Math Walkthrough
Working a Commission Problem, One Step at a Time
Rates, plans and fee structures are negotiated between the parties and vary by market and brokerage. No rate in an exam item can be assumed; read the one the stem gives you and use only that.
A commission item is a chain of multiplications and divisions applied in a fixed order. Nothing about it is conceptually hard. Candidates lose these questions by starting in the middle, by applying a percentage to the wrong base, or by answering a question the stem did not ask.
This page walks the chain from the top, then works the variations you are likely to see: the reverse problem, the co-brokered deal, the tiered plan, and the item that buries the answer under numbers you do not need. Every figure below is invented for illustration.
One Chain, Always in the Same Order
Start at the top and work down. Level one is the gross: the price multiplied by the agreed rate, which produces the entire pool of money available to everyone in the transaction. Level two divides that pool between the firms involved, when more than one firm participated. Level three divides a firm's portion between the firm and the licensee under whatever plan that licensee agreed to. Level four subtracts whatever the licensee owes off the top of their own share.
Two rules keep the chain honest. Each percentage applies to the level immediately above it, never to the price further up. And any off-the-top deduction, a referral being the usual one, comes out before the levels beneath it are calculated, because it reduces the pool everyone downstream is dividing.
Before touching a calculator, write down which level the question is asking about. Roughly half of the errors in this topic are correct arithmetic that stopped at the wrong level or went one level too far.
Forward Problem, Worked Line by Line
Assume a sale at $400,000, a total rate of 5 percent, the two firms dividing the pool evenly, and the listing licensee on a plan giving them 60 percent of their own firm's portion. Find that licensee's gross share.
Level one. 400,000 multiplied by 0.05 gives 20,000. That is everything the transaction generated.
Level two. Two firms dividing evenly means 20,000 divided by 2, or 10,000 to the listing firm. The other 10,000 leaves the chain here and belongs to the cooperating firm.
Level three. 10,000 multiplied by 0.60 gives 6,000 to the licensee, with 4,000 retained by the firm.
Check the total. 6,000 plus 4,000 plus 10,000 returns 20,000. If the pieces do not rebuild the pool, something was applied to the wrong base.
Read the question again. It asked for the licensee's share, so the answer is 6,000. Had it asked what the firm retained, the answer would be 4,000, and both numbers are almost certainly in the option list.
Reverse Problem: Climbing Back Up the Chain
The stem gives you a figure from partway down and asks for something above it. Invert each step and move upward. Assume a licensee received $7,500, their plan gives them half of their firm's portion, the two firms divided the pool evenly, and the property sold for $500,000. Find the total rate.
Undo level three. The licensee's 7,500 was half of the firm's portion, so the firm's portion was 7,500 divided by 0.50, or 15,000.
Undo level two. That firm's 15,000 was half of the pool, so the pool was 15,000 divided by 0.50, or 30,000.
Undo level one. The rate is the pool divided by the price: 30,000 divided by 500,000 gives 0.06, which is 6 percent.
Sanity check the result. Run the chain forward with 6 percent and confirm it lands back on 7,500. A reverse answer that has not been checked forward is a guess.
Watch the direction of the operation. Going down the chain you multiply by the percentage; coming back up you divide by it. Multiplying in both directions is the single most common failure on reverse items, and it produces an answer that is too small rather than obviously wrong.
Variations the Chain Still Handles
Unequal division between firms. Nothing changes structurally. If the cooperating firm is to receive 40 percent of the pool, multiply the pool by 0.40 for that side and by 0.60 for the other, then continue down each branch separately. Confirm the two branches still rebuild the pool before proceeding.
A referral obligation. Take it off the pool first. On a pool of 20,000 with a 25 percent referral owed, 5,000 leaves immediately and the remaining 15,000 is what the firms divide. Everyone below the referral therefore absorbs part of it, which is the point exam writers are testing.
A tiered plan. The stem defines a threshold and two rates, for example 60 percent to the licensee up to a stated production level and 75 percent above it. Split the licensee's production at the threshold, apply the appropriate rate to each portion, then add the two results. Applying the higher rate to everything is the trap, and the item is usually written so that error yields a listed option.
A single firm on both sides. There is no level two. The pool goes straight to the firm, and the firm divides with whichever licensees it owes. If one licensee handled both sides, they may collect at level three twice, once from each side of the pool, depending on how the stem describes the arrangement.
