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Real Estate Math Formulas: Calculating Transfer Taxes

The math portion of your real estate licensing exam may ask you to calculate the transfer taxes for a sale. In almost all real estate transactions, buyers and sellers must pay taxes to their local counties for every property sale. For buyers, this is often called the recordation tax. For sellers, this is often called a grantor’s tax. In most cases, the amount of taxes is based on the sales price of the property.


Real Estate Math Formulas: Calculating Transfer Taxes

In order to calculate the transfer taxes, you first need to know what the transfer tax rate will be. This is often expressed as something like $0.50 per $500. This means that a buyer or seller would have to pay 50 cents for every $500 increment of the sales price. So, for a $200,000 property, a person would need to pay ($0.50 / $500)* $200,000 = $200 in transfer taxes.


Real Estate Math Practice Problem: Calculating Transfer Taxes for a $320,000 Property

The real estate math licensing exam may have the following problem:

Example. Sally plans to purchase Bob’s home for $320,000 in Sweetwater County. The County charges a recordation tax of $0.15 per $100 to buyers and a grantor’s tax of $1.25 per $100 to sellers. Calculate the transfer taxes for Sally and Bob.

Solution. To solve this problem, we can first convert each rate to a decimal.

Recordation Tax Rate = $.15/$100 = 0.0015

Grantor’s Tax Rate = $1.25/$100 = 0.0125

Then, we multiply these numbers by the sales price:

Recordation Tax = $320,000 x 0.0015 = $480

Grantor’s Tax = $320,000 x 0.0125 = $4,000

Therefore, Sally pays $480 in taxes and Bob pays $4,000 in taxes.


BONUS: Real Life Real Estate

In real life the title company will be calculating the transfer taxes for you and you’ll be able to see them laid out on the settlement statement. As a real estate agent, it is important for you to review the settlement statement prior to closing to ensure your numbers are correct and to explain these numbers to your client.


Need more real estate math practice?

For more real estate math formulas and practice, get our 125 Real Estate Math Problems Solved Book. It covers 9 real estate math topics with full solutions and video explanations!

Real Estate Math Formulas: Understanding Amortization Factors

One of the main topics on the real estate math licensing exam is understanding amortization factors. Because the actual monthly mortgage payment calculation is very complicated, amortization factors are a quick and easy way to estimate the monthly mortgage payment a buyer will need to make. In many states, the testing center will have an amortization factor table for you to reference during the exam, so don’t worry about memorizing the amortization factor table!


Real Estate Math Formulas: Solving Amortization Factor Problems

The easiest way to solve an amortization factor real estate math problem is to write down all of your “knowns” and use the amortization table to figure out your unknown. There are only 3 parts to the amortization table: the length of the loan across the top, the interest rate on the vertical axis, and then the amortization factor. Most real estate math problems will ask you to find the missing number.


Real Estate Math Practice Problem: Estimating Mortgage Payments Using Amortization Factors

The real estate math licensing exam may have the following problems:

Example 1. What is the monthly mortgage payment (PI) for a $250,000, 30-year loan at 8.5%?

Solution 1. To solve this problem, we first look at the amortization table to find that the amortization factor of a 30 year loan at 8.5% is 7.69.

Then, the estimated mortgage payment is the amortization factor x loan amount / $1000 = 7.69 * 250 = $1,922.50

Example 2. Johns’s mortgage payment (PI) is $1,591.5. If his $150,000 loan is for 10 years, calculate his interest rate.

Solution 2. To solve this problem, we first work backwards to find the amortization factor, which is: Amortization Factor = Est Payment / (Loan Amount / $1000) = 10.61

Then, we look at the amortization table to see that the closest interest rate that has an amortization factor of 10.61 and 10 years is 5%. So John’s interest rate is 5%.


BONUS: Real Estate Math Licensing Exam Study Tip

Amortization factor problems are one of the more challenging math problems to solve. If you are getting stressed out or spending a lot of time on one problem, mark the question number and come back. You do not have to get 100% to get your real estate license, so it is best to spend your time taking a first pass and answering all the questions you know. Then go back, if you have time, and spend time on the more difficult questions. This ensures you don’t waste 20 minutes on one problem and then can’t finish the rest of the exam.

