Commission
Commission = Sale Price × Rate
For a percentage-based commission, multiply the sale price by the agreed rate as a decimal. Compensation is negotiable, not set by law. A broker's right to payment depends on the agreement and performance, not this calculation alone. Apply each split to the amount allocated at the previous step.
Practice finding the fee, rate or sale price, then allocating compensation using the stated agreement.
Before you choose an answer
- Forgetting to convert the percentage to a decimal (6% = 0.06, not 6)
- Applying the agent's split directly to the sale price instead of the commission
- In 4-party splits, confusing which percentage applies at each level
- Dividing when you should multiply (or vice versa). Ask: "Am I finding a part or a whole?"
Read the related study guideLoan-to-Value
LTV (%) = Loan / Stated Value Basis × 100
LTV compares the loan with the value basis required by the exercise or loan program. A $240,000 loan divided by a $300,000 value basis is 80%. If a $300,000 purchase appraises at $280,000 and underwriting uses the lower figure, the same loan has an LTV of about 85.71%. The buyer still pays $60,000 toward the purchase price. Down payment and LTV use different bases in that example.
For a purchase-loan exercise using the lower of price or appraisal, identify that basis before dividing. Calculate the cash down payment from the purchase price.
Before you choose an answer
- Dividing value by loan instead of loan by value
- Assuming 20% down always means 80% LTV; that requires the purchase price and LTV value basis to match
- Ignoring the exercise's stated value basis; purchase underwriting commonly uses the lower of price or appraisal
Read the related study guideProration
Daily Rate = Annual Amount / Stated Year Basis; Share = Daily Rate × Assigned Days
Proration allocates an expense or income between ownership periods. Use the problem's day-count convention and closing-day assignment. A 30/360 exercise uses 30-day months; an actual-day exercise uses the stated calendar basis. Prepaid expenses paid by the seller can create a seller credit. Advance rent collected by the seller for the buyer's period creates a buyer credit instead.
Identify the period, day-count basis, closing-day owner and whether the item is income or an expense. California's property-tax fiscal year runs July 1 through June 30.
Before you choose an answer
- Confusing "paid in arrears" with "paid in advance"; arrears flips who owes whom
- Dividing by 365 when the problem specifies a 30/360 convention, or the reverse
- Counting a tax proration from 1 January; California's tax year starts 1 July
- Changing the divisor to 360 but still counting actual calendar days instead of 30-day months
- Counting the closing day for the wrong party
- Forgetting to convert monthly amounts to daily before prorating
Read the related study guideGross Rent Multiplier
GRM = Price / Gross Rent; Value = Gross Rent × GRM (matching periods)
Monthly and annual multipliers both exist. A $360,000 property with $3,000 monthly rent has a monthly multiplier of 120 or an annual multiplier of 10. Match the rent period to the multiplier. GRM ignores operating expenses, so a lower multiplier alone does not establish a better investment.
Separate gross-rent comparisons from NOI capitalization and keep the rent period consistent.
Before you choose an answer
- Pairing monthly rent with an annual multiplier, or the reverse
- Using NOI instead of gross rent
- Dividing rent by price when asked for the multiplier
Read the related study guideCap Rate
Cap Rate (%) = NOI / Value × 100; Value = NOI / Decimal Cap Rate
A capitalization rate compares a representative year's net operating income with property value or price. Divide NOI by value to find the decimal rate; multiply by 100 to express it as a percentage. Divide NOI by a decimal cap rate to estimate value. This is a property-income measure before debt service, not the buyer's total investment return or a guaranteed interest payment.
Solve for income, rate or value. Use NOI rather than gross rent and convert percentages to decimals when finding value.
Before you choose an answer
- Using gross income instead of NOI (must subtract operating expenses first)
- Including mortgage payments when calculating NOI
- Multiplying instead of dividing when finding value (Value = NOI / Cap Rate)
- Forgetting to convert the cap rate percentage to a decimal
Read the related study guideArea Calculation
Rectangle Area = Length × Width
For a rectangular parcel, multiply the length by the width. For irregular shapes, break them into simple rectangles or triangles, calculate each piece, and add them up. To convert square feet to acres, divide by 43,560 (the number of square feet in one acre).
Convert lengths into the same units before multiplying. One acre is 43,560 square feet; a triangle uses half the product of base and height.
Before you choose an answer
- Mixing units: one side in yards, the other in feet (1 yard = 3 feet)
- Forgetting 43,560 sq ft = 1 acre
- Forgetting to halve for triangles (Area = 1/2 x Base x Height)
- Double-counting overlapping sections in L-shaped or irregular lots
Read the related study guideAppreciation & Depreciation
New Value = Original × (1 + Rate)^Periods; use (1 - Rate) for compound decline
Appreciation means a property gains value over time; depreciation means it loses value. To find the new value after one year, multiply the original value by (1 + rate) for appreciation or (1 - rate) for depreciation. If it compounds over multiple years, apply the calculation year by year; each year uses the previous year's value, not the original.
