A seller wants to net $350,000 after paying a 6% commission and has no other closing costs to consider. What sale price is needed?
Correct Answer
A) $372,340.43
Because the seller keeps 94% of the price after a 6% commission, divide the target net by 0.94: $350,000 ÷ 0.94 = $372,340.43.
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: $350,000 ÷ 0.94 = $372,340.43.
Why the Other Options Are Wrong
Option B: $5,833,333.33
This amount comes from dividing by the commission rate itself instead of by 1 minus the rate.
Option C: $371,000
This amount comes from simply adding 6% to the target net instead of solving for the gross sale price.
Option D: $329,000
This amount comes from multiplying by the retained percentage instead of dividing by it.
Deep Analysis of This Real Estate Math Question
This net-to-seller calculation illustrates the inverse relationship between desired net proceeds and required sale price. The mathematical principle requires working backwards from the seller's financial goal to determine the necessary gross sale price that will yield the target net amount after commission deduction.
Background Knowledge for Real Estate Math
These calculations became crucial as real estate markets matured and sellers needed precise financial planning, especially for 1031 exchanges, mortgage payoffs, or coordinated buying and selling transactions. The formula development helped standardize how agents could quickly provide accurate pricing guidance to sellers.
Memory Technique
Remember 'Desired Net ÷ Decimal Keep = Deal Price' - divide what they want to keep by the decimal version of what percentage they keep. For 6% commission, they keep 94%, so always divide by 0.94.
Exam Tip for Real Estate Math
Questions asking 'what sale price is needed' with a target net amount always require division by the retention percentage (100% minus commission rate). Watch for answer choices that show simple addition - these are usually incorrect trap answers.
Real World Application in Real Estate Math
A seller relocating for work needs exactly $350,000 from their home sale to qualify for their new home mortgage. Using the calculation $350,000 ÷ 0.94 = $372,340.43, their agent knows any offer below this amount won't meet the seller's financial requirements, helping guide negotiation strategies.
Related Topics & Key Terms
Key Terms:
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