Antitrust Laws and Real Estate Licensees · 2019-08-15 · LP-2 Required Reading Part One Page 1 of 40 Antitrust Laws and Real Estate Licensees In addition to the state real estate

LP-2 Required Reading Part One

Page 1 of 40

Antitrust Laws and Real Estate Licensees

In addit ion to the state real estate l icense law, federal ant itrust laws

impose certain restr ict ions on a real estate agent’s behavior towards cl ients,

customers, and other agents. Some states also have state ant it rust laws.

The main federal ant itrust law is the Sherman Act . The Sherman Act

prohibits any agreement that has the ef fect of unreasonably restraining

trade, including conspiracies. Under the Sherman Act, a conspiracy occurs

when two or more business ent it ies part ic ipate in a common scheme, the

effect of which is the unreasonable restraint of trade.

The foundation of antitrust laws is the idea that compet it ion is good for

both the economy and society as a whole. While antitrust laws are usual ly

associated with big steel mil ls, oil companies, and telephone companies, in

1950 antitrust laws were held to apply to the real estate industry. In a

landmark case, the United States Supreme Court held that mandatory fee

schedules, establ ished and enforced by a real estate board, violated the

Sherman Act (United States v. Nat ional Associat ion of Real Estate Boards ).

I f a real estate l icensee violates antitrust laws, she may be subject to

both civi l and criminal act ions. I f an individual is found gui lty of violat ing t he

Sherman Act, he can be f ined up to one mil l ion dol lars and/or sentenced to

ten years’ impr isonment. I f a corporat ion is found gui lty of violat ing the

Sherman Act, it can be f ined up to one hundred mil l ion dollars.

The act ivit ies that are prohibited by antitrust laws can be grouped into

four main categories:

• pr ice f ixing (f ixing commission rates),

• group boycotts,

• t ie- in arrangements, and

• market allocation.


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Price Fixing

Price f ixing is def ined as the cooperat ive sett ing of prices or price ranges

by compet ing f irms. To avoid the appearance of price f ixing, two real estate

agents f rom dif ferent brokerages should never discuss their commission

rates. (I t is a discussion between competing agents that is dangerous;

brokers and af f i l iated l icensees that work for the same company can discuss

commission rates.) One except ion to this general prohibit ion is that two

competing brokers may discuss a commission split — the divis ion of the

commission between the l ist ing broker and the sell ing broker — in a

cooperative sale.

Even a casual announcement that a broker is planning on raising his

commission rates could lead to ant itrust problems.

Example: Broker Wood goes to a dinner given by his local mult iple

l ist ing service. He is cal led on to discuss current market condi t ions

and, in the middle of his speech, he announces that he is going to

raise his commission rate, no matter what anyone else does. This

statement could be viewed as an invitat ion to conspire to f ix prices.

I f any other MLS members raise their rates in r esponse to his

announcement, they could be held to have accepted Wood’s invitat ion

to conspire.

Brokers need to understand that they do not have to actually consult with

each other to be charged with conspir ing to f ix commission rates. The kind

of scenario described in the previous example is enough to lead to an

antitrust lawsuit.

Publ icat ions that appear to f ix pr ices are prohibited as wel l. An MLS or

other associat ion that publ ished “recommended” or “going” rates for

commissions could be sued for ant itrust violat ions.


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Group Boycotts

A group boycott is an agreement between two or more people engaged in

a business to exclude another f rom fair part ic ipat ion in that f ield. The

purpose of a group boycott is to hurt or destroy a compet itor, and it is a

violat ion of antitrust laws.

Example: Becker and Jordan are both brokers. Over lunch together,

they discuss the business pract ices of a third broker, Harley. Becker

says she thinks Har ley is dishonest. Jordan agrees. He says that he’s

decided not to do business with Harley. He avoids Har ley whenever

possible, and just doesn’t cal l back if Harley cal ls to ask about a l isted

property. He suggests that Becker should do this too. This

conversation could be considered an agreement to boycott Harley.

I f a broker feels another broker is dishonest or unethical, he may choose

not to do business with that other broker. But encouraging other brokers to

do the same thing could be considered a group boycott.

Tie-in Arrangements

A t ie- in arrangement is def ined as “an ag reement to sell one product,

only on the condit ion that the buyer also purchases a dif ferent (or t ied)

product…”

Example: Brown is a subdivision developer. Tyson, a bui lder, wants to

buy a lot f rom Brown and bui ld a house on it . Brown tel ls Tyson that

he wil l sel l him a lot only if Tyson enters into a l ist -back agreement. In

other words, Tyson must sign a contract promising that af ter he builds

a house on the lot, he wi l l l ist the improved property with Brown.

Requir ing Tyson to do this as a condit ion of se ll ing the lot is an i l legal

t ie- in arrangement; Brown is violat ing antitrust laws.

In the example, note that it ’s the t ie - in arrangement that is the antitrust

violat ion, not the l ist -back agreement itself . If Tyson wanted to enter into a

l ist-back agreement with Brown, the agreement wouldn’t be i l legal.


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Market Allocation

Market al location occurs when compet ing broker age f irms agree not to

sel l certain products or services in specif ied areas or to certain customers in

specif ied areas. Market allocat ion between compet ing real estate f irms is

i l legal, because it l imits compet it ion.

As with group boycotts, it ’s the col lect ive act ion that makes market

al location i l legal. An individual brokerage f irm is f ree to determine the

market areas in which it wants to special ize ( if any); s imilar ly, the f irm can

al locate terr itory to part icular l icensees af f i l iated with the f irm. Al locat ion of

terr itory between competing f irms, however, is a violat ion of antitrust law.

Example: ABC Realty assigns Agent Ava to handle al l new customers

in the luxury home market, and assigns Agent Paxton to all new

customers in the vacant land market. This pract ice does not violate

antitrust law.

However, if ABC Realty and XYZ Realty agreed to al locate

customers so that ABC Realty wil l handle al l luxury homes and XYZ

Realty wi l l handle al l vacant land, this would violate antitrust law.

Avoiding Antitrust Violations

To prevent possible antitrust violat ions, brokers should:

• always establish their fees and other l ist ing policies independent ly,

without consult ing competing f irms;

• never use l ist ing forms that contain pre -printed commission rates;

• never imply to a cl ient that the commission rate is f ixed or

nonnegotiable, or refer to a competitor ’s commission pol ic ies when

discussing commission rates;

• never discuss their business plans with competitors;

• never tell c l ients or competitors that they won’t do business with a

competing f irm, or tell them not to work with that f irm because of

doubts about its competence or integrity; and


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train their l icensees to be aware of the types of act ions that could be

considered ant itrust law violat ions. (Rockwell, 254-256)

Civil Rights and Fair Housing

Federal and state laws prohibit unfair discrimination in almost al l real estate

transactions. With l imited exceptions, it is i l legal for either property owners

or real estate professionals to discriminate. In this chapter, we wil l cover

several federal antidiscr imination laws, including the Civi l Rights Act of

1866, the Federal Fair Housing Act, and the Americans with Disabi l i t ies Act.

