One common real estate math formula you will need to pass your real estate licensing exam is to know how to calculate commission. Of course, you will want to know how to calculate this anyways since it is how you get paid!
Each brokerage sets its own agent compensation plan, so it is important to understand how you get paid before you select a brokerage. The most common way real estate agents get paid is a combination of a percentage of the sales price and then a split with the real estate brokerage.
Real Estate Math Practice Problem: Calculating Commission
In this real estate math example, let’s say Agent Emily sells a house for $100,000. Her listing agreement says she will be paid 6% of the sales price and she is supposed to pay the buyer’s agent half of that (i.e., 3% of the sales price). She has an agreement with her brokerage to a 75/25 split. How much does Emily get paid in commission?
To make this example a real estate math practice problem, stop here and try to figure it out yourself. Then read on for the answer.
Answer & Explanation
Answer: Agent Emily gets $2,250 in commission from the sale.
Step 1. Calculate the total commission, which is 6% of $100,000 = $6,000.
Step 2. Calculate Agent Emily’s total brokerage commission, which is half of the total commission. $6,000 *.5 = $3,000. The buyer agent’s brokerage receives the other $3,000.
Step 3. Calculate Agent Emily’s portion of the commission. Since she has a 75 / 25 split with her broker, she would receive $3,000 *.75 = $2,250 in commission.
By understanding the real estate math formulas on how real estate commission is calculated, you will be able to know how much you get paid when a sale closes so you can make sure you are being paid the correct amount (title companies can make mistakes, too!).
For more real estate math formulas and practice, get our 125 Real Estate Math Problems Solved Book. It covers 9 real estate math topics with full solutions and video explanations!