Distinguish simple change from compounding. Calculating each period's gain and adding it is also valid if each gain uses the updated value.
Before you choose an answer
- Using simple growth (rate x years) when the question says "compounded annually"
- Multiplying by the rate alone instead of (1 + rate); this gives only the GAIN, not the new value
- For depreciation, multiplying by (rate) instead of (1 - rate)
- Applying compound growth to the original value each year instead of the running total
Read the related study guideNet Operating Income
NOI = Effective Gross Income - Operating Expenses
Start with scheduled income, subtract stated vacancy and collection losses, add other income, then subtract operating expenses. NOI is before debt service, income taxes and depreciation. It is not the owner's spendable cash after financing.
Classify each listed expense before subtracting it. A mortgage payment affects cash flow but is not an operating expense in the NOI calculation.
Before you choose an answer
- Subtracting debt service from NOI
- Forgetting vacancy and collection losses
- Omitting stated other income
- Treating income taxes or depreciation as operating expenses
Read the related study guideMortgage Payment
Monthly P&I = (Loan / 1,000) × Factor
When a problem supplies a monthly payment factor per $1,000, divide the loan by 1,000 and multiply by the factor. A $200,000 loan with a $6.00 factor has monthly P&I of $1,200. Use the factor for the stated rate and term. Add taxes and insurance separately when asked for PITI.
Distinguish monthly P&I from the full housing payment and retain the precision supplied in the factor.
Before you choose an answer
- Multiplying the entire loan amount by the factor instead of dividing by 1,000 first
- Confusing PITI (Principal, Interest, Taxes, Insurance) with P&I: the factor only gives P&I
- Forgetting to add escrowed taxes and insurance when the question asks for the full PITI payment
- Mixing up factors for different loan terms (15-year factors are larger than 30-year at the same rate)
Read the related study guideDiscount Points & Yield
Point Cost = Loan Amount × Number of Points / 100
One point costs 1% of the loan amount. Discount points are upfront charges associated with a lower contractual rate. Actual rate reduction and lender yield depend on the loan terms. Apply a yield approximation only when the exercise supplies it; one point does not universally change the rate or yield by one eighth of a percentage point.
Calculate dollar cost separately from a stated rate reduction or assumed yield approximation.
Before you choose an answer
- Treating one point as $1,000: points are 1% of the LOAN amount, not a flat dollar figure
- Confusing discount points (rate buy-down) with origination points (lender fee for processing the loan)
- Assuming every point changes the borrower's rate by the same fixed amount
- Applying points to the property value instead of the loan amount
Read the related study guideNet-to-Seller
Required Price = (Desired Net + Costs + Payoffs) / (1 - Commission Rate)
Start with the seller's desired net, then add the stated fixed selling costs and loan payoffs. Divide that total by one minus the commission rate as a decimal. With a $200,000 target net, an agreed 6% commission, and no other costs or payoffs, the required sale price is $200,000 / 0.94, or about $212,766. This is a proceeds calculation under the stated assumptions; an asking price does not guarantee that result.
Calculate the price needed for a target net using the stated costs. This arithmetic is not itself a net listing, in which compensation is the excess over the seller's agreed net.
Before you choose an answer
- Adding the commission percentage to the net (e.g., $200,000 + 6% = $212,000) is wrong; you must DIVIDE by (1 - rate)
- Multiplying instead of dividing: multiplying by 1.06 produces a wrong result
- Forgetting to add closing costs, mortgage payoffs, or other selling expenses to the net before dividing
- Using (1 + rate) instead of (1 - rate); commission reduces the proceeds available from the sale price
Read the related study guideSection / Township Area
Standard Section = 640 acres; multiply by the stated fractions
A standard section is one square mile, or 640 acres. A standard six-by-six-mile township contains 36 sections and 23,040 acres. Actual surveyed acreages can differ. For a standard section, the NW quarter of the SE quarter is 640 × 1/4 × 1/4 = 40 acres. One more quarter gives 10 acres. Read the description from right to left to locate the parcel, and apply each stated fraction to calculate its area.
For a standard section, apply each stated fraction to 640 acres. A standard township has 36 sections. Use a different surveyed acreage if the problem supplies one.