We wil l also discuss various state laws that prohibit discr imination in

housing as wel l as in other real estate transactions.

Introduction

Over the years, var ious civi l r ights laws have been enacted to achieve

one major goal: the f reedom of choice. In the context of real estate, f reedom

of choice means that al l types of people with similar f inancial resources

should have equal access to the same types of housing. Anyone with the

requisite income, net worth, and credit history should be able to choose a

home or apartment in any af fordable neighborhood, regardless of race,

national orig in, gender, or other similar character ist ics.

Today, c ivi l r ights laws are an integral part of the real estate profession.

The importance of the r ight to equal housing is wel l established, and real

estate professionals must be familiar with both federal and state laws that

prohibit discriminat ion.

The Civil Rights Act of 1866

This law states that “al l cit izens of the United States shal l have the sam e

r ight, in every state and terr itory as is enjoyed by white cit izens thereof to

inherit , purchase, lease, sell, hold and convey real and personal property.”

The act prohibits any discr imination based on race or color. I t appl ies to the

act ions of both public organizat ions and private individuals.


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Enacted immediately af ter the Civi l War, the act was largely ignored for

almost a century. In the 1960s, during the civi l r ights movement, the act was

challenged as an unconstitut ional interference with pr ivate property r ights.

But the U.S. Supreme Court upheld the act in the landmark case of Jones v.

Mayer , decided in 1968. The court ruled that the 1866 act “prohibits al l

racial discr imination, private or public, in the sale and rental of property,”

and that the act is constitut ional based on the 13 t h Amendment to the U.S.

Const itut ion, which prohibits s lavery.

Someone who has been discr iminated against in violat ion of the Civil

Rights Act of 1866 can sue in federal court. The court can issue an

injunction order ing the defendant to stop discr iminating or to take aff irmative

steps to correct the violat ion. This might involve an order requir ing the

defendant to sell or lease the property to the plaint if f . The court can also

order the defendant to pay the plaint if f actual damages (compensatory

damages) to compensate for f inancial losses, humil iat ion, and suffering

caused by the discr iminat ion. In addit ion, the defendant might be ordered to

pay punit ive damages (an addit ional sum to punish the defendant

for wrongdoing).

The Civil Rights Act of 1964

The Civi l Rights Act of 1964 was one of the f irst attempts made by the

federal government to implement fair housing ideals. The act prohibits

discr imination based on race, color, rel igion, or national or igin in many

programs and act ivit ies for which the federal government of fered f inancial

assistance. Unfortunately, the ef fect of the act was extremely l imited,

because most FHA and VA loans were not covered. In fact, i t is est imated

that less than 1% of al l houses purchased were covered by the act. I t was

not unti l the Civi l Rights Act of 1968 that major progress was made towards

fair housing.


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The Federal Fair Housing Act

Contained in Tit le VI II of the Civil Rights Act of 1968, the Fair Housing

Act is intended to provide fair housing opportunit ies throughout the United

States. This law makes it i l legal to discr iminate on the basis of race, color,

religion, sex, national origin, disability , or familial status in the sale or

lease of residential property or in the sale or lease of vacant land for the

construct ion of residential bui ldings. Vict ims of discrimination fall ing into

one of these categor ies are known as members of a protected class . The

law also prohibits discrimination in advert ising, lending, real estate

brokerage, and other services in connection with residential real estate

transactions. However, unl ike the 1866 Civil Rights Act, the Fair Housing

Act does not apply to nonresident ial transactions, such as those involving

commercial or industr ial propert ies.

Exemptions

While the Fair Housing Act appl ies to the majority of resident ial real

estate transactions, four types of transactions are exempt f rom it .

1. The law does not apply to the sale or rental of a single -family home by

its owner, provided that:

• the owner does not own more than three such homes;

• no real estate broker or agent is employed in the transact ion; and

• no discriminatory advert is ing is used.

I f the owner isn’t the most recent occupant of the home, he may

use this exempt ion only once every 24 mon ths.

2. The law does not apply to the rental of a unit or a room in a dwell ing

with up to four units, provided that:

• the owner occupies one of the units as her residence;

• no real estate broker or agent is employed; and

• no discriminatory advert is ing is used.

(This is somet imes cal led the Mrs. Murphy exemption .)


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3. In dealing with their own property in noncommercial transactions,

rel igious organizations or societ ies or af f i l iated nonprof it organizations

may l imit occupancy to or give preference to their own me mbers,

provided that membership isn’t restr icted on the basis of race, color,

or national origin.

4. Private clubs with lodgings that aren’t open to the publ ic and that

aren’t operated for a commercial purpose may l imit occupancy to or

give preference to their own members.

These l imited exemptions apply very rarely. Remember, the 1866 Civi l

Rights Act prohibits discr imination based on race or color in any property

transaction regardless of any exemptions avai lable under the Fair Housing

Act. In addit ion, there is no exempt ion for any transact ion involving a real

estate l icensee.

Prohibited Acts

The Fair Housing Act prohibits any of the following acts if they are done

on the basis of race, color, religion, sex, national orig in, handicap, or

familial status:

• refusing to rent or sel l residential property af ter receiving a bona

f ide offer;

• refusing to negotiate for the sale or rental of resident ial property, or

otherwise making it unavai lable;

• changing the terms of sale or lease for dif ferent potential buyers

or tenants;

• using advert is ing that indicates a preference or intent to discr iminate;

• represent ing that property is not avai lable for inspection, sale, or rent

when it is in fact available;

• using discr iminatory criteria when making a housing loan;

• l imit ing part ic ipat ion in a mult iple l ist ing service or similar service;

• coercing, int imidat ing, threatening, or interfering with anyone on

account of his enjoyment, attempt to enjoy, or encouragement or


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assistance to others in enjoying the r ights granted by the Fa ir

Housing Act.

Also prohibited are the discriminatory pract ices known as blockbusting,

steering, and redl ining.

• Blockbusting occurs when someone tr ies to induce homeowners to

l ist or sel l their propert ies by predict ing that members of another race

(or disabled persons, persons of a part icular ethnic background, etc.)

wi l l be moving into the neighborhood, and that this wi l l have

undesirable consequences such as lower property values. The

blockbuster then prof its by purchasing the homes at reduced prices or

( in the case of a real estate agent) by col lect ing commissions on the

induced sales. Blockbusting is also known as panic selling or

panic peddling .

