Principals and Practice - Math and Chapter 9

The sale of a property will close on April 30, 2017. Taxes are $1,575 per year, and are paid through the last half of 2016. Calculate the seller's share of taxes using a 360-day year.

$1,575 / 360 - $4.3760 120 days (4months x 30) x $4.3750 = $525.00

A home is valued at $100,000 and assessed for tax purposes at 35% of value. If mills are 47.5, calculate the annual taxes.

$100,000 x 35% = $35,000 $35,000 / 1,000 = 35 35 x 47.5 = $1,662.5

A parcel of land is purchased for $100,000 and later sold for $115,000. What is the profit

$15,000 / $100,000 = 15%

A property is valued at $150,000 and generates annual income of $30,000. Building expenses run $1500 per month, leading to a net income of $12000. Calculate the gross rent multiplier

$150,000 / $30,000 = 5.0

A buyer is purchasing a home for $150,000. He will make a $25,000 down payment and will borrow $125,000 from a local savings and loan association. What will the amount of the transfer tax be?

$150,000 / 1,000 = $150.

A property is appraised at $150,000 and assessed for tax purposes at 35% of value. Calculate the annual taxes if the mills total 80.

$150,000 x 35% = 52,500 52,500 / 1,000 = 52.5 52.5 x 80 = 4,200

Property taxes on a home are $2,200 per year. They are paid through the first half of the year. The property has been sold and the closing will take place August 1 of the same year. What amount of prorated taxes will be due to the buyer?

$2,200 / 365 = 6.0274 July 31 + Aug 1 = 32 days 32 x 6.0273 = $192.88

You purchase an investment property for $125,000. You later sell it at a loss of $20,000. What is your percent of loss?

$20,000 / $125,000 = 16%

A property could generate $200,500 in annual income. The building has an 8% collection loss, monthly expenses of $4200, and the capitalization rate is 9%. What is the value of the property?

$200,500 (Potential Income) - $16,040 (losses of 8%) = $184, 460 (Effective income) $184,460 (Eff. Inc.)-$50,400 (Annual Operating Expenses: $4200 x 12) = $243,060(Net Income) $134,060 (Net Income) / 9% (Rate) = $1,489,555.555 (Value)

A property generates gross rents of $40,000 yearly. It recently sold for $300,000. If it has a vacancy rate of 10% and expenses $1200 per month, calculate the gross rent multiplier

$300,000 / $40,000 = 7.5

A property has an annual income of $50,00 and monthly building expenses of $2500. Annual debt service is $16,000 and depreciation is 3% of value. Using a capitalization rate of 8%, determine the value of the building.

$50,000 - $30,00- ($2500 x 12 = $20,000 (net income) $20,000 / 8% = $250,000

If the sales agent received half of the total commission, or $5,122, and the home sold for $157,600, what rate did the broker charge for commission?

$5122 x 2 = $10,244 $10,244 divided by $157,600 = 6.5% Total commission paid is $10,244. That is the "part" that goes at the top of the circle. The "whole" is the sales price of $157,600. To find the percent, divide the part by the whole: $10,244/157,600= 6.5%

Calculate the gross rent if a property valued at $900,000 had a GRM of 9.5

$900,000 / 9.5 = $94,736.84

CALENDAR (use on exam unless says otherwise)

- 365-day year. in these problems, the first step is to calculate the dailycost of the item in the question. Always take the daily rate to four places past the decimal point. Next, calculate the actual number of days in question. Finally, multiply the daily rate by the number of days.

RULES TO REMEMBER

- Always use 365-day year unless the exam says otherwise. - Always calculate the math to four places past the decimal point and then adjust the final answer. - The seller always pays for the day of closing. - Property taxes are an accrued item in Ohio. This means taxes are paid in arrears, or after use. Taxes are a minimum six months behind. **If the question does not say that the previous six months are paid, you must calculate the number of days in that six-month period as well.

T(Circle) Approach

- Part divided by Whole = % (TGIF...Top Goes In First) - Part divided by % = Whole (TGIF) - Whole x % = Part

Line Approac

- Sale Price or Loan Amount x Percentage = Part or Annual Interest -Part or Interest divided by Percent = Sale Price or Loan Amount - Sale Price or Loan Amount divided by Percentage = Part or Interest

TWO TYPES OF YEARS USED IN PRORATION:

1. CALENDAR 2. STATUTORY

LOT MEASUREMENTS

1. FRONT FEET 2. SQUARE FEET 3. ACREAGE 4. LINEAR FOOTAGE 5. CUBIC FEET/YARDS

Percent Probles - 2 Approaches

1. Line Approach 2. T (Circle) Approach

Different steps to find net income:

1. Potential Goss Income 2. Effective Gross Income 3. Net Income 4. Capitalization Rate

An apartment building has 10 units, each of which rents for $600/month. The building has an occupancy rate of 90%, monthly building expenses are $500, and depreciation is 2%. Determine the highest price the investor will pay if he demands a 9% rate of return on his investments.

