real estate math

Real Estate Math: Common Terms and Tips You Should Know

Real estate math is considered an tough part within the real estate exam. In this article, we will give the the most common terms and tips to pass this portion.

Updated at November 15, 2022

Understanding real estate math is vital not just for passing the real estate test but also for achieving a successful career in real estate. The real estate exam has a section on real estate math. You may differentiate yourself from other real estate agents in your field, improve as a real estate agent, and find it much simpler to pass the real estate test if you become an expert in mathematics and solve issues with real estate math.

On this website, we offer thousands of free Real Estate practice test questions for both Math and other Real estate exam topics to help you thoroughly prepare for this exam!

real estate math

How Much Math Is on the Real Estate Exam?

You may anticipate seeing problems involving mathematics on the examination for obtaining a license to practice real estate in whichever state you choose to do so. The percentage of the overall number of questions on the test that are linked to mathematics is somewhere between 10 and 15 percent, however, the quantity of math questions on the exam varies from state to state.

How Can Mathematics Be Applied to Real Estate?

As a real estate agent, you may not be required to apply mathematics on a daily basis; nonetheless, you should always be prepared in the event that difficulties emerge and call for a comprehensive grasp of real estate math. In order to pass the real estate test and be able to compute transactions that occur in everyday life, you will need to have a solid understanding of the mathematical topics that are covered on the exam. The following are some examples of situations in which real estate brokers need to have a solid grasp of mathematics:

  • Real estate exam
  • Calculating the area in square feet
  • Calculating the dimensions of real estate and the property setbacks
  • Performing the math on asking prices
  • Figuring simple interest rates
  • Evaluating loan-to-value ratios
  • Calculating commission¬†

Is It Hard To Do Math In Real Estate?

The mathematics involved with real estate is NOT hard at all. Real estate math is not difficult, and there are only a few principles that you need to grasp in order to succeed in the field. However, the prospect of studying math and having to apply math in their jobs is something that many students hate. Your performance on the test and throughout your career will improve according to the amount of time and effort you devote to mastering the mathematical concepts and challenges you are likely to encounter.

Common Real Estate Math Terms

As a real estate agent, you’ll often hear the following phrases.

Assessed Value

The value of a property allocated in order to calculate property taxes is known as the assessed value. To determine a property’s fair market value, a tax assessor takes into account similar properties in the neighborhood. A proportion of the appraised value is then computed as the assessed value.

Annual Interest

The interest you pay on a loan over the course of a year is referred to as annual interest or annual percentage rate (APR). An APR includes borrowing expenses and fees and is expressed as a percentage. For instance, administrative, underwriting, inspection, and origination costs are often charged for home loans.

Capitalization Rate

Commercial investors utilize a capitalization rate, sometimes known as the “cap rate,” to assess the investment potential of a building. The estimated yearly rental revenue less all operating costs, including taxation, estate maintenance fees, and lawn care, is known as the net operating income (NOI), which excludes loan costs. Lesser cap rates often indicate high-value assets and lower risk.

real estate math

Loan-to-Value Ratio (LTV)

Loan-to-Value Ratio (LTV) is a risk evaluation performed by lenders prior to the approval of a mortgage. Low LTV ratios often indicate less hazardous borrowers, who are thus eligible for cheaper interest rates. They could have made sizable down payments and have greater equity built up in the house. If they are approved for a loan, borrowers with high LTV ratios will likely have to pay higher interest rates and purchase mortgage insurance since they are often seen as riskier assets.

Market Price

This sum is the amount of money the property would probably bring in given the market’s current intense competition.

Net Operating Income (NOI)

NOI, or net operating income, is the profitability of a business property after the gross revenue has been deducted from it. It stands in for the available cash flow that the property produces.

Read more >>Top 5 Real Estate License Books You Should Know

Price Per Square Foot

You can count on this being one of the simplest but most common real estate math issues you’ll ever have to tackle throughout the course of your career. You’ll put it to use in the process of appraising both residential and commercial real estate. Simply take the total sales price or value of the property, divide that number by the total square footage, and you will get the price per square foot for the property.

The value of a property may also be determined by using this method to determine how much it is worth per square foot. Consequently, if you are aware of the purchase price or value of a piece of real estate, you may use this equation to get an approximation of the property’s total square footage.

Prorated Taxes

In most cases, the buyer will be responsible for paying the prorated tax amount at the time of closing. In order to correctly prorate taxes, you first need to calculate how much tax is still owed on the property for the given year. To do this, count the number of days that are still left in the year and then divide that total by 365. This will tell you what proportion of the overall tax bill the purchaser is responsible for paying.

After that, double the remaining balance on the tax bill by the percentage that was just determined. Using this information, you may calculate the amount of property tax that must be paid at closing.

The Bottom Line: How to Prepare for the Real Estate Math?

You may verify your calculations using one of the various mortgage calculators that are available online and see whether you are headed in the correct direction.

However, in order to be successful on the real estate licensing test, you will need to have a solid understanding of all of these real estate math principles. You may quickly get ready by working through example real estate math questions by either buying practice booklets or participating in practice exams.

On the real estate test, you may often anticipate seeing anywhere from 150 to 200 questions with multiple-choice answers, but the specifics vary from state to state. A typical test may include anything between 15 and 30 questions, and around 10 to 15% of them will be math-related.

To get ready for the real estate test, one of the most helpful things you can do is to evaluate both the areas in which you excel and the topics for which you will need to devote more time to studying. Even though passing the real estate licensing test should be your primary focus right now, demonstrating mastery of each subject also lays a solid foundation upon which you may develop your future career as a real estate agent. Good luck and hope you can ace this exam!