Example: An Afr ican-American family recently moved into an al l -

white neighborhood. XYZ Realty immediately began cal l ing al l the

homeowners in the neighborhood. XYZ’s salespeople warned the

homeowners of the fol lowing: several Afr ican-American famil ies

were planning on moving into the neighborhood, c ity police

predicted a signif icant increase in crime in th e neighborhood,

property values would drop dramat ical ly, and within months

homeowners would f ind it dif f icult to sel l their propert ies to anyone

at any price. Because of these “facts” made up by XYZ agents,

several homeowners immediately l isted their homes with XYZ

Realty. XYZ Realty is guilty of blockbust ing.

• Steering refers to channel ing prospective buyers or tenants toward or

away from specif ic neighborhoods based on their race (or rel igion,

national orig in, etc.) in order to maintain or change the char acter of

those neighborhoods.

Example: The salespeople at PQR Realty are “encouraged” to

show Hispanic buyers only propert ies in the city’s predominantly

Hispanic neighborhood. NonHispanic buyers aren’t shown


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propert ies there, except by specif ic request. T his is done on the

principle that Hispanic buyers would be more “comfortable” l iving in

the Hispanic neighborhood and non-Hispanic buyers would be

“uncomfortable” there. PQR Realty is gui l ty of steering.

• Redlining is the refusal to make a loan because of t he racial or ethnic

composit ion of the neighborhood in which the secur ity property is

located.

Example: Buyer Jones appl ies to Community Savings for a loan to

purchase a home located in the Cherrywood neighborhood.

Cherrywood is a predominantly minority neighborhood. Community

Savings rejects the loan, because it fears that property values in

Cherrywood may suf fer in the future because of possible racial

tension. Community Savings is gui lty of redl ining.

The prohibit ion against redl ining is enforced throug h the Home Mortgage

Disclosure Act of 1975 , which requires large inst itut ional lenders to f i le an

annual report of all mortgage loans made. The loans are categorized

according to the locations of the propert ies, which makes it easier to

discover cases of redl ining.

Handicap and Familial Status

Originally, the Fair Housing Act did not prohibit discr imination based on

handicap or familial status; these classif icat ions were added to the law in

1988.

Handicap. Under the Fair Housing Act, it is i l legal to discr iminate against

someone because she has a physical disabi l i ty or mental impairment that

substant ial ly l imits one or more major l i fe act ivit ies. This includes people

suffering f rom chronic alcohol ism, mental i l lness, or AIDS. But the act does

not protect those who are a direct threat to the health or safety of others, or

who are current ly using control led substances.


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A resident ial landlord must al low a disabled tenant to make reasonable

modif icat ions to the property at the tenant’s expense, so long as the

modif icat ions are necessary for the tenant’s full use and enjoyment of the

premises. (The tenant can be required to restore the premises to their

original condit ion at the end of the tenancy, however.) Landlords must also

make reasonable exceptions to thei r rules to accommodate disabled tenants.

For example, even if they don’t allow pets, they can’t refuse to rent to

someone with a guide dog.

Special wheelchair accessibi l i ty rules apply to newer residential

construct ion with four or more units.

Familial Status. Discrimination on the basis of familial status refers to

discr imination against a person because he has a chi ld (under 18 years old)

l iving with him. Parents, legal guardians, pregnant women, and those in the

process of obtaining custody of a chi ld are protected against discr imination

on the basis of their familial status.

While the Fair Housing Act does not override local laws l imit ing the

number of occupants permitted in a dwell ing, it is unlawful for anyone to

discr iminate in sel l ing, renting, or lending money to buy residential property

because the applicant is pregnant or l ives with a chi ld. “Adults only”

apartment or condominium complexes are forbidden, as are complexes

divided into “adult” and “family” areas.

However, the law includes an exemption for propert ies that qual ify as

“housing for older persons.” Chi ldren can be excluded from propert ies that f it

into one of the following categories:

1. propert ies developed under a government program to assist

the elderly;

2. propert ies intended for and solely occupied by persons 62 years old or

older; or


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3. propert ies that adhere to a policy that demonstrates intent to

house persons who are 55 or older, if at least 80% of the units are

occupied by at least one person who is 55 or older.

HUD and Enforcement

The Fair Housing Act is enforced by the Department of Housing and

Urban Development (HUD), through its Off ice of Fair Housing and Equal

Opportunity. HUD is also author ized to issue regulat ions to promote the

purpose of the Fair Housing Act. One such regulat ion requires brokers and

other persons involved in real estate transactions to display a fair housing

poster (shown in Figure 16.1) at their place of business.

As part of its enforcement process, HUD sometimes uses testers ,

individuals who play the role of a person want ing to buy or rent housing. A

tester evaluates compliance with fair housing laws and is al lowed to f i le a

complaint if discrimination is found. Testers do not announce themselves;

they appear to be normal potent ial c l ients.

When a person feels that his r ights under the Fair Housing Act have been

violated, he may f i le a complaint with HUD (within one year of the al leged

discr imination) or may f i le a lawsuit in federal or state court. I f a complaint

is f i led with HUD, the agency wil l investigate the complaint and evaluate

whether the discrimination charges appear to be just if ied. During the

investigation per iod, HUD can attempt to resolve the dispute by gett ing an

agreement f rom the party against whom the complaint was f i led, in which

that party agrees to remedy the violat ion and take act ion to avoid any

future discriminat ion.

I f the dispute is not resolved and the claims are found to have merit , an

administrat ive hear ing wi l l be held, unless either party chooses to have the

case decided in federal court instead. In an administrat ive hearing, HUD

attorneys l it igate the case on behalf of the complainant. I f a case involves a

pattern or pract ice of discrimination, the U.S. Attorney General can f i le suit

in federal court.


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When someone is held to have violated the Fair Housing Act, the

administrat ive law judge or the court may issue an injunct ion ordering the

violator to stop the discr iminatory conduct or to take aff irmative steps to

correct a violat ion. The violator may also be ordered to pay actual damages

and attorney’s fees to the complainant. Actual damages may include

compensation for humil iat ion suffered as a result of discr imination, as wel l

as for f inancial losses. A federal court can order the violator to pay punit ive

damages to the complainant. I f the case is brought by the Attorney General,

instead of punit ive damages the court can order a civi l penalty ranging f rom

a maximum of $55,000 for a f irst offense up to a maximum of $110,000 for a

third or subsequent offense. An administrat ive law judge can also impose a

civil penalty; the maximum penalty in this case ranges f rom $16,000 for a

f irst offense up to $70,000 for a third or subsequent of fense.

Many states have their own fair housing laws, which are of ten very

similar to the Fair Housing Act. I f the state laws and regulat ions have

comparable prohibit ions, HUD may refer the complaints it receives to the

equivalent state agency. The state must be able to show that its agency

responds appropr iately to complaints and takes suff icient act ion to

prevent discr imination.

