Commission and compensation calculations

Start with the agreement

Commission calculations use the compensation terms given in the problem. Rates and splits are negotiable, not fixed by law; the examples here are arithmetic assumptions. Identify both the rate and the dollar base to which it applies.

Calculate and divide

Total commission equals sale price multiplied by the commission rate expressed as a decimal. On a $400,000 sale at an agreed 5%, convert 5% to 0.05, then multiply $400,000 by 0.05 to get $20,000. If the agreement allocates 60% to the listing brokerage and 40% to the cooperating brokerage, their shares are $12,000 and $8,000. If the listing sales agent receives 70% of the listing brokerage share, the agent earns $12,000 times 0.70, or $8,400. The listing broker retains $12,000 minus $8,400, or $3,600, before other expenses.

A brokerage split and an agent split have different bases. Do not add their percentages or apply the agent percentage directly to the sale price. The agent's effective share of the total commission is 0.60 times 0.70, or 42%.

Fees, reverse calculations, and seller proceeds

Follow the stated order for referral fees and other deductions. If a $10,000 brokerage commission is reduced by a 20% referral fee before a 70% agent split, the fee is $2,000, the remaining commission is $8,000, and the agent receives $5,600. A flat fee is a stated dollar amount; a tiered fee requires a separate calculation for each price band.

To find an unknown rate, divide commission by sale price and convert the decimal to a percentage. To find an unknown sale price, divide commission by the decimal rate. If the seller wants $190,000 after a 5% commission with no other deductions, divide $190,000 by 0.95 to obtain $200,000; adding 5% to the target net would be wrong. When fixed costs are also deducted, add them to the target net before dividing by one minus the commission rate. Keep full precision during calculations and round the final dollar answer to cents unless instructed otherwise.