In your everyday life as a real estate agent, you probably won’t be using the amortization factor table that much. Most often you’ll probably be working with a real estate lender or mortgage professional who will be providing these loan terms and estimated mortgage payments to your buyer clients. They are the professional that keep up with various loan programs (e.g., VA, FHA, Conventional, Physician Loans, etc.) and each programs requirements. Therefore, it is important to meet good real estate lenders to be part of your real estate team.


Need more real estate math practice?

For more real estate math formulas and practice, get our 125 Real Estate Math Problems Solved Book. It covers 9 real estate math topics with full solutions and video explanations!

Real Estate Math Formulas: T-Method

Out of all of the real estate math formulas you need to know, the most basic one is the T-Method. Once you understand the T-method real estate math formula, you’ll find that many real estate math problems are just another version of the T-Method. In this post, I’ll first explain the T method and then we will go through some real estate math practice problems using the T-Method.


Real Estate Math Formulas: The T-Method

The T-Method essential shows the relationship between Total, Part, and Rate and is visualized by drawing a T.

The top of the T indicates we need to divide and the vertical line of the T shows that we need to multiply. So we can get the following formulas based on the T-Method.

Part / Total = Rate
Part / Rate = Total
Total x Rate = Part

Once you memorize this real estate math formula, you’ll be able to do about 75% of the real estate math licensing exam problems!


Real Estate Math Practice Problem: Calculating Sales Price, Commission Rate, and Commission

Let’s look at three different examples of a house for sale.

Example 1. A house sells for $100,000 and the commission rate is 6%. What is the commission amount?

In this example the total is $100,000 and the rate is 6%. So we can use T-method to see that the actual commission is calculated by $100,000 x 0.06 = $6,000.


Example 2. A house sells for $100,000 and ABC Brokerage receives $5,000 in commission. What is the commission rate?

In this example, the total is $100,000 and the part (actual commission) is $5,000. So we use the T-method to see that the commission rate is calculated by $5,000 divided by $100,000 = 0.05 or 5%.


Example 3. ABC Brokerage receives $10,000 in commission and the commission rate was 10%. What was the sale price of the house?

In this example, the part (actual commission) is $10,000 and the rate is 10%. By using the T-method, we see that the total sales price is calculated by dividing the $10,000 by 0.10 = $100,000.


BONUS: Real Estate Math Licensing Exam Study Tip

When you are taking the real estate licensing exam and come across a real estate math question, first write down all of the known variables that they give you in the problem. Often times, they will give you two of the pieces of the T-method and it will be your job to figure out the third piece. So when you solve a real estate math problem, first figure out if you know the total, part, or rate and then figure out which piece is missing.


Need more real estate math practice?

For more real estate math formulas and practice, get our 125 Real Estate Math Problems Solved Book. It covers 9 real estate math topics with full solutions and video explanations!

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Learn basic and advanced real estate math concepts you need to:

  • pass your real estate licensing exam
  • become a successful real estate agent
  • understand the math behind real estate transactions

Get Over Your Math Anxiety and Succeed In Real Estate

At the end of this course, you will have a strong real estate math foundation that you can use throughout your entire real estate career. Many real estate agents are afraid of real estate math, but you don’t have to be! Stand out from your competition with confidence that you can answer any real estate math questions they have.

Content and Overview

This is a comprehensive course that covers 9 ESSENTIAL REAL ESTATE MATH TOPICS:

  • Fractions, Decimals and Percentages
  • Basic Applications of Percentages
  • Commissions
  • Qualifying for a Loan
  • Interest and Mortgages
  • Area and Volume
  • Legal Descriptions of Land
  • Appraisal Methods
  • Closing Statements

100+ Real Estate Math Practice Problems will Full Solutions

Go beyond the lectures and practice yourself with over 100 real estate math practice problems. Each sections has a set of practice problems and full solutions so you can practice and pinpoint your problem areas.

Understand Real World Situations and Impress Your Clients

This course not only helps prepare you for the real estate licensing exam, but also provides real world examples of how real estate math is used on every real estate deal, whether you are buying or selling real estate. Impress your clients with your expert knowledge to help them with buying or selling including: how they can qualify for a loan, estimate renovation costs, understanding their closing costs, and much more!