Federal Fair Lending Laws

Real estate agents and sellers are not the only ones who must avoid

discr iminatory act ivit ies. There are also federal laws designed to el iminate

discr imination in lending.

They include:

• the Federal Fair Housing Act (discussed above),

• the Equal Credit Opportunity Act, and

• the Home Mortgage Disclosure Act.

The Fair Housing Act prohibits discr imination in home loans and other

aspects of resident ial f inancing. I t does not apply to any other

credit transactions.


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The Equal Credit Opportunity Act (ECOA) appl ies to credit transactions,

including mortgage lending. The act prohibits lenders, loan or iginators,

mortgage brokers, and others involved in f inancing f rom discriminating

based on race, color , religion, nat ional or igin, sex, marital status, age (as

long as the applicant is of legal age), or because the appl icant ’s income is

derived part ly or whol ly f rom publ ic assistance.

Under the Equal Credit Opportunity Act, a lender may ask appl i cants

about race, national origin, sex, and marital status, but only to gather

information that al lows the government to monitor compliance with the act.

Giving the information is voluntary; the lender cannot require i t . However, if

the appl icant and lender are located in a community property state (or if

there is any other reason that an appl icant’s spouse would share the

obl igat ion), the lender may ask questions about spouses and marital status.

I f the appl icat ion is denied, the lender must give the app l icant a wr it ten

statement explaining the reasons for the denial of credit . A lender who

discr iminates in violat ion of the act can be l iable for damages, court costs,

and attorney’s fees.

The Home Mortgage Disclosure Act helps the government learn whether

lenders are fulf i l l ing their obl igat ion to serve the housing needs of the

communit ies where they are located. The act facil i tates the enforcement of

federal laws against redl ining.


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Under the Home Mortgage Disclosure Act, large inst itut ional lenders in

metropol itan areas must make annual reports on residential mortgage loans

(both purchase and improvement loans) that were or iginated or purchased

during the f iscal year. The information is categorized as to number and

dol lar amount, type of loan (FHA, VA, other), and geographic locat ion by

census tract or county (for small counties with no establ ished census tracts).

The reports disclose areas where few or no home loans have been made and

alert invest igators to potential redl ining.

Equal Access to Facilities

The Americans with Disabilities Act (ADA), which became effect ive in

January of 1992, is a federal law that was passed to ensure that disabled

persons have equal access to public facil i t ies. The ADA requires any

business or other nonresident ial facil i ty open to the public to be accessible

to the disabled. (Pr ivate clubs and rel igious organizations are exempt f rom

the ADA.)

Under the ADA, no one can be discriminated against on the basis of

disabil i ty in any place of public accommodation or commercial faci l i t ies. A

place of public accommodation is def ined to include any nonresident ial

place that is owned, operated, or leased by a private ent ity and open to the

public, as long as the operat ion of the faci l i ty af fects commerce. A disability

is def ined as any physical or mental impairment that substantially l imits one

or more of the individual’s major l i fe act ivit ies.

Real estate off ices are considered to be places of publ ic accommodation,

along with hotels, restaurants, retail stores, shopping centers, banks, and

the off ices of other service professionals, such as insurance agents and

accountants.

To ensure the accessibi l i ty of public accommodations, the ADA

requires all of the following to be accomplished, as long as they are

“readi ly achievable”:


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• Both architectural and communication barriers must be removed so

that goods and ser vices are accessible to the disabled.

• Auxil iary aids and services must be provided so that no disabled

person is excluded, denied services, segregated, or otherwise

treated dif ferently f rom other individuals.

• Al l new construct ion of places of publ ic accommodat ion or other

commercial facil i t ies must be accessible to the disabled, unless

structural ly impract ical.

For example, the owner of a commercial bui lding with no elevator may

have to instal l automatic entry doors and a buzzer at street level so that

customers of a second-f loor business can ask for assistance. A commercial

bui lding owner might also be required to alter the height of a door handle to

make it accessible to someone in a wheelchair, add grab bars to restroom

stal ls, and take a variety of other steps to make the bui lding’s

facil i t ies accessible.

State Antidiscrimination Legislation

Not only must real estate agents, sel lers, and landlords comply with the

federal laws we’ve just discussed, they must also comply with state laws that

prohibit discriminat ion. Many states have laws designed to promote fair

housing within the state. Count ies and cit ies may also have their own

antidiscriminat ion ordinances.

State and local regulat ions of ten cover even more forms of discrimination

than federal fair housing laws. They may have more l imited exemptions or

include addit ional protected classes, such as age or sexual orientat ion. Also,

state antidiscriminat ion laws of ten apply not just to housing, but also to

employment, credit transact ions, and other types of business act ivit ies.

Real estate agents have a special obligat ion not to discriminate or assist

in discr imination by others. The real estate l icense law in many states

provides that violat ing any fair housing or civi l r ights laws or regulat ions is

grounds for discipl inary act ion.


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Complying with Fair Housing Laws

As you can see, antidiscr imination laws cover a lot of terr itory. Real

estate agents must be familiar with these laws and know what act ivit ies are

prohibited. Keep in mind that violat ing these laws does not require an intent

to discr iminate; even good intent ions can lead to a violat ion of

antidiscriminat ion laws.

Example: Matthews is giving a l ist ing presentat ion at t he Flores home.

The Flores family is f rom Central America and they speak only l imited

Engl ish. Matthews does not speak Spanish and feels uncomfortable

because of the communication barr ier. When Matthews f inishes the

presentat ion, Mr. Flores tel ls him they want to l ist their property r ight

away. Somewhat sheepishly, Matthews suggests that they may want

to l ist their property with an agent who speaks Spanish. He explains

tactfully that he has a very dif f icult t ime understanding them and

bel ieves that they would be happier with a Spanish-speaking agent.

The Flores family insists that they want to l ist with Matthews but he

declines, tel l ing them another agent would be able to give them better

service. This wel l intentioned refusal to l ist their property migh t be

regarded as discr imination on the basis of national origin, and could

be considered a violat ion of federal or state antidiscriminat ion laws.

To avoid unintent ional discr iminatory acts, real estate agents should

follow some basic guidel ines when working with cl ients and advert is ing

propert ies they have l isted.

Working with Clients

Real estate agents should never say or imply that the presence of

persons of a part icular protected class (race, nat ional or igin, etc.) in a

neighborhood could or wi l l result in:

• lower property values;

• a change in the composit ion of the neighborhood;


Page 19 of 40

• a more dangerous neighborhood; or

• a decline in the qual i ty of the schools in the neighborhood.

