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LESSON 5

Now we can move on to
everyone’s favorite type of math – calculating commissions! The commission is normally based on the sale
price, so that’s how we will learn to calculate commissions. Just multiply the sale price by the rate of
commission. If a house sells for
$100,000 and the commission rate is 7%, just multiply 100,000 X 7%. Remember our lesson on how to use your
calculator. You can also multiply
100,000 X **.**07 to get the answer, which is $7,000 either way.

We can also work problems
backwards again. If we know the seller
is paying a 7% commission and we know the total amount is $7,000, we can find
the sale price by dividing 7,000 by 7%.

Notice going forward the
formula is:

100,000 X 7% = 7,000

Going backwards we start at
the answer of 7,000 and work backwards step-by-step and number-by-number. Going forward we multiplied by 7%, so going
backward we divide by 7%. Dividing is
the opposite of multiplying. So 7,000
divided by 7% = 100,000. Notice it’s
the same number that you started with.

You might actually use this
in real life. If you determine that on
average you yourself get 1.5% of the sale price of a house, and you decided
that you wanted to earn $30,000 in commissions, you can use this to determine
the total value of the property you would have to sell to do that. Going forward, the formula would be:

Total Sales X 1.5% = 30,000

So going backwards, just
use:

30,000 divided by 1.5%, to
get $2,000,000

A lot of people think that
when an agent asks for a 7% commission, the whole thing is going to the
salesperson (Hey, some people think when we sell a million, that’s what we’re
making). Actually, the commission is normally split 4 ways. First it gets split between the listing
broker and the selling broker (the listing broker is the one working with the
seller, and the selling broker is the one working with the buyer). Then each broker splits the commission with
their salesperson. Of course, if you
sell your own listing, you and your broker would each get twice as much!

Let’s put this into a math
problem. If a house sells for $180,000
at a 6% commission, the commission is split evenly between the brokers, and the
listing salesperson gets 60% of that, how much does that salesperson get? Work it out, then click here
to see if you got it right.

The correct answer is
$3,240. 180,000 X 6% = 10,800; 10,800 X
50% = 5,400;

5,400 X 60% = **3,240**

Now when you get a question on
this, it won’t be put in the order that things happen, so you need to put it
into the correct order (Remember, the order that things happen is
important). The question might be
worded:

Bob, a salesperson for White
Star Realty, gets 60% of all commissions he brings into his company. Ray, an agent for Blue Sun Real Estate,
sells one of Bob’s listings and the seller pays a 6% commission. The commission is split evenly between the
brokers. How much will Bob get if the
house sells for $180,000?

It may look more
complicated, but it’s the SAME question!

Now, suppose we have to go
backwards on this question. Let’s
reword the question slightly.

Bob, a salesperson for White
Star Realty, gets 60% of all commissions he brings into his company. Ray, an agent for Blue Sun Real Estate,
sells one of Bob’s listings and the seller pays a 6% commission. The commission is split evenly between the
brokers. How much did the house sell for
if Bob gets $3,240?

Everything still happens in
the same order.

Sale
Price X 6% X 50% X 60% = 3,240

We have to work backwards
again, starting from our final answer, the commission amount received by
Bob. Now think, what was the LAST thing
we did when we were going forward?

Hmmm, could it be that we
multiplied by 60%?

Yes, that’s it, so the FIRST
thing we’re going to do when we work backwards is to DIVIDE by 60%. DO NOT change the percentage. The second to last thing we did going
forward was to multiply by 50%.

So the SECOND thing we are
going to do working backwards is to DIVIDE by 50%. The first thing we did going forward was to multiply by 6%, so
the LAST thing we are going to do working backwards is to DIVIDE by 6%, which
will get us our answer, the sale price of $180,000 (Hey, it’s the same number
as before!).

If you are having trouble
putting things in the right order, think it out logically. First, NO commission can be paid before you
know the sale price, so that has to be listed first. Next, the seller has to pay the ENTIRE commission before it can
be split between the brokers (i.e. you can’t split it between the brokers if
the seller hasn’t paid the commission yet).
Finally, a salesperson cannot be paid before their broker gets their
share, so the order MUST be: sale price, then total commission, the split
between the brokers, then pay the salesperson their share. This is the order things MUST happen when
you are going forward.

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Grade