Real Estate Math – Calculating Additional Grantor’s Tax Increases

As of July 1, 2013, parts of Virginia began to require an additional “Regional Congestion Relief Fee” as part of the Grantor’s Tax. Grantor’s Tax is the seller paid taxes to the County when transferring a property. This amount is shown on the HUD-1 on the seller side of the transaction.

Here is the language of the new increase (taken from http://www.tax.virginia.gov/site.cfm?alias=ChangesandUpdatesFAQ):

The Regional Congestion Relief Fee will be imposed on conveyances of real estate in the Northern Virginia region, beginning July 1, 2013. The fee is imposed on the consideration or value in addition to any other required recordation taxes and fees at the rate of $0.15 per $100 or fraction thereof. The fee will be paid by the grantor at the time the deed is recorded in the local Circuit Court.

Localities in the Northern Virginia region are the Cities of Alexandria, Fairfax, Falls Church, Manassas, and Manassas Park, and the Counties of Arlington, Fairfax, Loudoun, and Prince William.

In order to keep your seller’s informed, you will need to know how to calculate the increase in taxes. In fact, many sellers tried to get buyers to close the last week of June in order to avoid this additional fee!

You’ll need to know a few things in order to solve this real estate math problem:

  1. The rate of the fee – in this case $0.15 per $100
  2. The sales price of the property

Let’s take an example of this real estate math problem:

Mr. Calderone sells his townhouse for $200,000 in Fairfax County. How much will he have to pay towards the Regional Congestion Relief Fee?

Solution:

The solution to this real estate math problem is:

Since the rate is $0.15 per $100, this translates to 0.0015 x the Sales Price = 0.0015 x $200,000 = $300. Another way to calculate this is to first divide $200,000 by $100 and then multiple by $0.15 = $2,000 x $0.15 = $300. Mr. Calderone must pay $300 for the Regional Congestion Relief Fee.

Want more practice?

If you’d like more practice with real estate taxes, download our “125 Real Estate Math Problems Solved!” Click here to get access to 125 real estate math practice problems.

Real Estate Math – Calculating Interest

Calculating interest is an essential real estate math question that you may encounter on your real estate licensing exam. Forbes magazine recently indicated that the interest rate is around 3.87 percent. As a real estate agent, it is important to know general trends of the rates (are they rising, falling, or staying the same?). It just takes a quick phone call to your local lender to give you the latest information. Let’s look at an example of how much interest a buyer will pay through the life of their loan.

You’ll need to know a few things in order to solve this real estate math problem:

  1. The loan amount
  2. The number of years of the loan
  3. The interest rate

Let’s take an example of the real estate math problem:

If John gets a 30-year fixed $200,000 loan from ABC Mortgage for 3.87% interest, calculate the total amount of interest John will pay over the entire life of the loan.

Solution:

The solution to this real estate math problem is:

Interest = Loan Amount x Number of Years x Interest Rate

$200,000 x 30 years x 0.0387 = $232,200

Want more practice?

If you’d like more practice with real estate taxes, download our “125 Real Estate Math Problems Solved!” Click here to get access to 125 real estate math practice problems.

Real Estate Math – Calculating Property Taxes

Calculating property taxes is an essential real estate math question that you may encounter on your real estate licensing exam. Each county or jurisdiction will calculate property tax based on the assessed value of the property.

You’ll need to know a few things in order to solve this real estate math problem:

  1. The tax rate for your particular jurisdiction – this is usually described per $1000 of the assessed value of the property. For example, a county may calculate taxes as $1.50 per $100 of the assessed value.
  2. You should use the T-method to solve these types of problems since these types of problems highlight the relationship between your assessed value (Total), the tax rate (Rate), and your taxes (Part).

Let’s take an example of the real estate math problem:

If the annual tax rate for a property is $2.10 per $100 of assessed value, what are the annual taxes for a property assessed at $345,000.

Solution:

The solution to this real estate math problem is:

Taxes = Assessed Value x Tax Rate

$345,000 x $2.10 / $100 = $7,245

Want more practice?

If you’d like more practice with real estate taxes, download our “125 Real Estate Math Problems Solved!” Click here to get access to 125 real estate math practice problems.

Real Estate Math Understanding Market Statistics

Today, the Tulsa World published an article about the Tulsa real estate marketing is heating up. In that article, they reference several common real estate math terms to describe what is happening in the real estate market. As a future real estate agent, you will need to be familiar with these terms and statistics in your area. In this post, we will focus on the real estate math term “absorption rate”.

