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:
Question & Answer
Review the question and all answer choices
$15,000.
Answer A ($15,000) is incorrect because it represents a 9.1% commission (not 6%), suggesting a misunderstanding of the original commission rate or calculation method.
$13,200.
Answer B ($13,200) is incorrect as it represents a 4.8% commission, which would be a 20% reduction from 6%, not the requested 25% reduction.
$9,900.
$8,
Answer D is incomplete but would likely be incorrect as it doesn't represent a proper calculation of a 25% reduction from a 6% commission on the implied sale price.
Why is this correct?
Answer C ($9,900) is correct because it properly calculates a 25% reduction from a 6% commission. The original commission would be $16,500 (6% of $275,000), and reducing this by 25% yields $9,900. This demonstrates understanding that commission reductions apply to the commission amount, not the sale price.
Deep Analysis
AI-powered in-depth explanation of this concept
Commission calculations are fundamental in real estate practice as they directly impact an agent's earnings and a client's net proceeds. This question tests your ability to calculate percentage reductions correctly, a critical skill in negotiations and transaction processing. The question presents a scenario where a seller requests a commission reduction of 25% from the broker's standard 6% commission. To solve this, we must first calculate the original commission amount (6% of the sale price), then apply the 25% reduction. The challenge lies in understanding that the 25% reduction applies to the commission rate, not the sale price. Many students mistakenly calculate 25% of the sale price or apply the reduction incorrectly. This question connects to broader knowledge of agency relationships, as brokers must balance their fiduciary duties to clients with their business interests regarding compensation.
Knowledge Background
Essential context and foundational knowledge
Commission structures are a cornerstone of real estate practice, governed by state regulations and agency relationships. Brokers typically earn a percentage of the sale price, with standard rates varying by market. In California, commission rates are negotiable and not fixed by law. When brokers reduce their commission, they're often making a business decision to secure a sale or maintain a client relationship. Understanding how to calculate these reductions is crucial for both brokers and consumers, as it affects the broker's income and the seller's net proceeds from the transaction.
Think of commission reduction like a store discount. If an item normally costs $100 (your full commission) and has a 25% off sale, you pay $75, not $75 off the original price of the house.
When calculating commission reductions, first calculate the full commission amount, then apply the discount percentage to that amount, not to the sale price.
For commission reduction questions, always calculate the full commission amount first, then apply the percentage reduction to that amount, not to the sale price.
Real World Application
How this concept applies in actual real estate practice
Imagine you're listing a $275,000 property in San Diego. During negotiations, the buyer's agent mentions their client is very interested but the seller needs to net more money. You approach your broker and explain that if they reduce their commission by 25%, the seller will accept the offer. Your broker agrees, understanding that closing this transaction is better than losing it entirely. You calculate the new commission ($9,900 instead of $16,500) and present the offer to the seller, who accepts. This demonstrates how commission flexibility can facilitate deals while still providing the broker with meaningful compensation.
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