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Real Estate Math

Calculations for commission, prorations, area, and financing

138 questions10 concepts
Real Estate Math — Study Card
Real Estate Math study card infographic showing key concepts, exam weight (12%), and memory aids
AI-generated study card for Real Estate Math. Covers 12% of the real estate exam.
Difficulty Breakdown
Easy73 (53%)
Medium52 (38%)
Hard13 (9%)
Study Tips for Math
  • •Master the T-bar method for proportion problems (total on top, parts on bottom)
  • •Commission = Sale Price × Rate; Cap Rate = NOI ÷ Value; GRM = Price ÷ Gross Rent
  • •Prorations: Seller pays through closing day; interest paid in arrears, taxes in advance
  • •Always check if the question asks for monthly or annual figures before calculating

Key Concepts

Capitalization Rate (Cap Rate)

The capitalization rate (Cap Rate) is the rate of return on a real estate investment based on its expected income.

Property Value (based on Cap Rate)

In real estate, property value can be estimated by dividing the Net Operating Income (NOI) by the Capitalization Rate (Cap Rate).

Percentage to Decimal Conversion

Converting a percentage to a decimal involves dividing the percentage value by 100.

Monthly Interest Calculation

Monthly interest is the portion of the total annual interest that is paid or accrued each month.

Annual Interest Calculation

Annual interest is the total amount of interest charged on a loan or investment over a year.

Calculating Daily Rate

Daily rate calculation involves determining the cost or income per day by dividing the total amount by the number of days in the period (usually a year or a month). This is a fundamental step in proration.

Determining Ownership Days

Determining ownership days involves calculating the number of days each party (buyer and seller) owned the property during the relevant period (usually a year). This calculation is crucial for accurate proration.

Proration

Proration is the process of dividing expenses or income between the buyer and seller at the closing of a real estate transaction. This ensures each party pays or receives only their fair share based on the period of ownership.

IRV Formula

IRV stands for Income, Rate, and Value. It represents the relationship between Net Operating Income (I), Capitalization Rate (R), and Property Value (V).

Net Operating Income (NOI)

Net Operating Income (NOI) is the revenue a property generates after deducting all operating expenses.

Practice Questions

The degree, quantity, or nature of a person’s interest in real property is called his

EASY

The return of land to the grantor or grant- or’s heirs when the grant is over is BEST described as

EASY

Which of the following BEST defines real property?

EASY

Which of the following instruments does NOT transfer an interest in real property?

HARD

A man died without a will and with no sur- viving relatives. His four-acre farm will

EASY

If a buyer and seller decide to rescind a deal after the deed has been recorded, the buyer is to:

EASY

The Real Estate Commissioner’s rules:

EASY

A property’s cost basis is most affected by an owner’s:

EASY

The annual percentage yield (APY) applies to:

EASY

A subdivider needs to give a copy of the Real Estate Commissioner’s public report to:

EASY

Any individual may contact the Real Estate Commissioner to:

EASY

The period of time a structure continues to earn sufficient income to continue operations is referred to as the structure’s:

MEDIUM

Which of the following is of least interest to an appraiser?

EASY

All of the following are sufficient to transfer an interest in real estate, except:

HARD

A property's value is $91,000 today. What was the original cost if it lost 35% of value over five years?

MEDIUM

What is the annual interest rate on a $300,000 loan requiring a monthly interest payment of $500?

EASY

In a deed that states “to Jonathon for his life,” the grantor has what type of interest?

EASY

Property taxes on a Texas home are $6,000 per year. The sale closes on April 1. How much does the seller owe for prorated taxes?

MEDIUM

A Florida property sold for $400,000. Calculate the documentary stamp tax on the deed:

MEDIUM

A buyer takes a $250,000 mortgage in Florida. What is the intangible tax?

MEDIUM

+ 113 more questions

Area(1)

A lot measures 150 feet by 200 feet. How many acres is this?

MEDIUM

Cap Rate(1)

An investment property has a net operating income of $36,000 and a cap rate of 8%. What is the property value?

MEDIUM

Commission(1)

A property sells for $300,000. The commission rate is 6%, split equally between listing and selling brokers. What does each broker receive?

EASY

Interest(1)

A buyer obtains a loan for $200,000 at 6% annual interest. What is the monthly interest payment for the first month?

EASY

Proration(1)

Annual property taxes are $4,380. The property closes on March 15. If the seller has NOT paid taxes for the current year, how much does the seller owe at closing? (Use 365 days)

HARD

Real Estate Math: What You Need to Know

Real Estate Math is one of the highest-weighted exam topics and the one that causes the most anxiety for test-takers. The good news is that most real estate math uses basic arithmetic with a handful of standard formulas — no advanced mathematics required.

The most important formulas to memorize are: Commission = Sale Price × Rate, Cap Rate = NOI ÷ Value (or Value = NOI ÷ Cap Rate), GRM = Price ÷ Annual Gross Rent, LTV = Loan Amount ÷ Appraised Value, and Property Tax = Assessed Value × Tax Rate. The T-bar method (also called the "magic T") is your best friend for solving proportion problems — put the total on top and the two parts that multiply to equal it on the bottom.

Prorations at closing are frequently tested and require careful attention to dates and the direction of charges. Remember that the seller is responsible for costs through the day of closing and the buyer from the day after. Interest on mortgage loans is paid in arrears (for the previous month), while property taxes and HOA dues are typically paid in advance. Practice converting between annual, monthly, and daily amounts, and always double-check whether a question asks for monthly or annual figures.

Frequently Asked Questions

Other Exam Topics

Buyer Representation Agreement

8% of exam

Property Ownership

10% of exam

Land Use Controls and Regulations

8% of exam

Valuation and Market Analysis

10% of exam

Financing

12% of exam

Laws of Agency

12% of exam

Mandated Disclosures

6% of exam

Contracts

12% of exam

Transfer of Title

8% of exam

Practice of Real Estate

10% of exam

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