Agency Questions Profit, Loss
& Commission Problems
1.What is a person with a power of attorney called?
2. Who can be an Attorney-in-fact?
3. If an Attorney-in-fact signs for the principal, what obligations does the principal have?
4. What is the definition of the principal?
5. Who is the person who authorizes the right to be represented?
6. What are the only 2 things you can say if you’re considered to be working for the seller, and the buyer asks you what you should offer?
7. Who is a salesperson an agent for?
8. Who does the broker owe a fiduciary responsibility to?
9. Who does the listing belong to?
10. Who has procuring cause?
11. When is the broker entitled to a commission?
12. What is a net listing?
13. What is an open listing?
14. What is an exclusive agency listing?
15. What is an exclusive right to sell listing?
16. What is the definition of a special agent? (And yes, I’ve heard the 007 joke before.)
17. General agent?
18. Universal agent?
19. What is the difference between a customer and a client?
20. What is an Anti-trust violation?
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PROFIT, LOSS AND
COMMISSION PROBLEMS
(Answers at the bottom of the newsletter – No looking
ahead!)
1. If you bought a house for 98,000 dollars, what do you need to net from a sale to make a 15% profit? What would that same house have to sell for if you have to pay a 7% commission and $2300 in miscellaneous closing costs?
2. If you bought a house 4 years ago for $122,000, what would you have to sell it for today to make a 5000 dollar profit after paying an 8% commission?
3. If you sell a house for $136,000, and that's a 16% profit over what you paid for it, what was your original purchase price?
4. If you sold a condo for $45,000, and that's an 11% loss from your original purchase price, what did you pay for it?
5. If you bought a house for $90,000, you sell it for 10% more, and pay 10% in commission and other closing costs, what will you net at settlement?
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ANSWERS TO AGENCY
QUESTIONS
1. Attorney-in-fact. 2. Anyone of sound mind and legal age designated by the principal. 3. Same as if the principal signed themselves. 4. The person who authorizes the right to be represented (the client). 5. The principal or client (Weren’t you paying attention?!) 6. ‘Full listing price’ or ‘Make your best offer.’ 7. The broker; subagent of clients for that company. 8. Their clients. 9. The broker.
10. The agent that starts the chain of events that causes that buyer to buy that property, and therefore that agent is PROBABLY (but not always) entitled to the commission.
11. When he/she secures a ready, willing and able buyer on the sellers terms. The seller does not have to sell, but will probably still owe a commission.
12. This is where an agent guarantees the seller that they will NET a certain amount of money, and anything over top of that the agent will keep as their commission. Illegal in most states.
13. More than one agent can be hired; seller owes a commission to the agent that produces an acceptable buyer and can still sell it on their own and owe no commission.
14. Only one broker is hired, but seller can still sell on their own and not owe any commission.
15. Only one broker is hired, and if the property sells during the listing period, the broker is entitled to a commission, no matter who sells the property.
16. An agent handling one transaction only.
17. A variety of transactions, for business purposes only. 18. Handles any and all transactions.
19. A couple thousand dollars. No, really - A client is represented, someone you work FOR, you advise and look out for their best interest. A customer is not represented; someone you work WITH, you assist and must deal with fairly and honestly.
20. When two or more parties agree to fix prices, commissions, what they will charge or what they will pay. Conspiring or colluding to eliminate competition or work against free market principles. Also any action by an individual to create the impression that this has occurred.
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ANSWERS TO
PROFIT, LOSS AND COMMISSION PROBLEMS
1. $112,700; $123,655.91
For any profit or loss question, there are two basic steps. The first step is to figure out the percentage you are using to do the problem. If it is a PROFIT, you ADD the percentage of profit to 100%. If it is a LOSS, you SUBTRACT the percentage of loss FROM 100%. So in this case, we add 15% to 100, to get 115%. In the second step, if you know the ORIGINAL amount, and you are going forward to the new amount, you MULTIPLY by that percentage. If you are starting at the NEW amount, and you’re going backwards to the original amount, you DIVIDE by that SAME percentage. Here we are starting at the original amount of $98,000. So 98,000 X 115% = $112,700. When we are starting at the original amount and going forward, we can also take 15% of the original amount and add it on. We can NOT do that when we are going backwards. 15% of 98,000 is not the same as 15% of 112,700. For the second part of the question, we have to treat the commission like a LOSS (but don’t ever say it like that to a seller). The seller had 100%, but they LOST 7% to the commission, leaving them with 93% after the commission is paid. THEN they paid an additional $2300 in closing costs. This time, we are going BACKWARDS to the sale price. We have to do EVERYTHING backwards from the way it happened. If you change the order, you will change the answer (You can check the answer going forwards if you don’t believe me). The last thing we did going forward was to subtract 2300, so the FIRST thing going backwards is to ADD 2300. THEN we DIVIDE by the 93% we multiplied by going forward. So 112,700 + 2300 ÷ 93% = $123,655.91. Now if you STILL don’t believe me, multiply 123,655.91 times 7% and subtract that number from 123,655.91. The subtract 2300 and you will be back at 112,700. Do that with whatever different answer you came up with and it won’t work. (For any percentage, you can also move the decimal point two places to the left if you want to use a decimal instead of a percentage.)
2. $138,043.47 Even though this gives us our original purchase price, that is not the problem. The problem is that we want to get $127,000 (5000 more than what we paid) AFTER paying an 8% commission. So we are going BACKWARDS to the sale price. So 127,000 ÷ 92% = 138,043.47
3. $117,241.37 100% + 16% = 116%; 136,000 ÷ 116% = $117,241.37
4. $50,561.80 100% – 11% = 89%; 45,000 ÷ 89% = $50,561.80
5. $89,100.00 Be careful. It’s not the same 10% that you are adding and subtracting. 90,000 plus 10% (or 9000) is 99,000. 99,000 minus 10% (or 9900) is $89,100.
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