10 x $600 = $6,000/month Potential gross income 6000 - 600 (6000 - 10% vacancy loss)= 5400 5400 - 500 = 4900 4900 x 12 = 58,800 58,800 / 9% = $653,333.333

The Jones family is considering an offer on their home. They must pay off a $115,000 loan, pay closing costs of $1,000, and a survey fee of $425. Their broker is charging them a five percent commission. Determine the minimum acceptable offer.

115,000+1000+425=116,425 116,425 / 95%= $122,552,63

A property has a gross monthly income of $12,600 and a vacancy and collection loss rate averaging %11, with monthly expenses of $1500 and depreciation of 6% a year. What would be the highest offer the prospective buyer should come up with if he insists on a 15% rate of return and the asking price is $850,000?

12,600 - 11% = 11,214 11,214-1500=9714 9714 x 12 = 64,760/yr 64,760 / 15% = $777,120

A home sold for $147,500. The seller agreed to carry a second mortgage for the buyer in the amount of $20,000. Calculate the transfer tax.

147,500 x 1,000 = $147.50

What would a commercial lot, 150' x 600', priced at $2,000 per front foot cost? What would it cost at $2.50 per square foot?

150 x $2,000 = $300,000 150'x600'=90,000 sq ft 90,000 x $2.50 = $225,000

A seller is selling his home for $160,000. The buyer will make a $20,000 down payment and

160,000 / 1,000 = $160

A man purchases land for $50,000. He divides it into three lots that are sold for $20,000 each. What is his return on investment?

20,000 x 3 = 60,000 60,000 - 50,000 = 10,000 (what he made) $10,000 / $50,000 = 20%

STATUTORY

360-day year - in these questions a monthly rate is used so your first step is to calculate the MONTHLY RATE. You should again calculate to four places past the decimal point. Next, calculate the number of months in question. The problem will use simple closing dates, like the 15th or 30th, so you can use a whole or half month. Finally, multiply the monthly rate by the number of months.

The premium for two-year insurance coverage on a home is $460. The policy was purchased and paid for August 1, 2016 and a closing takes place June 2, 2018. Using a 365-day year, calculate the seller's credit.

365 x 2 = 730 days $460 / 730= 0.6301 June 28 + July 31 =59 60 x 0.6301 = $37.18

ACREAGE

43,560 square feet in an acre Calculate the square feet of the lot then divide that number by 43,560 (65' x 150' - 9,750 sq. ft / 43,560 = 0.2238 acres)

A company sold another company's listing. It received 50% of a six percent commission. If the company receive $2250, what was the price of the home?

4500 divided by .06 = $75000 Whole= Salesprice Divide the part by the percentage: $4500/.06=$75000

If a bag of concrete makes one cubic yard, how many bags will it take to pour a 60' x4' x4" sidewalk

60' x 4' x .3333 (4" / 12) = 79.9920 cubic feet 79.9920/27 = 2.962 bags 3 bags This is a problem of volume

How many square feet are there in the S 1/2, SW 1/4, NE 1/4 of Section 28

640 / 2 / 4 / 4 = 20 20 x 43,560 = 871,200

A parcel described as the S 1/2, NE 1/4, NW 1/4 sells for $31,500 per acre. If the commission rate is 6%, calculate the commission

640 / 2 / 4 / 4 = 20 acres 20 x $31,500 = $630,000 sales price 6% x $630,000 = 37,800

Calculate the number of acres in the parcels described as the N 1/2, NW 1/4, and the SW 1/4, NW 1/4, NE 1/4 of Section 33.

640 / 2 / 4 = 80 640 / 4 / 4 / 4 = 10 80 + 10 = 90

Calculate the number of acres in the parcels described as the NW 1/4, NE 1/4 of section 32, and the NW 1/4, NE 1/4, NE 1/4 of Section 33.

640 / 4 / 4 = 40 acres 640 / 4 / 4 / 4 = 10 acreas 40 + 10 = 50 acres in the two parcels

Joan is selling her home. She needs to pay off a $65,000 first mortgage, a $15,000 second mortgage, and wants $10,000 in cash for herself. If her closing costs will total $1200 and she must pay a 7% commission, how much must she sell the property for?

65,000+15000+10000+1200= $91,200 91,200 / 93% (.93) = $98,064.52

Mr. and Mrs. Williams want to net $90,000 when they sell their home. They have to pay closing costs of $3200 and the broker a 6% commission. What is the least the home can sell for to net $90,000 (rounded to the nearest dollar)?

