The seller states they will accept the buyer’s offer if the broker lowers their 6% commission by 25%. If the broker accepts, they will receive:
Audio Lesson
Duration: 3:04
Question & Answer
Review the question and all answer choices
$15,000.
Option A ($15,000) appears to represent the full 6% commission on a $250,000 price or a similar miscalculation; it does not account for the 25% reduction the seller demanded as a condition of acceptance.
$13,200.
Option B ($13,200) may result from an incorrect reduction calculation, such as subtracting 25% of the sale price rather than 25% of the commission rate, or applying the reduction to the wrong base figure.
$9,900.
$8,
Option D appears to be an incomplete or corrupted answer choice ('$8,') and does not represent a valid or calculable commission figure based on the information provided in the question.
Why is this correct?
A 25% reduction of a 6% commission means the broker retains 75% of 6%, which equals 4.5% (6% × 0.75 = 4.5%). Applying 4.5% to the implied sale price of $220,000 yields $9,900 ($220,000 × 0.045 = $9,900), making option C the correct answer. This two-step calculation — first reduce the rate, then apply it to the price — is the proper method for solving commission reduction problems.
Deep Analysis
AI-powered in-depth explanation of this concept
This question tests the mathematical application of commission reduction in a California real estate transaction, specifically how a percentage reduction applied to an existing commission rate affects the dollar amount a broker ultimately receives. When a seller conditions acceptance of a buyer's offer on the broker agreeing to reduce their 6% commission by 25%, the broker's new commission rate becomes 4.5% (6% × 0.75 = 4.5%), which is then applied to the sale price to determine the actual dollar compensation. This scenario illustrates the real-world tension between a broker's fiduciary duty to close transactions and their own financial interest, and it highlights that commission rates are always negotiable under California law. Understanding this calculation is essential because brokers must be able to quickly compute the financial impact of commission concessions during live negotiations.
Knowledge Background
Essential context and foundational knowledge
Commission negotiability has been a cornerstone of California real estate law since the California Business and Professions Code explicitly prohibits fixed commission schedules as a form of price-fixing, consistent with federal antitrust principles established in the landmark 1950 case United States v. National Association of Real Estate Boards. The California Department of Real Estate (DRE) reinforces that all commissions are negotiable and must be established by written agreement between the broker and the client. The practice of sellers negotiating commission reductions as a condition of accepting offers became more common during buyers' markets, where sellers seek to maximize net proceeds. California licensing exams test this concept to ensure licensees understand both the mathematical mechanics and the legal permissibility of commission adjustments.
Podcast Transcript
Full conversation between instructor and student
Instructor
Hey there, welcome back to our real estate license exam prep podcast. Today, we're diving into a medium difficulty question that deals with agency law. How are we doing today, by the way?
Student
I'm doing well, thanks! I'm excited to tackle this question. Could you give me a brief overview of what this question is about?
Instructor
Absolutely. The question revolves around commission law, specifically how a broker calculates their commission after a seller requests a 25% reduction from their standard 6% commission. It's a common scenario in negotiations and transaction processing.
Student
Got it. So, we're looking at a 6% commission and a 25% reduction. How do we go about solving this?
Instructor
Great question. First, you need to calculate the original commission amount based on the sale price. Let's say the sale price is $275,000. The original commission would be 6% of that, which is $16,500.
Student
Okay, so the original commission is $16,500. Now, how do we apply the 25% reduction?
Instructor
Exactly. The 25% reduction is applied to the commission amount, not the sale price. So, you take 25% of $16,500, which is $4,125. Then, subtract that from the original commission to find the new commission amount.
Student
Right, so $16,500 - $4,125 equals $12,375. But that's not one of the options, is it?
Instructor
That's where many students go wrong. They mistakenly calculate the reduction from the sale price instead of the commission. The correct answer, by the way, is C, $9,900. This demonstrates understanding that the reduction applies to the commission amount, not the sale price.
Student
I see. So, what about the other options? Why are they wrong?
Instructor
Good observation. Answer A is incorrect because it represents a 9.1% commission, which is not the original 6%. Answer B is a 20% reduction, not the requested 25%. And answer D is incomplete, but it wouldn't be correct because it doesn't reflect a proper calculation.
Student
That makes sense. So, how do we remember to apply the reduction to the commission amount?
Instructor
A helpful memory technique is to think of commission reduction like a store discount. If an item costs $100 and has a 25% off sale, you pay $75, not $75 off the original price of the house. It's a similar concept with commissions.
Student
That's a great analogy. It really clarifies how to apply the reduction. Thanks for that tip.
Instructor
You're welcome! Just remember, for commission reduction questions, always calculate the full commission amount first, then apply the percentage reduction to that amount. Keep practicing, and you'll get the hang of it. Keep up the good work, and we'll see you in the next episode. Good luck!
Remember: 'Reduce the RATE, then calculate the DOLLAR.' Think of the commission rate as a full pizza (6 slices). The seller takes away 25% of the pizza (1.5 slices), leaving 4.5 slices — that's your new rate of 4.5%. Then multiply that reduced rate by the sale price to get your actual paycheck. Never take 25% off the dollar amount before you've recalculated the rate.
When calculating commission reductions, first calculate the full commission amount, then apply the discount percentage to that amount, not to the sale price.
On commission reduction problems, always perform the calculation in two distinct steps: Step 1 — calculate the new reduced rate (Original Rate × Remaining Percentage), and Step 2 — apply that new rate to the sale price. Writing these steps out on scratch paper prevents the common error of conflating the two operations and arriving at a plausible but incorrect dollar figure.
Real World Application
How this concept applies in actual real estate practice
A California listing agent has a 6% commission agreement on a home listed at $220,000. After weeks on the market, the seller receives an offer at full asking price but tells the broker, 'I'll accept this offer only if you cut your commission by 25%.' The broker, eager to close the deal, agrees — reducing their rate from 6% to 4.5%. On a $220,000 sale, this means the broker receives $9,900 instead of the original $13,200, a difference of $3,300. The broker must weigh whether the guaranteed commission of $9,900 is preferable to the risk of the property sitting on the market longer at the full commission rate.
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