Lecture Notes on Calculating Commissions

Introduction

• Topic: Calculating Commissions
• Importance: Understanding commission splits in real estate transactions.
• Key Terms:
  • Listing: Seller side of the transaction.
  • Selling: Buyer side of the transaction.

Learning Commission Splits

• Terminology: Listing = Seller, Selling = Buyer.
• Practice Terminology: Recite "listing seller" and "selling buyer" daily.

Basic Formula for Commission Calculation

• Total Commission = Purchase Price x Commission Rate
• Example: $325,000 home at 7% commission = $22,750.

Splitting Commissions

• Cooperating Firms: Listing firm compensates selling firm.
• Example: $227,000 home at 6% commission.
  • Listing firm offers 2.5% to selling firm.
  • Calculate Total Commission: $227,000 x 6% = $13,620.
  • Selling Side Commission: $227,000 x 2.5% = $5,675.
  • Listing Side Commission = Total - Selling Side = $13,620 - $5,675 = $7,945.

Shortcut for Commission Splitting

• Total Commission % - Given away % = Listing Side %
• Example: 6% Total - 2.5% Selling = 3.5% Listing
• Shortcut Calculation: Sales Price x 3.5% = $7,945

Practice Questions

• Question Type: Total Sales Commission, Listing/Selling Side Commission.
• Example Problems:
  • Calculate using basic formula and split methods.
  • Understand terms like "exclusive right to sell".

Commission Tree Method

• Purpose: To solve complex commission splits.
• Structure:
  • Top: Total Commission
  • Middle: Listing/Selling Side Split
  • Bottom: Broker/Firm Split
• Arrows: Down = Multiply, Up = Divide
• Practice Example:
  • $400,000 home, 6% commission, 50/50 split, 75% broker split.
  • Calculation: $400,000 x 6% x 50% x 75% = $9,000 broker commission.

Seller Net Pricing

• Goal: Calculate sale price to meet seller's net proceeds.
• Steps:
  • Add cash needs (net proceeds, mortgage, fees).
  • Use a pie chart for commission.
  • Formula: Total cash needs / (1 - Commission Rate)
• Example: Need $218,200 net, 5% commission = $229,684 sale price.

Conclusion

• Home Practice: Apply methods to worksheet problems.
• Understand both complex commission splits and seller net price calculations.
• Prepare for class discussion.

Additional Notes

• Terminology Mastery: Essential for math accuracy.
• Practice Problems: Vital for mastering commission splits and seller net calculations.
• Resources: Refer to chapter slides and worksheet for practice.