Antitrust Laws and Real Estate Licensees · 2019-08-15 · LP-2 Required Reading Part One Page 1 of...
Transcript of Antitrust Laws and Real Estate Licensees · 2019-08-15 · LP-2 Required Reading Part One Page 1 of...
LP-2 Required Reading Part One
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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;
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• 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.”
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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.
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• 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.
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• 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
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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.
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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.
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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
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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.
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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.
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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
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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.
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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.
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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:
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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.
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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.
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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
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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.
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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.
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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.
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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?
1. Write down the formula . P = W × %
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 .
1. Write down the formula . P = W × %
2. Substitute . Convert the percentage (60%) to a decimal number
(.60): P = $10,150 × .60.
3. Calculate .
$10,150 Total commiss ion
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%
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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.
2. Write down the formula . P = W × %
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.
$8,250 Total commiss ion
- 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.
1. Write down the formula . P = W × %
2. Substitute , convert ing the percentage to a decimal:
$1,250 = W × .05.
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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.