Example: Chadwick is making a l ist ing presentat ion to Thompson, a

homeowner who is consider ing sel l ing her property but isn’t sure this

is the r ight t ime. Dur ing the presentat ion, Chadwick says to

Thompson, “I hear your neighbor, Bowen, has an of fer on his house

from a minority couple. You know, it might be a good idea to get your

house l isted and an offer nailed down before any minority famil ies

move into the neighborhood. That way, you can get the best pr ice for

your house. I f you wait unt i l Bowen’s house is sold—well, you just

might not get as much for your house.” This is an example o f

blockbusting. Chadwick has violated the antidiscriminat ion laws.

Most agents would not act in an overt ly discr iminatory way; for example,

they wouldn’t raise the l ist ing price because of the race of the prospective

buyer. Yet some of these same agents might tell racial or ethnic jokes or

make derogatory remarks about a part icular group of people. Although these

jokes or remarks don’t necessar ily indicate a wi l l ingness to actual ly

discr iminate in a transaction, a l istener might assume that they do.

Even l istening or going along with inappropriate remarks can give the

impression that the agent agrees with these discr iminatory at t itudes. Agents

need to watch out for signs of such att itudes, in order to avoid helping

others violate ant idiscrimination laws.

Example: Hawthorne is making a l ist ing presentat ion to the Boyds, a

white couple who l ive in a predominantly white neighborhood. During

the discussion, Mr. Boyd says, “You know, we certainly want the best

price for our house. But we want you to be pretty careful who you

show it to. We spent a lot of t ime f ixing up this house. Hey, we raised

our kids here. We real ly don’t want to change the neighborhood. Our

neighbors are good, tradit ional, hard -working folks. We don’t want a

buyer who would lower everybody else’s property values. You know

what we mean.”


Page 20 of 40

Even though the Boyds don’t come out and say so, they could

easily be implying that they would not accept an of fer from a buyer

with a dif ferent racial or ethnic background. Their comments are red

f lags indicating the possibi l i ty of discrimination.

List ing agents should make sure the sel ler is wi l l ing to follow the law, and

decline to take the l ist ing if the sel ler is not.

Real estate agents should also provide equal service to buyers and

sel lers without regard to their race, creed, color, relig ion, nat ional or igin,

ancestry, sex, mar ital status, famil ial status, age, or disabi l i ty. For example,

an agent should never refuse to show a property to a potential buyer based

on discriminatory reasons.

Example: Alison is working with the Kawaguchi family, who is

interested in a part icular l ist ing. Alison has heard that the owner of

this house is extremely prejudiced against Asians and she knows the

sel ler wi l l refuse any offer from the Kawaguchis. To avoid a

confrontat ion, she tells them that the house is no longer available.

Al ison has just unlawful ly discr iminated against the Kawaguchis by

tel l ing them the house was not available when, in fact, i t

was avai lable.

Advertising Properties

Advert is ing is an impor tant element in marketing a property, but it also

has potential pit falls for discrimination. Sometimes even apparently innocent

statements or act ions may be interpreted as discr iminatory. Consider the

following pract ices for which a real estate agent might be accused

of discrimination.

• A property for sale is advert ised only in neighborhoods where the

residents are al l predominantly of the same race or ethnic

background as the sel ler.


Page 21 of 40

• A f lyer about a property is sent to al l the neighbor ing

propert ies except those owned by people of a part icular race or

ethnic background.

• The wording of an ad suggests that the recipient can control the

type of person who wil l buy the property.

Example: A f lyer for an open house tel ls neighbors that they can, by

referr ing potential buyers, “uphold the standards of the community.”

However, the f lyer fails to specify what community standards it refers

to. Because it doesn’t clearly descr ibe these standards in

nondiscr iminatory language, a reader could infer that she can control

the race or ethnic background of the buyer. The f lyer might be found

to violate antidiscriminat ion laws.

• The choice of models used in display advert is ing lacks diversity.

Example: A broker is the l ist ing agent for a large, exclusive

housing development. She advert ises the homes in the

development by putt ing display ads in the local paper. In every ad

she places, the buyers and sellers are depicted only by white

models, even though 38% of the city’s populat ion is non -white. The

use of only white models could be grounds for a discrimination suit .

When pictures of people are used in display advert ising, they should be

carefully chosen to make sure that the pictures give the impression that the

housing is open to everyone.

Actions That Do Not Violate Fair Housing Laws

Certain act ions may init ial ly appear to violate antidiscr iminat ion laws, but

in fact are not considered to be violat ions. Here are some examples.

• A real estate agent may ask questions or make statements as

necessary to best serve the needs of a disabled person. This may

include cal l ing the attention of disabled cl ients or customers to

part icular buildings bui lt or modif ied to meet their needs.


Page 22 of 40

• Posit ive measures to reach out to members of a protected class,

rather than discr iminating against them, may be acceptable. An

aff irmative marketing plan may try to attract members of a

part icular group to an area or property that they might not

otherwise be aware of . A brokerage or real estate board may also

take aff irmative steps to recruit minority employees or members.

Example: The developer of a large, moderately priced subdivis ion

located on the f r inges of the metropolitan area contacts a broker to

assist in the sale of propert ies in the subdivis ion. The developer

encourages the broker to target marke ting efforts toward recent

immigrants who might be looking for affordable entry - level housing.

Most of the recent immigrants in the area are non -white and l ive in

a few older urban neighborhoods. The broker could devote extra

effort to advert is ing in immigrant community newspapers or

leaf lett ing these neighborhoods, so long as she also advert ised in

other neighborhoods or in newspapers of wider circulat ion.

• Real estate agents may truthful ly answer questions about the racial

composit ion of neighborhoods, even if this results in unintent ional

racial steer ing. I f a buyer expresses a desire not to be shown

homes in a part icular neighborhood, even if the buyer makes that

decision because of the race or other characterist ics of the

residents, you are not obl igated to show them homes in

that neighborhood.

Example: You are represent ing the Duval ls, who have only a

l imited amount of money to spend on their f irst home. You suggest

a variety of neighborhoods where there are l ist ings that f it their

price range and other preferences, including the Greengate

neighborhood. When Mr. Duval l asks about the people who l ive in

Greengate, you truthfully respond that most of the residents belong

to a part icular immigrant group. Mr. Duvall says, “I ’m not sure we’d

feel comfortable there; we’d rather look in other areas.” So long as

you do not coerce or discourage the Duval ls f rom looking at


Page 23 of 40

propert ies in this neighborhood, you are not required to show the

Duval ls houses in this area against their wishes.

