Quick answer
Commission is the sale price multiplied by the rate, then split between the brokers and again between each broker and their licensee. To work backwards from a seller's desired net, add the seller's costs to the net and divide by one minus the commission rate. Never add the commission rate to the net. That is the wrong answer the exam is waiting for.
Forward: price to commission
Total commission is sale price multiplied by rate. Everything after that is division.
A $420,000 sale at 6 percent produces $25,200 of total commission. If the listing and selling brokers split it evenly, each firm receives $12,600. If the selling broker pays their agent 60 percent, that agent receives $7,560.
The order matters and the exam checks it: sale price, then total commission, then between firms, then within the firm. Questions that give you four numbers are testing whether you apply them in sequence rather than multiplying everything together.
Exam trap
A question gives you a 50/50 co-op split and a 70/30 agent split and asks what the agent receives. Multiplying the price by the rate and then by 0.70 skips the co-op split and produces a number that is on the answer list.
Backward: net to price
This is the calculation people get wrong, and they get it wrong in a specific way.
A seller wants to walk away with $300,000. Closing costs are $4,000 and the commission is 6 percent. What must the property sell for?
The instinct is to add 6 percent to $304,000, giving $322,240. That is wrong, because the commission is 6 percent of the sale price, not 6 percent of the net.
Set it up properly. If the commission takes 6 percent of the price, the seller keeps 94 percent of the price, and out of that pays the costs.
- Net plus costs equals $300,000 plus $4,000, so $304,000.
- That $304,000 represents 94 percent of the price.
- Price equals $304,000 divided by 0.94, which is $323,404 to the nearest dollar.
Check it: 6 percent of $323,404 is $19,404. $323,404 minus $19,404 minus $4,000 is $300,000. It works.
The rule
Price equals net plus costs, divided by one minus the commission rate. Write "1 minus the rate" on your scratch paper before you touch the numbers, because under time pressure the addition version feels correct.
The difference between the right answer and the instinctive one here is about $1,164 on a $300,000 net. Small enough to look plausible, large enough to be a separate answer choice.
Where commission comes from, and who pays whom
Two rules that generate questions on their own.
Commission is negotiable. There is no standard rate and stating one as though it were fixed is a problem under antitrust law. If a question offers "the customary 6 percent rate" as a fact, be suspicious of it.
A salesperson is paid by their own broker, never directly by a client or by the co-operating firm. That is a Georgia licence law point as well as a national one, and it is covered alongside the rest in the trust account rules.
Commission is usually earned when a ready, willing and able buyer is produced on the seller's terms, which can be before closing. Whether it is payable then is a matter of the listing agreement. Exam questions distinguish earning from being paid.
Percentage questions in general
Most exam maths is one relationship in three forms:
- Part equals whole multiplied by rate.
- Rate equals part divided by whole.
- Whole equals part divided by rate.
Commission, profit, loss, appreciation, and loan to value are all this relationship wearing different words. The skill worth building is spotting which number is the whole, because the question rarely says so.
For profit and loss questions, the whole is the original figure. A house bought for $250,000 and sold for $290,000 gained $40,000, and the percentage gain is $40,000 divided by $250,000, which is 16 percent. Dividing by the sale price instead gives 13.8 percent, which will also be on the list.
The formula sheet sets out each formula next to the base it takes, and the proration guide covers the other calculation that turns on a decision rather than on arithmetic.
Check yourself
1. A property sells for $385,000 at a 6 percent commission. The brokers split it evenly and the selling broker pays the agent 65 percent. What does the agent receive?
Show the answer
Answer: D. Total commission is $23,100. Half to the selling broker is $11,550. Sixty-five percent of that is $7,507.50.
2. A seller wants to net $250,000 after paying $5,000 in closing costs and a 5 percent commission. What must the sale price be?
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Answer: B. Net plus costs is $255,000, which represents 95 percent of the price. $255,000 divided by 0.95 is $268,421. Choice A adds 5 percent to $255,000, which is the classic error.
3. A house bought for $320,000 sells for $368,000. What is the percentage gain?
Show the answer
Answer: B. The gain is $48,000. Divided by the original $320,000, that is 15 percent. Dividing by the sale price gives 13 percent, which is choice A.
4. Which statement about commission rates is correct?
Show the answer
Answer: C. Commission rates are always negotiable. Any suggestion of a standard, customary or board-set rate raises an antitrust problem.
FAQ
Why can I not just add the commission percentage to the seller's net?
Because the commission is a percentage of the sale price, and the sale price is the number you are looking for. Adding it to the net applies the rate to the wrong base and always understates the price.
When is commission earned?
Usually when the broker produces a ready, willing and able buyer on terms the seller accepted. Whether it is payable at that point depends on the listing agreement, which typically ties payment to closing.
Can a seller refuse to pay after accepting an offer?
If the broker performed under the agreement, the seller can be liable even if the seller backs out. The exam tests the principle rather than the litigation.
Who pays the buyer's agent?
It depends on what the parties agreed, and practice on this has changed. On the exam, follow whatever the question states rather than assuming a convention.