BASIC REAL ESTATE COMPUTATIONS
(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%
