California Real Estate Exam Math: Formulas and Practice Problems

Real estate math makes up roughly 10–15% of the California DRE salesperson exam. That's up to 22 questions — enough to make or break a passing score. The good news: the math is not advanced. It's arithmetic. Once you know the formulas and practice them a few times, these become the easiest points on the exam.

Here are the most important formulas with examples.

1. Commission Calculations

Formula: Commission = Sale Price × Commission Rate

Example: A home sells for $650,000. The total commission is 5%. The listing broker splits it 50/50 with the buyer's broker. The listing agent gets 60% of their broker's side. How much does the listing agent earn?

- Total commission: $650,000 × 0.05 = $32,500 - Listing broker's share: $32,500 × 0.50 = $16,250 - Listing agent's share: $16,250 × 0.60 = $9,750

2. Loan-to-Value Ratio (LTV)

Formula: LTV = Loan Amount ÷ Appraised Value

Example: A buyer puts 20% down on a $500,000 home. What is the LTV?

- Down payment: $500,000 × 0.20 = $100,000 - Loan amount: $500,000 − $100,000 = $400,000 - LTV: $400,000 ÷ $500,000 = 80%

3. Proration

Proration splits costs (like property taxes or HOA dues) between buyer and seller based on the close of escrow date.

Formula: Daily rate = Annual amount ÷ 365 (or monthly amount ÷ 30)

Example: Annual property taxes are $4,380. Escrow closes on April 10. The seller owes taxes from January 1 through April 10 (100 days). How much does the seller owe?

- Daily rate: $4,380 ÷ 365 = $12/day - Seller's share: $12 × 100 = $1,200

4. Capitalization Rate (Cap Rate)

Used to value income-producing properties.

Formula: Cap Rate = NOI ÷ Value Or: Value = NOI ÷ Cap Rate

Example: A rental property generates $36,000 per year in net operating income. Similar properties sell at a 6% cap rate. What is the property's value?

- Value = $36,000 ÷ 0.06 = $600,000

5. Gross Rent Multiplier (GRM)

Formula: GRM = Sale Price ÷ Annual Gross Rent Or: Value = Annual Gross Rent × GRM

Example: A duplex rents for $3,000/month ($36,000/year). Comparable properties sell at a GRM of 12. What is the estimated value?

- Value = $36,000 × 12 = $432,000

6. Depreciation (Cost Approach)

For residential property, the IRS uses 27.5 years for straight-line depreciation.

Formula: Annual Depreciation = Improvement Value ÷ 27.5

Example: A property is purchased for $550,000. The land is valued at $100,000. What is the annual depreciation?

- Improvement value: $550,000 − $100,000 = $450,000 - Annual depreciation: $450,000 ÷ 27.5 = $16,364

7. Transfer Tax

In California, the county transfer tax is $1.10 per $1,000 of value (or $0.55 per $500).

Example: A property sells for $750,000. What is the county transfer tax?

- $750,000 ÷ $1,000 = 750 units - Transfer tax: 750 × $1.10 = $825

8. Points

Each discount point equals 1% of the loan amount and is paid at closing to buy down the interest rate.

Example: A buyer takes out a $400,000 loan and pays 2 points. How much does the buyer pay in points?

- 2% × $400,000 = $8,000

Practice Tips

- Always identify what the question is asking first. Many math errors come from solving for the wrong variable. - Work with decimals, not percentages. Convert 6% to 0.06 before calculating. - Practice daily. 10 math problems per day for two weeks will make exam math feel easy.

CARealestate.com includes real estate math questions in our practice quiz with full step-by-step explanations for every answer.