Which statement best describes how to calculate the commission?

Which statement best describes how to calculate the commission?

• A. Commission equals sales price multiplied by rate of commission
• B. Commission equals sales price divided by rate of commission
• C. Commission equals rate of commission times market value
• D. Commission equals profit plus amount invested

Answer: (A)

The main idea is that commissions are a percentage of the sale price. In real estate, you earn a fee by applying the commission rate to the selling price, not to profit or investment amounts. So the correct way to calculate is: commission = sales price × rate of commission. For example, if a home sells for 300,000 at a 6% commission, the fee would be 300,000 × 0.06 = 18,000. Dividing the sale price by the rate would not give a commission; it would distort the result. Using the market value or multiplying by rate of commission with market value would only be correct if market value equals the sale price, which isn’t the standard approach. Adding profit and amount invested does not reflect how real estate commissions are determined.

The main idea is that commissions are a percentage of the sale price. In real estate, you earn a fee by applying the commission rate to the selling price, not to profit or investment amounts. So the correct way to calculate is: commission = sales price × rate of commission. For example, if a home sells for 300,000 at a 6% commission, the fee would be 300,000 × 0.06 = 18,000.

Dividing the sale price by the rate would not give a commission; it would distort the result. Using the market value or multiplying by rate of commission with market value would only be correct if market value equals the sale price, which isn’t the standard approach. Adding profit and amount invested does not reflect how real estate commissions are determined.