8.2 Commission, Financing, and Interest Calculations
Key Takeaways
- Total commission equals sale price times commission rate; splits then divide that pool among brokers and agents.
- Compute the brokerage split first, then the agent split, working from the largest pool down.
- Simple annual interest equals principal times rate; divide by 12 for one month of interest.
- Points cost 1% of the loan amount each and are paid at closing to adjust the lender's yield.
- Loan-to-value ratio equals loan amount divided by the lesser of price or appraised value.
Commission Calculations
Commission is the agent's paycheck and the most tested money formula. Total commission = Sale Price x Commission Rate. The exam complicates it with multi-level splits, so always identify which pool a percentage is taken from.
Work top-down:
- Total commission from the sale price.
- Brokerage split between listing and selling firms.
- Agent split from their own firm's share.
Example: A home sells for $400,000 at a 6% total commission. The listing and selling brokerages split 50/50, and the selling agent keeps 60% of their brokerage's share.
Working the Split
- Total commission = $400,000 x 0.06 = $24,000.
- Selling brokerage share = $24,000 x 0.50 = $12,000.
- Selling agent's pay = $12,000 x 0.60 = $7,200.
The trap answer applies 60% to the full $24,000 (giving $14,400) or to the sale price directly. The percentage always attaches to the pool named immediately before it.
Solving for Sale Price From Commission
If a broker earned $9,000 at a 3% rate, the sale price = $9,000 / 0.03 = $300,000. This is the T-bar in reverse: Total = Part / Rate.
A property sells for $350,000 with a 7% total commission. The listing broker keeps 40% of the total and pays the rest to the selling broker. How much does the selling broker receive?
Simple Interest
Real estate loans are quoted as simple annual interest on the outstanding principal. The core formula is Interest = Principal x Rate x Time (I = P x R x T), with time in years.
For one month of interest, divide the annual figure by 12.
Example: A $180,000 loan at 6.5% annual interest.
- Annual interest = $180,000 x 0.065 = $11,700.
- Monthly interest = $11,700 / 12 = $975.
On an amortized loan, the first month's interest is the full monthly interest above; the rest of the payment reduces principal. The exam often asks for that first-month interest portion specifically.
Discount Points and Loan-to-Value
Each discount point equals 1% of the loan amount and is paid at closing to buy down the rate or boost the lender's yield. One point is never 1% of the sale price unless the loan equals the price.
Example: On a $240,000 loan, 2 points cost $240,000 x 0.02 = $4,800.
Loan-to-value (LTV) = Loan Amount / (lesser of sale price or appraised value).
| Item | Amount |
|---|---|
| Sale price | $300,000 |
| Appraised value | $290,000 |
| Loan amount | $232,000 |
LTV = $232,000 / $290,000 = 80%. Lenders use the lower $290,000, so a buyer must cover the $10,000 appraisal gap in cash.
A borrower obtains a $220,000 loan and pays 3 discount points at closing. What is the dollar cost of the points?
Net-to-seller and graduated commission problems
A frequent variation asks for the list price that nets the seller a target amount after commission. Because commission is a percentage of the sale price, the seller keeps (100% − rate) of it, so you divide, not subtract.
Worked example: net-to-seller
A seller must net $188,000 after paying a 6% commission. What sale price is required?
- Seller keeps 100% − 6% = 94% of the price.
- Sale price = $188,000 / 0.94 = $200,000.
- Check: $200,000 x 0.06 = $12,000 commission; $200,000 − $12,000 = $188,000. Correct.
The trap answer adds 6% to $188,000 ($199,280), which under-prices the home because the 6% would then be taken on the larger number.
Worked example: tiered split
A $500,000 sale carries a 5% commission. The brokerage takes 30% of its agent's production as a desk/franchise fee, then the agent keeps the rest.
- Total commission (one side) = $500,000 x 0.05 = $25,000.
- Brokerage fee = $25,000 x 0.30 = $7,500.
- Agent keeps = $25,000 − $7,500 = $17,500.
Always attach each percentage to the pool named immediately before it, and label every intermediate figure so you never multiply the rate by the wrong base.
Amortization, qualifying ratios, and points-to-yield
Beyond the first-month interest split, the exam tests how a payment divides and how lenders qualify borrowers.
Worked example: first payment split
A $200,000 loan at 6% with a monthly payment of $1,199 (principal + interest).
- First-month interest = $200,000 x 0.06 / 12 = $1,000.
- Principal reduction = $1,199 − $1,000 = $199.
- New balance = $200,000 − $199 = $199,801.
Each month the interest portion shrinks and the principal portion grows — the essence of amortization.
Qualifying ratios
Lenders cap the front-end ratio (housing cost ÷ gross monthly income) and the back-end ratio (all monthly debt ÷ gross income). With 28%/36% limits and $6,000 gross monthly income:
- Max housing payment = $6,000 x 0.28 = $1,680.
- Max total debt = $6,000 x 0.36 = $2,160, leaving $480 for other debt.
Points and lender yield
Each discount point is 1% of the loan, and roughly 8 points are said to raise lender yield by about 1%. On a $250,000 loan, 1.5 points cost $250,000 x 0.015 = $3,750 paid at closing. Confirm whether points are charged on the loan amount (correct) or the sale price (a trap when the two differ).
Worked example: total compensation across a deal
A $360,000 sale pays a 6% total commission, split 50/50 between the listing and selling brokerages. The listing salesperson is on a 70/30 split with their broker (agent keeps 70%).
- Total commission = $360,000 x 0.06 = $21,600.
- Listing brokerage share = $21,600 x 0.50 = $10,800.
- Listing salesperson keeps = $10,800 x 0.70 = $7,560; the broker retains $3,240.
The single most common error is taking the 70% from the full $21,600 ($15,120) instead of the listing side's $10,800. Each percentage attaches only to the pool named just before it, so write the running total at every step and label it (total, side, agent). Reading carefully whether a split is stated as "agent keeps 70%" versus "broker keeps 70%" is what separates the right answer from the planted distractor.