The article says:

Prices are up significantly to an average of $163,368, the inventory of homes on the market has shrunk to 10.2 months, and contracts to sell continue to remain high month after month.

When we talk about the inventory of homes, we are really talking about absorption rate. The absorption rate is calculated by a two-step process. First, we determine the average number of sales per month. Essentially, this is the number of homes “being absorbed” each month. Second, we determine how many active listings there are currently on the market. This is the number of homes that “need to be absorbed.” By dividing the number of homes that need to be absorbed (i.e., active listings by the number of homes being absorbed (i.e., monthly sales), we can get the absorption rate.

Check out our latest Real Estate Math in a Minute on this topic:

The other real estate terms that you should be familiar with include: monthly sales, new listings, YoY (Year over Year) statistics, and MoM (Month over Month) statistics. Thankfully, you probably will not have to calculate these yourself (although you should know the real estate math behind these calculations!). Most MLS providers also have services that will aggregate and calculate these statistics for you.

 

Image Credit: FreeDigitalPhotos.net

The real estate math behind buying versus renting

The Wall Street Journal recently published an article indicating that vacancy rates have dropped to 4.7% across the nation, resulting in increases in rents. As a real estate agent, you may have renters that question whether or not it is cheaper for them to rent or to buy. While there are many factors to consider (such as how long the person will be living in that area), here’s a few things to tell your prospective buyer to consider from a real estate math perspective:

Consider all of your rental expenses:

  • What is your monthly rent?
  • What does the rent include and exclude? Utilities? Internet? TV?
  • How much would it cost to break your lease early if you decided to buy?

Now consider the expenses of owning a home?

  • Do you have enough down payment to buy a place?
  • What will your mortgage payment be, including taxes and insurance? Consider talking with a lender to see what your options are.
  • What will your expenses be (e.g., utilities, HOA fee, home repairs)?
  • Owning a home allows you to deduct your mortgage interest on your taxes. Will you get a tax break from owning a home?
  • Can you buy a place and rent out one of the rooms? Or rent out your parking space? This allows someone else to help you pay for your mortgage!

As we all know, mortgage rates are at an all time low, making a great case for renters to buy. However, each renter is in a unique financial situation, so in some cases, it may make more sense to rent than to buy. By helping your renter understand the real estate math behind deciding whether to rent or buy, he or she can understand the financial implications of the decision. Even if your renter decides not to buy, you have helped them make that decision. When they ARE ready to buy, they will come back to you!

Three Tips to Answering Multiple Choice Real Estate Math Questions

On the computer-based real estate licensing exam, you will be asked to answer multiple-choice real estate math questions. While practicing real estate math questions is an important part of preparing for the real estate licensing exam, you will also need to know strategies to answer multiple choice questions. This will help you answer questions faster and avoid mistakes on the exam. Here are three tips to answering multiple choice real estate math questions:

Tip 1. Read the entire question and all of the answers.

Make sure you read the entire question and know exactly what they are looking for. It helps to write down the units of the answer (e.g., a percentage, a dollar amount, number of days, etc…).

Tip 2. Eliminate answers you know are wrong.

When you read the answers, you might already see some answers you know are already wrong. On your scratch paper, write down the answer choices (e.g., A B C D) and then cross out the ones you know are wrong. This helps you to focus on where the correct answer is.

Tip 3. Work backwards.

If you are down to two choices, you can work backwards by plugging the answer choices into the real estate math question to see if they work.

Example:

John sells his house for $150,000 and gives his broker $9000 in commissions. What was his broker’s commission rate?

A. 3%

B. 6%

C. 10%

D. 50%

Answer:

First, we read the entire question and all of the answers. Then, we look to see which answers we can eliminate. Immediately, we see that 10% and 50% is too high of a commission rate, so we cross those out on our scratch paper. That leaves us with either A or B. In this case, we can work backwards. If John sells his house for $150,000 and gives his broker 3%, then his broker would receive $4500. Therefore, we can eliminate answer A. Thus, we are only left with answer B. If we plug this answer into the real estate math question, then we see that 6% of $150,000 is $9000.

 

For more real estate math practice problems, check out our free real estate math practice exam or our 125 Real Estate Math Problems Solved workbook, solutions manual, and video explanations.