A seller wants to net $300,000 after paying a 6% commission and has no other closing costs to consider. What sale price is needed?
Correct Answer
B) $319,148.94
Because the seller keeps 94% of the price after a 6% commission, divide the target net by 0.94: $300,000 ÷ 0.94 = $319,148.94.
Why This Is the Correct Answer
Because the seller keeps 94% of the price after a 6% commission, divide the target net by 0.94: $300,000 ÷ 0.94 = $319,148.94.
Why the Other Options Are Wrong
Option A: $282,000
This amount comes from multiplying by the retained percentage instead of dividing by it.
Option C: $318,000
This amount comes from simply adding 6% to the target net instead of solving for the gross sale price.
Option D: $5,000,000
This amount comes from dividing by the commission rate itself instead of by 1 minus the rate.
Deep Analysis of This Real Estate Math Question
Reverse commission calculations test your understanding that commission is calculated on gross sale price, not net proceeds. This concept is crucial because sellers often think in terms of what they want to net, but the commission percentage is always applied to the total sale amount, creating a mathematical relationship that requires division by the retention rate.
Background Knowledge for Real Estate Math
This type of calculation became important as real estate became more competitive and sellers began focusing on their bottom line. The concept emerged from basic business mathematics where you work backwards from desired profit to determine required revenue, accounting for fixed percentage costs.
Memory Technique
Remember 'Net ÷ Keep = Need.' If the commission is 6%, the seller keeps 94%, so divide the net amount by 0.94. Think of it as 'I keep 94 cents of every dollar, so how many dollars do I need to sell to keep my target amount?'
Exam Tip for Real Estate Math
When you see 'net' or 'wants to receive' in the question, you're doing reverse calculation. Convert the commission percentage to a retention rate (100% - commission%) and divide the target net by this decimal. Watch for answer choices that simply add the commission percentage - these are always wrong.
Real World Application in Real Estate Math
A seller inherited a property and owes exactly $300,000 in estate taxes due within 30 days. They must know the minimum sale price needed to net this amount after paying the standard 6% commission, leading to a required sale price of $319,148.94 rather than simply adding 6% to $300,000.
Related Topics & Key Terms
Key Terms:
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