Before you choose an answer
- Multiplying by denominators rather than fractions; 640 × 1/4 × 1/4 and 640 / 4 / 4 both give 40 acres
- Confusing a 640-acre section with a 23,040-acre standard township
- Treating compass directions as additional fractions
Read the related study guideProperty Tax
Value-Based Tax = Taxable Assessed Value × Applicable Decimal Rate; add fixed charges separately
Proposition 13 generally limits the base levy to 1% of assessed value, with qualifying bonded debt and other charges added separately. Factored base-year value generally rises by the inflation factor, capped at 2% annually. A reassessable ownership change establishes current fair market value; exclusions and base-year transfers can change the result. New construction generally reassesses the new portion. Decline-in-value assessments follow separate rules.
Use assessed value and the stated rate. Treat 2% as a cap, not an automatic increase, and identify any exemption or reassessment exclusion.
Before you choose an answer
- Using market value when the problem supplies assessed value
- Applying only 1% when the problem gives an additional bond rate
- Assuming every transfer reassesses the whole property without exceptions
- Subtracting the $7,000 homeowner's exemption from the tax instead of assessed value
Read the related study guideDocumentary Transfer Tax
County Tax = ceil((Consideration - Liens Remaining) / $500) × $0.55, if taxable value exceeds $100
For a taxable transfer under Revenue and Taxation Code section 11911, exclude liens remaining on the property from consideration or value. If that base exceeds $100, divide by $500, round the units UP, and multiply by $0.55. A $100,100 base gives 201 units and $110.55. A loan paid off at closing is not a remaining lien. Check statutory exemptions and local ordinances separately; this formula does not determine every city's tax.
Apply the stated rate, remaining-lien exclusion and upward rounding. The $100 threshold is an applicability test, not a deduction.
Before you choose an answer
- Deducting a loan paid off at closing
- Failing to round partial $500 units up
- Using $0.55 per $1,000 rather than per $500
- Applying a separate city rate without checking its base and exemptions
Read the related study guideSimple Interest
Interest = Principal × Rate × Time
Multiply principal by the annual rate and time in years. For five months, time is 5/12. For a monthly amortizing-loan exercise, interest is the current balance times the annual rate divided by 12; subtract it from the P&I payment to find principal reduction. Use the stated convention when interest is based on days.
Keep rate and time units consistent. Distinguish the payment, its interest portion and principal reduction.
Before you choose an answer
- Using months as years
- Dividing by 12 twice
- Assuming equal principal and interest portions
- Using the original balance for a later payment instead of the current balance
Read the related study guideSales Comparison Adjustments
Adjusted Comp = Sale Price ± Feature Differences
Adjust each comparable's sale price to reflect the subject's characteristics. If the comparable is superior, subtract the market-supported contribution of that difference; if inferior, add. Then reconcile the adjusted indications using the quality and relevance of the evidence.
Choose the adjustment direction and use market contribution, not construction cost.
Before you choose an answer
- Adjusting the subject rather than the comparable
- Adding for a superior comparable
- Assuming cost equals contribution to market value
- Averaging automatically when the facts call for reconciliation
Read the related study guideBuyer Qualifying Ratios
Housing Ratio (%) = Monthly Housing Costs / Monthly Qualifying Income × 100; Debt Ratio (%) = Total Monthly Qualifying Debt / Monthly Qualifying Income × 100
Compare stated monthly housing costs with qualifying monthly income. The total-debt ratio includes other qualifying debts. If an exercise supplies both limits, calculate the housing allowance under each and use the smaller. Ratios such as 28/36 or 31/43 are not universal lending limits. Actual eligibility depends on the program, underwriting method, income, debts and other requirements; VA also evaluates residual income.
Use the exercise's ratios as assumptions. Calculate each allowance separately and subtract other debt from the total-debt allowance.
Before you choose an answer
- Using take-home pay instead of the qualifying income supplied
- Choosing the larger rather than binding allowance
- Leaving out stated taxes, insurance or association dues
- Dropping short-term debt without an applicable instruction or rule
Read the related study guideProbate Overbid
Minimum = Bid + 10% of first $10,000 + 5% of the rest
For a court-confirmed real-property sale, Probate Code section 10311 describes a qualifying increased offer of at least 10% above the first $10,000 of the original bid plus 5% above the excess. On $500,000, add $1,000 and $24,500 to reach $525,500. Not every probate sale requires confirmation. The court's procedures and statutory conditions also govern the sale.
Calculate the two increments separately and add them to the original bid. Distinguish court-confirmed sales from sales under independent authority.
Before you choose an answer
- Taking 10% of the whole accepted offer, which massively overshoots
- Taking 5% of the whole offer and ignoring the first $10,000 slice
- Adding the increment to $10,000 rather than to the full accepted offer
- Confusing the minimum first overbid with the bidding increments the court sets afterwards
Read the related study guide