Real Estate Mathematics

Question 1

Commission

Answer 1

A sum due a real estate broker for services in that capacity.

Question 2

Points

Answer 2

Equal to 1% of a loan amount. For example, 1 point on a $100,000 is equal to $1,000

Calculating Points Ex:
Problem: If the sales price is $120,000 and the bank is lending 75% LTV, how much is the closing cost if the bank is charging 2 points at closing?

SOLUTION:
Closing Costs = Loan Amount x points%

120,000 x 0.75 = $90,000 (loan amount)
$90,000 x 0.02 = $1,800 (closing costs)

Question 3

Calculating Commissions

Answer 3

1. Amount of commission eared
2. Commission Rate
3. Final Sales Price

FORMULA:
Commission Earned = Final Sales Price x Commission Rate
Final Sales Price = Commission Earned / Rate
Commission Rate = Commission earned / final sales price

Question 4

Calculating Interest Rate

Answer 4

Interest rates determine how much money is owed on a loan (Interest rate = cost of borrowing money)

FORMULA: 
Amount Owed (on loan) = Principle Balance x Annual Interest Rate

Question 5

Calculating Appreciation

Answer 5

Ex: If the property is currently worth $250,000 and appreciates at 3% per year, how much will the property be worth in 3 years?
ex: property value: $250,000 annual appreciation: 3%

SOLUTION: 
Property Value (yr 3) = Property Value x % increase each year

FORMULA: Future Value = Present Value x (1+appriciation rate) ^number of years

$250,000 x 1.03 = $257,500
$257,000 x 1.03 = $265,225
$265,225 x 1.03 = $273,181.75

Question 6

Calculating Depreciation

Answer 6

Ex: If the property is currently worth $550,000 and it depreciates at 5% per year, how much will the property be worth in 3 years?
ex: Property Value: $550,000
Annual Depreciation rate: 5%

SOLUTION: 
Property Value (year 3) = Property Value x % decrease each year 

FORMULA: FV = PV x (1-depreciation rate) ^ # of years

ex depreciation rate: 1-0.05 = 0.95
$550,000 x 0.95 = $522,500
$522,500 x 0.95 = $496,375
$496,375 x 0.95 = $471,556.25

Question 7

Acre

Answer 7

A measure of land equaling 43,560 square feet.

Question 8

Acre

Answer 8

A measure of land equaling 43,560 square feet.
1 Square Mile = 640 Acres

FORMULA: Lot Acreage = Lot Area/1 Acre

Question: We have a lot that is 13,068 sq feet. How many acres is the plot of land?
13,068/43,560 = 0.3 Acres

Question 9

Hectare

Answer 9

Equal to 10,000 square meters

Question 10

Hectare

Answer 10

Equal to 10,000 square meters = 2.47 Acres

Question 11

Calculating Irregular Lot Sizes

Answer 11

1. Break shape down into square, rectangles and triangles
2. Calculate the areas of each shape
3. Add together the area of each shape

Question 12

Basic Mortgage Qualifying

Answer 12

A bank will only lend money up to a certain % of the purchase price or Appraisal Value, whichever is LESS

Question 13

Principal

Answer 13

A sum of money lent or invested on which interest is paid

Question 14

Interest

Answer 14

A fee paid by the borrower of a loan as a form of compensation for the use of money

Question 15

Rates

Answer 15

1. Real Property Transfer Tax
   -Typically expressed in $/1,000
   FORMULA:
   Transfer Tax Amount = Rate x Property Sales Price
2. Mortgage, Recording Tax
   -Mortgage recording Tax = Tax Rate x Mortgage Amount
   Ex: purchase price $325,000 mortgage: LTV 75%
   What’s the recording tax???
   Mortgage = 325,000 x 0.75 = $243,750
   2.05/100 = 0.0205
   243,750 x 0.0205 = $4,996.88
3. Real Property Tax
   FORMULA:
   Annual Taxes = Assessed Value x Tax Rate

Ex: If the property assessed value is $750,000 and the tax rate is $2.25/$100 of assessed value, what are the annual taxes paid on the property? = $16,875

Question 16

Net Income

Answer 16

The result of subtracting expenses from income.

Question 17

Gross Income

Answer 17

Total income from property before any expenses are deducted

Question 18

Commission

Answer 18

A sum due to a real estate broker for services in that capacity