Real Estate Math

Information Last Verified: June 15, 2021 by Jordan Fabel

Real estate math plays an important role in every real estate transactions. You don’t need a genius-level math skill, but you do need to understand certain math concepts. You divide, subtract, multiply, and add every time you write a contract or complete comparative market analysis. When you’re a real estate agent, there’s no way to avoid math. And every state’s real estate license exam includes a math section.

The number of questions in the math section varies by state. You can generally expect to see between 5 to 20 math questions on the state real estate exam.

You might think math isn’t that important in real estate. After all, you’re concerned with buying and selling property. Why do you need math for that? It’s because issues requiring the use of math arise all the time in real estate.

Some of the most important math concepts in real estate include:

  1. Converting measurements: As a real estate agent, you have to deal with volume measurements, area measurements, and linear measurements. It’s often necessary to convert one type of measurement into another. And one simple math mistake could cause a major problem.
  2. Understanding percentages, fractions, and decimals: This is basic math that everyone learns in school. But when you’ve been out of school for a while, even the most simple math problem can challenge your brain. Brushing up on your understanding of percentages, fractions, and decimals will help when doing real estate math.
  3. Understanding real estate math formulas: Certain formulas are often used in real estate. Because these formulas are common, real estate agents are advised to understand them. These formulas include the Simple Interest Formula, the T-Bar Method, The Gross Rent Multiplier (GRM), the Loan to Value Ratio (LTV), and the Commission Formula.

Not as Intimidating as it Sounds

Real estate math sounds intimidating to most new real estate agents – especially the formulas. But you can learn to do well in real estate math. You might not love it or even like it, but you can learn to do the math well enough to get your job done.

Time spent practicing math problems and concepts is time well spent.

Terms Used in Real Estate Math

To avoid feeling overwhelmed, you can start learning terms you’re likely to see when doing real estate math. Here are some of the most common terms you’ll encounter.

Math Formulas for Use in Real Estate

You’ll need to understand math formulas to pass the state real estate exam. These formulas will also appear often when you’re dealing with property. It’s best to memorize these formulas so you can perform them at a moment’s notice.

Top real estate math formulas include:

Formulas for Property Taxes

These are only a few of many formulas you’ll encounter. Make sure to study so you’ll become familiar with these formulas and others.

Measurements and Conversions

Measurements and conversions are important when dealing with real estate. You’ll often have to make conversions on the spot, so it’s important to master this skill.

Here are some linear measurement conversions to know for real estate purposes:

Knowing these conversions makes your job as a real estate agent easier. For example, you might read a contract that says a piece of land is 3 hectares. But your client might not understand what hectare means. You can let them know that 3 hectares is another way of saying 7.413 acres.

Understanding Percentages

Percentages are everywhere in real estate. From the amount of commission, an agent determines how much a property buyer needs for a down payment.

A percentage is a fraction of 100. Take 4 percent, for example. When you have 4 percent of an item, it’s like saying you’ve split that item into 100 parts. And the 4 percent is 4 of those 100 parts. When working with percentages, the position of the decimal point and numbers is important. One mistake could drastically change the value of everything.

For example, .01 is the same as 1 percent. But .001 is .1 percent. And .0001 is the same as .01 percent. Omitting a zero or writing a decimal point in the wrong place could cause all kinds of measurement problems.

Percentages are such a tricky subject until a real estate math formula is specifically for working with percentages. It’s called the T-Method, and its purpose is to make working percentage problems easier. Make sure to learn this formula and refresh your percentage skills before taking the real estate exam.

There are several math resources to help you learn real estate math. Real Estate Math Demystified and The Real Estate Math Handbook are two highly recommended books.

Jordan Fabel

Jordan Fabel

Covering different 'paths' that people's lives can take. Creative, foster parent, ticket dismissal, you get the idea. Exploring the requirements, certifications, exams, and obviously, approved courses along each path. I, personally, am the high school dropout son of two teacher parents. So how did I get here? That story takes more time. Coming soon!