Study Guide Chapter 14 - 16 Flashcards
Sales associate commission percentage
The percentage that sales associates earn is negotiated between each sales associate and the employing broker taking into consideration the sales associate’s experience and production
Profit Formula
Profit is how much you make over and above your cost. It may be expressed as an amount or as a percentage of your cost
Amount made on sale ÷ total cost = Percentage of profit
“MADE OVER PAID” Made ÷ paid
For example:
A lot cost $8,000 and sold for $10,000, yield a $2,000. What is the percentage of profit?
$2,000 ÷ $8,000 = .25 or 25% profit
A lot sold for $6,000, making 25% profit. What was the cost of the lot?
100% cost + 25% profit = $ 6,000
125% = $6,000 selling price
$6,000 selling price ÷ 125% = $4,800 cost
Loss Formula
Amount lost on sale÷Total cost = Percent loss
“MADE OVER PAID” Made÷paid
A lot cost $10,000 and sold for $8,000, resulting in a $2,000 loss. What’s the percentage of loss?
2,000÷10,000=.20 or 20% loss
A lot sold for $10,000, representing a 20% loss. What was the cost of lot?
100% - 20% = 80%
10,000 ÷80% = $12,500
MATH- Understand how to amortize a loan
To calculate how much money is to be regarded as interest and how much is to be paid on the principal, 2 facts are needed:
- The outstanding amount of the debt (principal)
- rate of interest
- The amount of the payment per period (usually monthly)
Interest rates for mortgages are expressed as annual interest rates. Thus, a $60,000 mortgage at 10% simply means that the interest rate is 10% per year.
To find the monthly interest actually paid:
- determine what 10% of $60,000 will amount to for the entire year then,
- divide it by 12 (the number of months) and it will give you the amount of interest for one month.
- When the principal amount changes, the calculation must be done over again, based on the new principal balance. The new balance must be treated as if it were to be applied to the entire 12 months.
Example: Home Mortgage = $30,000; Interest= 8%, Monthly payment = $220.12. How much of monthly payment goes to interest and how much goes to principal payment?
- 30,000 unpaid balance x 0.08 rate = $2,400 interest rate ÷ 12= $200 first month’s interest
- 220.13 monthly payment - 200 interest = 20.13 payment on principal
- 30,000 -20.13 principal paid on the first month = 29,979.87 new balance
- Now repeat the steaps abover to determine the second month
- 29,979.87 x 0.08 = 2,398.3896 ÷ 12 = 199.87 interest
365-day method
This method calculates the proration using the actual number of days in the proration period. To use this method:
- Find daily rate: Divide 365 into the annual cost of the item to find the exact daily rate
- Multiply the number of days involved by the daily rate
- debit the seller; credit the buyer
Prepaid rent
Normally, any rental income collected in advance belongs to the new owner as of the date of closing; therefore, the unused portion of advance rent belongs to the buyer. The total rent amount should be divided by the number of days involved in the rental period and allocated on a daily basis
- credit buyer
- debit seller
Amortize A Mortage Formula
- Principal Balace x Annual Interst ÷ 12 = First month’s interest
- Monthly Mortgage Payment - First months interst = Payment on Principal
- Beginning Principal Balance - Principal Payment = New Principal Balance
Prorated Expenses
It is customary when trasnferring title to have all prorated items determined as of the midnight before the date of closing. This means that
- the buyeris charge for property taxes on the day of closing
- the buyer is charge for interest on an assumed mortgage on the day of closing
- the buyer is credited for any rental income earned on the day of closing
Calculating the sales price of property with Loan to value ratio
The interest portion of the first month’s mortgage is $770, the interest rate is 10.5%, and the LTV ratio is 80%. Calculate the sale price of the property
- 770 x 12 = $9,240 interest per annum
- 9,240 ÷ 0.105 = 88, 000 mortgage amount
- 88,000 ÷ 80% = $110,00 Sales Price
Understand how to prorate property taxes
- Property taxes are paid in arrears (at the end of the tax year), thus the seller will have had possession and use of the property for some portion of the year, unless the transfer of title is effective on January 1.
- To apportion the property taxes fairly, they are prorated on the basis of a 365-day year
- The total tax assessment is divided by the number of days in 1 year to determine the tax cost per day
- Then the property tax chargeable to the seller, on departure from teh property is calculted by multiplying the tax cost per day by the number of calendar days before title is conveyed
- The resulting amount is entered on the seller’s closing statement as a debit
- It is also shown on the buyer’s closing statement, but as a credit
- The buyer’s share of property taxes is not reflected on either closing statement because the tax bill is not settled at closing
- The buyer pays the entire yer’s property tax after November 1, which includes amount paid to the buyer buy the seller.
- If the closing occurs late in the year (November or December) and the seller has already paid the taxes for the year, the buyer will reimburse the seller for the remainder of the year. Thus debit to the buyer and credit to the seller
Interest Credited to buyer
- Earnest moeny deposit
- Mortgage assumed
- Mortgages newly created
- Prorated property taxes (city and county)
- Prorated unpaid interest
- Prorated advance rent
- Security deposits
Know the 4 characteristics of value
To have value, goods or service must possess the following 4 traits
- Demand
- Utility
- Scarcity
- Transferability
DUST
Sales comparison approach
Adjustment are made for transactional differences (changes in market condition sice date of sale, for example) and property differences (size, location, etc). All adjustments necessary to achieve the maximum degree of similarity must be made to each comparable property, not to the subject property. The intent is to adjust the comprable property to make it as similar to the subject property as possible. If a comprable proerty is inferior to the subject property on a given feature, and upward adjustment is made to that comprable property (add the value of the difference). If a comparable is superior on a given feature, a downward adjustment is made to the comparable property (subtract the value of the difference)
CBS = Comp Better Subtract
CIA = Comp Inferior Add
Market Condition Adjustment
- Divide the number of months by 12 (the total months in 1 year)
- The result from step one is multiplied by the interest rate increased
- The result of step 2, is then multiplied by the sales price
Type of lot where car headlights might be a problem at night
T-intersection lots are interior lots that suffer from their location at the end of a T-intersection. They are usually less desirable because of the inconvinience of car headlights shining into the home and a possible danger from speeding “runway” cars.
