Expert: Josh - 7/24/2010

Question
QUESTION: The owner sold a property for $200,000.00 paid off a existing loan for $120,000.00 had closing cost of $3750.00 the commission on the sale was 7.5% what did the owner net from the sale?

ANSWER: Hi Lawrence,

Think of the gains and losses in terms of "pluses" and "minuses".

Gains:
+ 200,000 (from selling property)

Losses:
-  15,000 (commission calculated at 7.5%, this takes away (7.5/100)*200000)
- 120,000 (pay off existing loan)
-   3,750 (closing cost)

Net gain from sale = 200,000 - (15,000 + 120,000 + 3,750) = $61,250

---------- FOLLOW-UP ----------

QUESTION: Great thank you, that was the answer i kept coming up with myself. I keep struggling since this is a practice question for a real estate exam i will be taking this coming Tuesday. My instructor has come up with a completely different answer. Her answer is as follows:

1) 120.0 x 7.5% =15.0
2) 15.0 + 3750 + 120.0 = net to seller 138,750.00

for the life of me i do not understand how????????

Answer
Lawrence,

It comes down to the meaning of "net". We both interpreted "net" as "net gain". So, it would be correct to say the net gain from the sale is 61,250.

The figure your instructor came up with is just 200,000-61,250 = 138,750. This is the amount "deducted" from the sale, when we take into consideration the commission, closing cost, and that the seller has to repay a loan.

It seems pretty clear to me that "net to seller" is the "net gain to the seller" in this context; and not the loss incurred from the sale. As long as you make it clear how you have interpreted "net" in your answer, I don't think the examiner can mark you wrong.