or buyer brokerage agreement. The seller is usually responsible for paying the commission in a listing agreement, and the seller or buyer may be responsible in a buyer brokerage agreement. Commissions are usually split between brokers and co-brokers and between brokers and their associates.

Co-brokerage commission

1.    Formulas:        sale price x commission rate = total commission

                                                            total commission x split rate = co-brokerage commission

2.    Example:        A house sells for $600,000.  The commission is 6%, and

                                  the co-brokerage split is 50-50.

$600,000 x 6%  = $36,000 total commission x 50% = $18,000 co-broker’s commission

Associate’s commission

1.    Formula:         broker’s commission x sales associate’s split rate = sales                         associate’s commission

2.    Example:        Assume an $18,000 broker’s commission and a 60% – 40%

                                             sales associate-broker split rate.

                                                            $18,000 x .6 = $10,800 sales associate’s commission

                                                            ($7,200 to broker)

Calculating gain on sale                         

Gain (or profit) is the amount one earns when selling an item over the amount one paid for the item. Thus, to calculate gain, it is necessary to know the total cost of the item and the amount realized from selling the item.

Total cost. In the sale of a residence, tax considerations aside, the total cost of the property is the original price paid plus other costs associated with the purchase and capital improvements made to the house.

original price

+    costs and capital improvements

total cost of property

Amount realized from sale. The amount realized from selling, also known as net proceeds from sale, is the sale price received minus the costs of sale, such as commissions, fees, and other closing costs. Amount realized is expressed by the formula:

sale price

  • costs of sale

amount realized on sale

Gain. Gain on sale is the difference between the amount realized on sale and the total cost of the property:

      amount realized on sale

  • total cost of property

      gain on sale

Gain may now be expressed as a percentage of the total cost according to the formula:

gain on sale ÷ total cost of property

Thus, if a seller originally paid $300,000 for a house, including costs, spent another $50,000 putting on an addition, and sold it for $500,000 with $30,000 in selling costs, the percentage gain on sale is $120,000, or 34%, as follows:

$300,000  original price

+      $50,000  costs and capital improvements

$350,000  total cost of property

$500,000  sale price

  •   $30,000  costs of sale

$470,000  amount realized on sale

$470,000  amount realized on sale

  • $350,000  total cost of property

      $120,000  gain on sale

$120,000 gain ÷ $350,000 total cost =  34%