90,000+3200 = 93200 93200 / 94%= $99, 149

TRANSFER TAX

A tax charged to the seller based on the sale price. The exam uses the mandatory state tax, which is $1 per thousand dollars of the sales price. ** Exam questions try to obscure the sale price by adding down payment, mortgage, or other information to the question that you do not need. USE THE SALE PRICE ONLY.

Points

Defined as one percent of the mortgage, or loan, amount. ON THE EXAM, POINTS MAY BE REFERRED TO AS "DISCOUNT POINTS" OR "LOAN ORIGINATION FEES."

A property is being financed through the VA. If the sale price is $75,000 and the points are four, the points will total what dollar amount?

Each point is 1% of the loan amount: $75,000 x .01 - $750. Four points will cost $3,000 (750 x 4) $3000

Net Income

Effective gross income, minus building expenses.

Bill sold his real estate for $234,900 and made a 28% profit. What did he originally pay for that property?

First add the profit percent (28%) to the percent of the original price (100%). then, divide selling price by 128% 234,900 x 128% = $183,515.62

John purchased a property for $125,000 and recieved an 80% loan. He paid $3,000 for points. How many points did John pay?

First determine the loan amt which is the "whole": $125,000 x .80 = $100,000. The "part" is $3,000. To find the percet, divide the part by the whole: $3,000 / $100,000 = .03 or 3%. Since each point is 1% of the loan, we know that John paid 3 points.

A buyer is purchasing a property for $250,000 and will make a $60,000 down payment. If charged two points, how much will the buyer owe in points?

First determine the loan amt: $250,000 (sale price) - $60,000 (down pmt) = $190,000 Part = $190,000 x 2%: 0.02 x $190,000 = $3,800 $3,800

A buyer is purchasing a property for $100,000 and will make a 20% down pmt. If charged two points, how much will be owed in points?

First find mortgage amount $100,000 x .80 = $80,000 Each point is 1% of the loan amount, so each point costs $800: $80,000 x .01 - $800. 2 points would cost $1600 $1600

The assessed value of a property is $35,000 and the annual taxes are $2,380. How many mills were charged on this property?

First find the cost of each mill $35,000 / 1,000 = $35.00 $2,380 / $35 = 68 Mills

SELLING PRICE/NET TO OWNER

In the problem, an owner is selling a home and you will be given a number of cost items, including brokerage commission. Your task is to determine the ultimate selling price (which may also be called "listing price," "sale price," or "minimum offer"): 1. Total the money the seller must get. This is the "part" 2. Divide it by the percentage of the sale that it represents. this is the "%." 3. The answer is the "whole"

A property measures 230 feet x 310 feet. If it sell for $14,000 per acre and the commission is 6.5%, how much is the commission?

L x W - sq. ft 230' x 310' = 71,300 sq ft sq ft /43,560 sq ft = acres 71,300/43,560 = 1.6368 acres 1.6368 acres x $14,000 = $22,915.517 Part = Whole x $ $22,915.517 x .065 = $1,489.51

SQUARE FEET

Length multiplied by width (65' x 150' = 9,750 sq. ft.)

Cubic Feet/Yards:

Length multiplied by width multiplied by depth equal cub feet. Cubic feet divided by 27 results in cubic yards. (120' x 10' x 0.333' = 399.96 cubic feet / 27 - 14.8133 cubic yards).

Mr. and Mrs. Davis sold their home for $182,000 and it is due to transfer on August 13. The buyer, Miss Fairchild, took out a loan for $162,000 and is planning on moving in on August 15. Who pays the conveyance fee and how much is it?

Mr. and Mrs. Davis - $182

Write description for shaded area: (box divided into 4 squares labeled NESW with top right 1/4 of NE box dark

NE 1/4 of the NE 1/4

THE RECTANCULAR (GOVERNMENT, MILITARY) SURVEY SYSTEM

One method of property descriptions. It uses terms such as sections and townsjips. 2 types of math problems in sections: 1. You may be given a description and asked to calculate the number of acres in that particular area. Here it is important to remember that the TOTAL NUMBER OF ACRES IN A SECTION IS 640. 2. You may be shown a diagram of a section and asked to write the description.

Boss Realty sold its listing for $105,000. If a 6% commission was charged, what commission would Boss Realty earn?

Part (Commission) = 6% x $105,000 0.06 x $105,000 = $6,300 Commission earned was $6,300.

A property listed for $100,000 sold in a co-op transaction for $90,000. If the commission rate was seven percent and the brokerages split it evenly, how much did each company get?