Discriminatory Restrict ive Covenants

At one t ime in the United States it was quite common for a property’s

deed or a subdivis ion’s CC&Rs to include a restr ict ive covenant prohibit ing

the sale or lease of the property to non-whites or non-Christ ians. These

discr iminatory restr ic t ions were general ly considered legal and enforceable

unti l the Supreme Court decided the case of Shelley v. Kraemer in 1948. The

court ruled that it was unconstitut ional—a violat ion of the 14th Amendment—

for state courts or federal courts to be involved i n the enforcement of racial ly

restr ict ive covenants. As a result of the decision, those covenants became

legal ly unenforceable. Today, although discr iminatory restr ict ive covenants

st i l l appear in some older documents, it is a violat ion of both federal an d

state laws to attempt to enforce or comply with them. If such a restr ict ion is

included in a new deed, the restr ict ion is unenforceable, but it does not

affect the conveyance. (Rockwell, 434-446)

Real Estate Math

Real estate agents use math constantly: to calculate their commissions,

to determine the square footage of homes they are l ist ing or sel l ing, to

prorate closing costs, and so on. Electronic calculators make al l of these

tasks much easier than they once were, but it is st i l l necessary to have a

basic grasp of the math involved. This chapter provides step-by-step

instruct ions for solving a wide variety of real estate math problems.

Solving Math Problems

We’re going to begin our discussion of real estate math with a simple

approach to solving math problems. Master this four -step process, and you’l l

be able to solve most math problems you are l ikely to encounter.


Page 24 of 40

1. Read the question

The most important step is to thoroughly read and understand the

question. You must know what you are looking for be fore you can

successful ly solve any math problem. Once you know what you want to

f ind out (for example, the area, the commission amount, or the total

prof it) , you’l l be able to decide which formula to use.

2. Write down the formula

Write down the correct formula for the problem you need to solve. For

example, the area formula is Area = Length × Width , which is abbreviated

A = L × W . Formulas for each type of problem are presented throughout

this chapter, and there is a complete l ist at the end of the chapter .

3. Substitute

Subst itute the relevant numbers f rom the problem into the formula.

Sometimes there are numbers in the problem that you wil l not use. I t ’s

not unusual for a math problem to contain unnecessary information,

which is why it is very important t o read the question f irst and determine

what you are looking for. The formula wi l l help you dist inguish between

the relevant and irrelevant information given in the problem.

In some problems you wil l be able to substitute numbers into the

formula without any addit ional steps, but in other problems one or more

prel iminary steps wil l be necessary. For instance, you may have to

convert f ract ions to decimals.

4. Calculate

Once you have subst ituted the numbers into the formula, you are

ready to perform the calculat ions to f ind the unknown— the component of

the formula that was not given in the problem. Most of the formulas have

the same basic form: A = L × W . The problem wil l give you two of the

three numbers (or information to enable you to f ind two of the numbers)

and then you wil l either have to divide or mult iply to f ind the third

number, which is the solut ion to the problem.


Page 25 of 40

Whether you’ l l mult iply or divide is determined by which component in the

formula is the unknown. For example, the formula A=L ×W may be converted

into two other formulas. Al l three formulas are equivalent, but they are put

into dif ferent forms depending on the element to be discovered.

I f the quantity A (the area) is unknown, then the fol lowing formula

is used: A = L × W. The number L is multiplied by W. The product

of L mult ipl ied by W is A.

If the quantity L (the length) is unknown, the following formula is

used: L =A ÷ W. The number A is divided by W. The quotient of A

divided by W is L.

If the quantity W (the width) is unknown, the following formula is

used: W = A ÷ L. The number A is divided by L. The quotient of A

divided by L is W.

Thus, the formula A = L × W may be used three dif ferent ways depending

on which quantity is unknown. For the examples below, assume the area of a

rectangle is 800 square feet, the length is 40 feet, and the width is 20 feet.

A = L × W L = A ÷ W W = A ÷ L

A = 40 ' × 20 ' L = 800 Sq. f t . ÷ 20 ' W = 800 Sq. f t . ÷ 40 '

40 ' × 20 '= 800 Sq. f t . 800 Sq. f t . ÷ 20 ' = 40 ' 800 Sq. f t . ÷ 40 ' = 20 '

After you’ve substituted the numbers given in the problem into the

formula, you might have trouble deciding whether you’re supposed to

mult iply or divide. I t may help to compare your equation to the very famil iar

calculat ion 2 × 3 = 6 . If the unknown component of your equat ion is in the

same posit ion as the 6 in 2 × 3 = 6, then you need to mult iply the two given

numbers to f ind the unknown.

I f the unknown component is in the 2 posit ion or the 3 posit ion, you need

to divide. You’l l divide the given number in the 6 posit ion by the other given

number to f ind the unknown.

? × 3 = 6 becomes 6 ÷ 3 = 2 2 × ? = 6 becomes 6 ÷ 2 = 3


Page 26 of 40

Now let ’s apply the four -step approach to an example. Suppose a room is

10 feet wide and 15 feet long. How many square feet does it con tain?

1. Read the question . This problem asks you to f ind the square footage

or area of a rectangular room. So you’ l l need the area formula for

a rectangle.

2. Write down the formula . Area = Length × Width

3. Substitute . Subst itute the numbers given in the prob lem into the

formula. The length of the rectangle measures 15 feet, and the width

measures 10 feet: A = 15 ' × 10 ' .

4. Calculate . Mult iply Length t imes Width to get the answer: 15 ' × 10 ' =

150 Sq. f t . Thus, A = 150. The area of the room is 150 square fee t.

Suppose the problem gave you dif ferent pieces of information about the

same room: the area is 150 square feet and it ’s 10 feet wide. How long is

the room? Again, follow the four-step approach.

1. Read the question . You’re asked to f ind the length or width of a

rectangle. You’l l need the area formula again.

2. Write down the formula . Area = Length × Width

3. Substitute . Subst itute the numbers given in the problem into the

formula: 150 = L × 10' .

4. Calculate . The length of the rectangle is the unknown. Thus, the bas ic

area formula is converted into a division problem to f ind the length:

150 Sq. f t . ÷ 10 '= 15 '. The result of 150 divided by 10 is 15. The

length of the rectangle, or of the room, is therefore 15 feet.


Page 27 of 40

Decimal Numbers

To carry out a calculat ion, it ’s easier to work with decimal numbers than

with f ract ions or percentages. So if a problem presents you with f ract ions or

percentages, you’ l l usually convert them into decimal numbers.

Converting Fractions. To convert a f ract ion into decimal form, divide the

top number of the f ract ion (the numerator) by the bottom number of the

f ract ion (the denominator).

Example: To change 3/4 into a decimal, divide 3 (the top number) by

4 (the bottom number): 3 ÷ 4= .75.

Example: To convert 2/3 into a decimal, divide 2 (the top number) by

3 (the bottom number): 2 ÷ 3= .66667.

I f you don’t already know them, it ’s useful to memorize the decimal

equivalents of the most common fract ions:

¼ = .25

½ = .5

¾ = .75

Converting Percentages. To solve a problem involving a percentage, you’l l

f irst convert the percentage into a decimal number, then convert the decimal

answer back into percentage form.

