New Jersey Real Estate Salesperson · Real Estate Calculations
Commissions
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In 30 seconds
A commission is a percentage of the sale price, and every dollar flows through the brokers before any salesperson is paid. The tested distinction is that finding the commission means multiplying price by the rate, but finding the price that nets a seller a target means dividing that net by one minus the rate.
Why this matters
Commission problems are tested constantly, and the classic trap is the net-to-seller question, where dividing by the commission rate instead of by one minus the rate gives a wrong answer that looks right.
The college version
In normal terms
- Commission amount equals sale price multiplied by the commission rate; the seller's net is the price minus that commission and any other seller costs the problem lists.
- To find the list price that leaves a seller a chosen net, divide the desired net by one minus the commission rate, never by the rate itself.
- The commission is paid to the listing broker, shared with any cooperating broker, and only then split with each broker's salesperson according to that salesperson's agreed split.
Concepts in this outline
- Commission amount: Sale Price × Commission Rate — sale price is the final contract price; commission rate is the agreed percentage written as a decimal; the product is the total commission paid to the broker.
- Salesperson split: Broker Commission × Salesperson Split — broker commission is the share that broker actually received; salesperson split is the salesperson's agreed percentage of it, paid only by that broker.
- Net-to-seller problems — net equals price minus commission and listed seller costs; to find the price that nets a target, divide the desired net by one minus the commission rate.
- Commission allocation among brokers or agents — the listing broker receives the commission, shares it with any cooperating broker as agreed, and each broker then pays its own salespeople their splits.
Eli explains
The same idea, in plain words
Explain it like I’m 10
A commission is the fee a seller agrees to pay for getting a property sold, usually a percentage of the sale price. Multiply price by rate for the total commission.
The money never goes straight to a salesperson. It is paid to the broker, because a salesperson works only under a supervising broker and is paid only by that broker (see Topic 16). When two brokerages are involved, the listing broker shares the commission with the cooperating broker as agreed. Each broker then pays its own salesperson a salesperson split, a percentage of that broker's share. To find a salesperson's check, work in stages: total commission, then the broker's share, then the salesperson's percentage of that share.
The harder direction is the net-to-seller problem, where the seller needs to walk away with a set amount. Since the seller keeps only the part of the price that is not commission, the price equals the desired net divided by one minus the rate. Dividing by the rate itself is the mistake the exam hopes you make.
Worked example
Dana lists a Bergen County colonial in Ridgewood for the Feldmans, who want to net $760,000 after a 5% commission. Dana divides: $760,000 ÷ 0.95 = $800,000, so the house is listed at $800,000 and sells for that. The total commission is $800,000 × 0.05 = $40,000. Dana's broker splits the commission evenly with the cooperating broker who brought the buyer, so each brokerage receives $20,000. Dana's agreement with her broker gives her 60% of the broker's share, so her check is $20,000 × 0.60 = $12,000, paid by her broker. The Feldmans receive $800,000 − $40,000 = $760,000 before other closing costs, exactly the net they asked for.
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