Part (Commission)=7% x $90,000 0.07 x $90,000= $6300 $3150.00 explanation "Whole" = selling price Percent is 3.5% (half of 7%) multiply 90,000x.025=$3,150

Part 1: A property is valued at $195,000 and generates an annual income of $24,000. Building expenses run $1100 per month, leading to a net income of $10800. Calculate the gross rent multiplier. Part 2: If the GRM derived above is applied to a subject property that generates $1800 monthly, calculate the value of the subject property.

Part 1: $195000 / 24000 = 8.125 R=GRM - 8.125 Part 2: $1800 (monthly income) x 12 months = $21600 (annual income $21600 (annual income) x 8.125 (GRM) = $175,500 (value of the property)

A house costs $100,000. The buyer is making a down payment of $32,000 and getting a $68,000 loan. If there are 4 points, how much money will be paid out of the closing for the points?

Points are based on the loan amount. If each point is 1% of the loan amount, each point costs $680. The buyer is paying four points, so $680 x 4 = $2720.

Effective Gross Income

Potential gross income, minus vacancy and collection losses

How to calculate the loan amount

Sales price - down payment = loan amount Sales price on a VA transaction is the same as mortgage/loan amount since VA does not require down pmt.

A property is appraised at $380,000 and assessed for tax purposes at 35% of value. Calculate the annual taxes if the mills total 65.

Solve the Problem: 35% x $380,000 = $133,000 assessed value $133,000 / 1,000 (mill = $1 per $1,000) = $133 (cost of 1 mill) $133 x 65 mills = $8,645 or $133,000 x 0.065=$8,645 Annual taxes = $8,645

The sale of a property will close on May 10, 2006. Taxes are $3600 per year and are paid through the last half of 2005. Calculate the seller's share of taxes using a 365-day year

Step 1: Daily Tax Rate = $3600 / 365 - $9.8630 Daily Rate Step 2: Number of Days = Jan. 31 + Feb. 28 + Mar. 31 + Apr. 30 + May 10 = 130 Days Step 3: Amount Owed = 130 Days x $9.8630 = $1,282.19

PRORATIONS

The cost of a financial item divided between two parties, such that each pays a share of it. ON THE EXAM - the financial item will usually be property taxes (b/n buyer and seller), insurance premiums (b/n sell and ins. co), or mortgage interest (b/n seller and lender).

Write the description for the shaded area. (box divided into 4s labeled NESW with half of NW box shaded)

The description for the shaded area would read: W 1/2, NW 1/4 of the section

POTENTIAL GROSS INCOME

The income a property would generate if every unit was occupied 100% of the time.

FRONT FEET

The portion of the lot that faces the street. In a measurement, frontage is always the first number (a 65' x 150' lot has 65' front feet)

Capitalization Rate

The rate of return on an investment. **Depreciation and annual debt service (monthly pmt) are NOT considered building expenses and should NOT be used if they are included in the problem. They are owner expenses. these problems use only operating expenses. Formula for capitalization is remembered as IRV: (Net) Income / Rate = Value

Linear Footage

This is simply the length in feet (a 20' x 30' garden will take 100 linear feet of fencing

PROFIT/LOSS/RETURN ON INVESTMENTS

This type of problem will give you both the original purchase price of the property and the eventual sale price. You will be asked to calculate the return on investment or percent of profit - both are the same figure Simple formula expresses as a "poem" comes in handy: What You Made / What you Paid = Percentage of Profit What You Lost / What It Cost = Percentage of Loss

GRM (Gross Rent Multiplier)

Value / Gross Annual Income - GRM Some questions refer to the value as the sale price and/or to the gross annual income as gross rents. **Expect the question to include information, such as expenses, that will attempt to direct you to net income IGNORE IT?. REMEMBER TO USE ONLY GROSS INCOME.

Laney wants to sell her home. She must pay off her existing $35,000 mortgage and pay $3200 in closing costs. She wants to have $40,000 left so she can buy another home. If she pays a 6.5% commission, what is the minimum offer she can accept?

Whole = Part / % 78,200 / 93.5% = $83,636.36 100%-6.5%=93.5%

CAPITALIZATION AND THE GMRM

You will be required to calculate the value of the property based on its ability to generate income. Capitalization uses NET INCOME.

How to calculate the property taxes on real estate STATE EXAM QUESTION

You will receive 3 pieces of information: 1. Market value or appraised value of the property. 2. The assessment level Property taxes are referred to as AD VALOREM TAXES. Which means "as per value" and taxes are based on the assessed value of a property. 3. "Mills" One mill equals $1 per $1,000 of assessed value (1 mill = 1/1,000 or 0.001)

A lot measures 80' across the back, 50' deep, and 110' across the front. What is the sq ft of the lot

to determine the sq footage of a trapezoid-shaped property is to first average the two uneven sides, know as side opposite averaging, then multiply: 80' + 110' = 190' 190'/2 = 95' 50 x 95' - 4,750 sq. ft.