To convert a percentage to a decimal, remove the percent sign and move

the decimal point two places to the lef t . It may be necessary to ad d a zero.


Page 28 of 40

To convert a decimal into a percentage, do just the opposite. Move the

decimal point two places to the r ight and add a percent sign.

The percent key on a calculator performs the conversion of a percentage

to a decimal number automatical ly. On most calculators, you can key in the

digits and press the percent key, and the calculator wil l display the

percentage in decimal form.

Decimal Calculations. Calculators handle decimal numbers in exact ly the

same way as whole numbers. I f you enter a dec imal number into the

calculator with the decimal point in the correct place, the calculator wil l do

the rest. But if you’re working without a calculator, you’ l l need to apply the

following rules.

To add or subtract decimals, put the numbers in a column with their

decimal points l ined up.

Example: To add 3.75, 14.62, 1.245, 679, 1,412.8, and 1.9, put the

numbers in a column with the decimal points l ined up as shown

below, then add them together.

3.75

14.62

1.245

679.0

1,412.8

+ 1.9

2,113.315

To mult iply decimal numbers, f irst do the mult ipl icat ion without worrying

about the decimal points. Then put a decimal point into the answer in the

correct place. The answer should have as many decimal places (that is,

numbers to the r ight of its decimal point) as the total number of decimal


Page 29 of 40

places in the numbers that were mult ipl ied. So count the decimal places in

the numbers you are mult iplying and put the decimal point the same number

of places to the lef t in the answer.

Example: Mult iply 24.6 t imes 16.7. The two numbers contain a

total of two decimal places.

24.6

x 16.7

410.82

In some cases, it wil l be necessary to include one or more zeros

in the answer tohave the correct number of decimal places.

Example: Mult iply .2 t imes .4. There is a total of two

decimal places.

.2

x .4

.08

A zero has to be included in the answer in order to move the

decimal point two places lef t .

To divide by a decimal number, move the decimal point in the

denominator (the number you’re dividing the other number by) al l the way to

the r ight. Then move the decimal point in the numerator (the number that

you’re dividing) the same number of places to the r ight. ( In some cases it

wi l l be necessary to add one or more zeros to the numerator in order to

move the decimal point the correct number of places.)

Example: Divide 26.145 by 1.5. First move the decimal point in 1.5

al l the way to the r ight ( in this case, that ’s only one place). Then

move the decimal point in 26.145 the same number of places to

the r ight.


Page 30 of 40

Remember, these steps are unnecessary if you’re using a calculator. I f

the numbers are keyed in correct ly, the calculator wil l automatically give you

an answer with the decimal point in the correct place.

Area Problems

A real estate agent of ten needs to calculate the area of a lot, a bui lding,

or a room. Area is usually stated in square feet or square yards. The

formula to be used for the calculat ion depends on the shape of the area in

question. I t may be a square, a rectangle, a tr iangle, or some combination of

those shapes.

Squares and Rectangles

As stated earl ier, the formula for f inding the area of a square or a

rectangle is A = L × W.

Example: I f a rectangular room measures 15 feet along one wall

and 12 feet along the adjoining wal l, ho w many square feet of

carpet would be required to cover the f loor?

1. Read the question . You’re being asked to f ind the area ( the

square footage) of a rectangle.

2. Write down the formula . A = L × W

3. Substitute . A = 15 ' × 12 '

4. Calculate . Since the quantity A is unknown, mult iply L t imes W

for the answer: 15 ' × 12 ' = 180 Sq. f t . 180 square feet of

carpet are needed to cover the f loor.


Page 31 of 40

Now take the problem one step further. If carpet is on sale for

$12 per square yard, how much would it cost to carpet the roo m?

1. Read the question . You’re f irst being asked to determine how

many square feet there are in a square yard, and then to

determine how many square yards there are in 180 square feet.

A square yard is a square that measures one yard on each side.

There are three feet in a yard.

2. Write down the formula . A = L × W

3. Substitute . A = 3 ' × 3 '

4. Calculate . Since the quantity A is the unknown, mult iply L t imes

W : 3 ' × 3 ' = 9 Sq. f t .

So there are 9 square feet in a square yard. Now divide 180

by 9 to see how many square yards there are in 180 square feet:

180 ÷ 9 ' = 20 Sq. yd.

Now mult iply the number of square yards (20) by the cost per

square yard ($12): 20 × $12 = $240 Cost to carpet room.

Triangles

The formula for f inding the area of a tr iangle is:


Page 32 of 40

Example: I f commercial bui lding lots in a certain neighborhood are

sel l ing for approximately $5 per square foot, approximately how

much should the lot pictured below sel l for?

1. Write down the formula . A = ½ B × H

2. Substitute . Area = 55 ' (½ of 110) × 75'

3. Calculate . 75 ' × 55 ' = 4,125 Sq. f t .

The order of mult ipl icat ion doesn’t matter. You can mult iply 110

t imes 75 and then divide it in half . Or you can divide 110 by 2 and

then mult iply the result by 75. Or you can divide 75 by 2 and then

mult iply the result by 110. Whichever way you do it , the answer wi l l

be the same.


Page 33 of 40

The lot contains 4,125 square feet. If similar lots are sel l ing for

about $5 per square foot, this lot should sel l for about $20,625.

4,125 Square feet

x $5 Per square foot

$20,625 Sel l ing pr ice

Odd Shapes

The best approach to f inding the area of an odd -shaped f igure is to divide

it up into squares, rectangles, and tr iangles. Find the areas of those f igures

and add them al l up to arr ive at the area of the odd-shaped lot, room, or

bui lding in question.

Example: I f the lot pictured below is leased on a 50-year lease for

$3 per square foot per year, with rental payments made monthly,

how much would the monthly rent be?

First, divide the lot up into rectangles and tr iangles.


Page 34 of 40

The next step is to f ind the area of each of the following f igures.

The height of the tr iangle is determined by adding together the 70-

foot border of the small rectangle and the 40-foot border of the

large rectangle, as shown above.

First, f ind the area of the tr iangle.

1. Write down the formula . A = ½ Base × Height

2. Substitute . A = 32.5 ' (½ of 65 ' ) × 110 '

3. Calculate . 32.5 ' × 110 ' = 3,575 Sq. f t .

Then, f ind the area of the large rectangle.

1. Write down the formula . A = Length × Width

2. Substitute . A = 110 ' × 60 '

3. Calculate . 110 ' × 60 ' = 6,600 Sq. f t .

Next, f ind the area of the small rectangle.

1. Write down the formula . A = Length × Width

2. Substitute . A = 70 ' × 50 '

3. Calculate . 50 ' × 70 ' = 3,500 Sq. f t .

Final ly, add the three areas together to f ind the area of the

entire lot: 3,575 + 6,600 + 3,500 = 13,675 Total square feet.