Net-to-seller items. These run backward from what the seller must keep. The price is the amount needed, including charges the seller pays, divided by the complement of the rate. If the seller must net an amount after a 6 percent commission, divide by 0.94 rather than multiplying by 1.06; the two are not the same number and both will appear among the options.
Errors That Cost Points on Otherwise Easy Items
Applying a licensee's plan percentage to the sale price. The plan governs a share of the firm's portion, not of the price. The resulting figure is wildly too large and still gets selected under time pressure.
Converting percentages carelessly. Half a percent is 0.005, not 0.05. Write the decimal before multiplying rather than converting in your head.
Answering the opposite side. When a plan is described as 70/30, decide immediately which number belongs to the licensee, and mark it on the scratch sheet.
Using numbers the stem included as noise. Closing charges, loan balances, days on market and the seller's original purchase price do not enter a commission calculation unless the question asks for proceeds.
Rounding partway through. Carry the full figure and round once, at the end, to whatever precision the options use.
Forgetting that a rate applies to price, not to equity. The pool is computed on the agreed price, regardless of what the seller owes or walks away with.
Three Items to Work Yourself
These three are written for this page rather than taken from any licensing examination, and every figure in them is illustrative. Work each one on paper down the four levels before reading the answer.
Question 1
Illustrative figures: a property sells for $520,000 at a total rate of 6 percent. Two firms participated and divide the pool evenly. The listing licensee is on a plan giving them 55 percent of their own firm's portion. What does that licensee gross?
$8,580. The pool is $520,000 times 0.06, or $31,200; the listing firm's half is $15,600; and 55 percent of $15,600 is $8,580, with the $7,020 balance staying with the firm and the cooperating firm's $15,600 never entering this branch of the chain.
Question 2
Illustrative figures: a property sells for $360,000 at a total rate of 5 percent. One firm represented both sides, so there is no cooperating firm, and the licensee who handled the transaction is on a plan under which they keep 70 percent of the firm's portion. What does the licensee gross?
$12,600. With no second firm there is no level two, so the entire $18,000 pool reaches the firm, and 70 percent of $18,000 is $12,600, which is why a single-firm transaction produces a larger licensee share than the same price and rate split between two firms.
Question 3
Illustrative figures: a licensee grossed $6,300 on a property that sold for $420,000. Their plan gives them 60 percent of their firm's portion, and the two participating firms divided the pool evenly. What was the total rate?
5 percent. Climbing back up, $6,300 divided by 0.60 puts the firm's portion at $10,500, dividing that by 0.50 puts the pool at $21,000, and $21,000 divided by $420,000 is 0.05, a result worth rerunning forward before you commit to it.
Commission Calculation Questions
Which rate should I assume when the stem does not give one?
None. Rates are negotiable in every transaction, and a properly written item supplies the one it wants you to use. If no rate appears, the question is asking for something other than a dollar amount, such as which figure is missing or what the relationship between the given numbers implies.
How do I read a plan written as two numbers?
It describes how a firm's portion is divided, with the two figures summing to the whole. The convention on which number comes first is not universal, so rely on the sentence around it. A well-written stem states plainly which party keeps which share.
Does a deduction the licensee owes affect the firm's portion?
No. Transaction charges, insurance assessments and similar items that the licensee owes come out of the licensee's own share after level three, so they change the licensee's take-home and nothing else. A referral obligation is different, because it is removed at the top and reduces what every level below receives.
What should the scratch sheet look like?
Four labeled lines, top to bottom: pool, firm portion, licensee portion, licensee net. Fill in what the stem gives, mark the line the question asks for, and fill the gaps in order. A structured sheet turns a reverse item into the same problem run upward.
How precise should the answer be?
Match the options. If they are whole dollars, round to whole dollars at the very end. If two options differ only in cents, carry every decimal through and round once. Repeated intermediate rounding is what puts an answer between two choices.
Where should I practice these?
Practice them timed and mixed with other content, because the difficulty on exam day is recognizing which level is being asked while the clock runs. The free diagnostic at RE License Prep shows whether calculation items are actually costing you points, your PassPulse Score tracks whether the improvement holds, and your PassMap™ puts the drilling in order. Full access is $79 one time with a 30-day money-back guarantee.
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