The lot contains 13,675 square feet. At $3 per square foot per year,

the annual rent would be $41,025.

13,675 Square feet

x $3 Rent per square foot

$41.025 Annual rent


Page 35 of 40

The monthly rental payment would be one -twelf th of the annual

rent: $41,025 ÷ 12 = $3,418.75. Thus, the monthly rental payment

for this odd-shaped lot is $3,418.75.

Volume Problems

Occasional ly you may need to calculate the volume of a three -

dimensional space. Volume is usual ly stated in cubic feet or cubic yards. A

formula for calculat ing volume can be stated as:

Volume = Length × Width × Height , or V = L × W × H. It ’s the same as the

area formula, except it has one added element: H, the height of the space

being measured.

Example: The f loor of a storage unit measures 13 feet 6 inches by

20 feet, and it has a 12-foot ceil ing. What is the volume of the unit

in cubic yards?

1. Write down the formula . V = L × W × H

2. Substitute . V = 20 ' × 13.5 ' × 12 '

3. Calculate .

4. Now convert the cubic feet into cubic yards. As you saw

earl ier, a square yard measures 3 feet by 3 feet, or 9 square

feet. A cubic yard measures 3 feet by 3 feet by 3 feet, or 27

cubic feet. Divide the volume of the storage area in cubic feet

by 27 to f ind the volume in cubic yards: 3,240 ÷ 27 = 120 Cubic

yards . The volume of the storage space is 120 cubic yards.


Page 36 of 40

Percentage Problems

Many real estate math problems involve percentages. This includes

problems about brokerage commissions, interest on mortgage loans,

property appreciat ion or depreciat ion, and capital izat ion.

Solving Percentage Problems

To solve percentage problems, you’ l l usual ly convert the percentage into

a decimal number, calculate, and then convert the answer back into

percentage form. As explained earl ier, a percentage is converted into a

decimal number by removing the percent sign and moving the decimal point

two places to the lef t . If the percentage is a single digit ( for example, 7%), it

wi l l be necessary to add a zero (.07). To convert a decimal number into a

percentage, you reverse those steps: move the decimal point two places to

the r ight and add the percent s ign.

In a math problem, whenever something is expressed as a percentage

“of” another number, that indicates that you should mult ipl y that other

number by the percentage.

For instance, what is 75% of $40,000?

Basical ly, percentage problems ask you to f ind a part of a whole. The

whole is a larger f igure, such as a property’s sales pr ice. The part is a

smaller f igure, such as a broker’s commission. The general formula might be

stated thus: A percentage of the whole equals the part. This can be wr it ten

as an equat ion: Part = Whole × Percentage.


Page 37 of 40

Example: A house is l isted for sale a t a price of $172,000, with an

agreement to pay the broker a commission of 6% of the sales price.

The property sells for $170,000. How much is the commission?

1. Write down the formula . P = W × %

2. Substitute . Change the percentage (6%) into a decimal num ber

(.06) f irst: P = $170,000 × .06.

3. Calculate .

$170,000 Sales pr ice

x .06 Commission rate

$10,200 Commission

The broker’s commission is $10,200.

In some percentage problems, the part is given and you’re asked to

calculate either the whole or the percentage. For those problems,

you’l l need to rearrange the percentage formula into a divis ion

problem. I f the whole is the unknown, divide the part by the

percentage: Whole = Part ÷ Percentage.

I f the percentage is the unknown, divide the part by the who le:

Percentage = Part ÷ Whole.

Notice that in either case, you’ l l be dividing the value of the part by

either the whole (to determine the percentage) or by the

percentage (to determine the whole).

Commission Problems

Like the example above, most commission problems can be solved with

the general percentage formula: Part = Whole × Percentage.

The percentage is the commission rate, and the whole is the amount that

the commission is based on. In most problems, this wi l l be the sales price of

a piece of property. The part is the amount of the commission.


Page 38 of 40

Example: A l ist ing agreement provides for a commission of 7% of

the sales pr ice to be paid to the broker. The broker has agreed to

pay his salesperson 60% of the commission. How much wil l the

salesperson receive if the property sells for $145,000?


2. Substitute . Change the percentage (7%) to a decimal number

(.07): P = $145,000 × .07.

3. Calculate . The part is the unknown quantity, so the percentage

is mult ipl ied by the whole.

$145,000 Sales pr ice

x .07 Commission rate

$10,150 Total commiss ion

The total commission is $10,150. The salesperson is entit led to

60% of the total commission. Apply the percentage formula again to

determine the amount of the salesperson’s share .


2. Substitute . Convert the percentage (60%) to a decimal number

(.60): P = $10,150 × .60.

3. Calculate .


x .60 Salesperson ’s percentage

$6,090 Salesperson ’s share

The following example i l lustrates another form that commission problems

can take.

Example: A l ist ing agreement provided for a two-t iered commission

based on the property’s sales price. The commission would be 7%


Page 39 of 40

of the f irst $100,000 and 5% of any amount over $100,000. I f the

commission was $8,250, what was the sales price?

1. Read the question . You’re given the commission rates and the

amount of the commission, and then asked to f ind the sales

price. Your f irst step in the process is to f ind out how much of

the commission amount is attr ibutable to the f irst $100,000 of

the sales pr ice.


3. Substitute , convert ing the percentage to a decimal:

P = $100,000 × .07.

4. Calculate . $100,000 × .07 = $7,000

So $7,000 of the commission is based on the f irst $100,000 of

the sales pr ice. Next, subtract to f ind the amount of the rest of the

commission.


- 7,000 Commiss ion f rom f irs t $100,000

$1,250 Salesperson ’s share

Now you know that out of the total commission, $1,250 is

attr ibutable to the part of the sales pr ice in excess of $100,000.

You can use that f igure along with the second t ier commission rate

(5% of the amount over 100,000) to determine by how much the

sales price exceeded $100,000.


2. Substitute , convert ing the percentage to a decimal:

$1,250 = W × .05.


Page 40 of 40

3. Calculate . The quantity W ( the whole) is the unknown. To

isolate the unknown, the basic formula must be turned into a

divis ion problem. The part divided by the percentage equals the

whole: $1,250 ÷ .05 = $25,000.

This shows that the port ion of the sales price in excess of

$100,000 amounted to $25,000. Thus, the total sales price is

$100,000 plus $25,000, or $125,000. (Rockwell, 518-529)

Cited Material:

Real Estate Principles . Bellevue, WA: Rockwell Publishing , 2014. . Pr int.

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Antitrust Laws and Real Estate Licensees · 2019-08-15 · LP-2 Required Reading Part One Page 1 of 40 Antitrust Laws and Real Estate Licensees In addition to the state real estate