Your Guide to Ace the Math Questions on Your Real Estate Exam + 10 Commonly Used Math Terms

Attractive,Happy,Young,Girl,Student,Studying,At,The,College,Library,If it’s been a few years since you’ve had to brush up on your math skills, I can imagine studying for the math portion of your real estate exam seems daunting. 

Rest assured it’s fairly common for aspiring agents to struggle with the math component, but there are many resources available to help guide you along the way. We’re here to give you a crash course and point you in the right direction as you prepare for your exam.

In this article, we’ll delve into the importance of real estate math for your career, what to expect on the exam, essential terms and formulas, and resources to help you sharpen your math skills by practicing. 

How Much of the Exam Will Require Math

It’s important to familiarize yourself fully with your state’s exam format and content as each state has its breakdown of how many questions and the amount of time you will be allowed to answer your questions. 

We’ve compiled a list of guides by state to help you get started learning the specifics of your exam’s requirements and content breakdown. Check it out here! 

The real estate exam is comprised of two sections of questions, National and State. You can typically plan for about 80 questions on the national portion and about 40 on the state portion. However, per your state, the questions can range in total between 120 and 200. 

  • “Of those, roughly 10-15% involve math, which translates to between 15 and 30 questions per exam.” 

In general, you can typically expect to have a limit of between two to four hours to take your exam depending on your state. So, if math is not your strong suit you can see why devoting a little more time on this portion of your studying is worth it!  

Understanding Real Estate Math and Why It’s Important

It’s important to keep your goal of becoming a successful real estate agent in mind as you study, especially as you learn the math formulas required. Real estate math is not just a requirement for passing the license exam; it’s an essential skill to possess for your success in the industry. 

You will likely be using math daily in the industry so knowing and being familiar with all terms will help you prosper. Keeping your goals in mind will help you keep a positive attitude and hopefully bolster your will to learn when it starts to feel boring or frustrating.

Whether you’re determining property values, calculating closing costs, negotiating contracts, or determining your commission proficiency in real estate math is vital for accurately representing your client’s interests and conducting transactions with precision and confidence.

Also, if the math section is still feeling overwhelming to you… just know you only need 60%-75% depending on your state to pass. 

While you will need to know how to use this math in your career, maintaining a positive mindset in taking your exam is important, you can miss a few and still be okay! 

Ready to Get Started? 

List of 10 Common Math-Related Terms to Be Familiar With:

  1. Loan-to-Value Ratio (LTV) – “The loan-to-value (LTV) ratio is a measure comparing the amount of your mortgage with the appraised value of the property. The higher your down payment, the lower your LTV ratio.” (source)
  2. 28/36 Rule (Ratio) – This is the number you need to calculate to determine what mortgage your client will qualify for in loans. The 28 represents the 28% they would dedicate out of their monthly income to their mortgage. The 36 represents additional debts to consider when calculating what the mortgage must be under for your clients to afford. (source
  3. Gross Rent Multiplier (GRM) – The GRM helps determine a rental property’s value, which is fairly straightforward. “A higher GRM indicates that the property is overpriced, while a lower GRM indicates that the property is underpriced. The best GRM is usually considered to be between 4 and 7.” (source)
  4. Capitalization Rate (Cap Rate) – This is a metric used to help determine if a property is a good investment.
    1. “Example: A buyer paid $1,300,000 cash for a property, and it generates $150,000 annually in rent collection. Its taxes are $20,000/year, leaving $130,000 NOI… $130,000/$1,300,000=10% cap rate” (source)
  5. Net Operating Income (NOI) – In case you were guessing in the previous one…“The Net Operating Income (NOI) is the expected annual rental income minus all managing expenses, including taxes, property management, and lawn maintenance.” (source)
  6. Amortization – this refers to the fixed monthly payment you will make towards your loan towards your principal and interest. (source
    1. mortgage math
  7. Proration – This describes the process of calculating what a buyer and seller will owe determined by a set amount of time in which the property exchanges ownership or rental agreement. 
    1. In the case of ownership, you will calculate a prorated tax amount based on the amount of time each owned the property in one calendar year. 
    2. In the case of rental, if your client’s lease starts mid-month they will only owe for the amount of days they were financially responsible in their first month. 
    3. Example: “To calculate the proration amount, divide the total expense by the number of days in the period. For example, if annual property taxes are $6,000, and the proration period covers a full year (365 days), the daily proration amount would be $16.44.” (source)
  8. Appreciation – This is the amount that a property’s value has increased over a set period of time, usually calculated from the most recent purchase price. 
    1. Example: “let’s say your home was valued at $200,000 when you purchased it and that market value has increased to $225,000… To find the appreciation percentage, we would divide the change in home value ($25,000) by the original home value ($200,000) which equates to 0.125. By multiplying this number by 100, we can determine that the price of the home has appreciated by 12.5%.” (source)
  9. Price Per Square Foot – This is a calculation that can help you value a property based on the square footage to help determine a fair market value. 
    1. “For instance, if the home has 2,000 square feet and the sales price is $400,000, then the price per square foot would be $400,000 / 2000 = $200.” (source)
  10. Maximum Allowable Offer – This is just as it seems, the most you should offer for a property, which is determined by the calculation of the repairs and then value after fixed costs and repairs are deducted. If this number is over 70% of the current value… then you shouldn’t invest. 
    1. “For example, let’s say you’re interested in purchasing a home that you intend on renovating and then flipping. You’ve determined that renovations and repairs will cost $30,000, fixed costs will be $10,000 and the after-repair value will be $320,000. The MAO calculation for this example should look like this: MAO = (320,000 * 0.7) – 30,000 – 10,000
    2. After running the numbers in this scenario, the MAO would be $184,000.” (source)

Recommend Platforms for Courses and Practice Exams

Learning these ten terms and understanding how they will be useful for your career in real estate will put you on a good path toward taking the exam with confidence. As you can imagine there are quite a few more to learn. 

We’ve put together a list of a few education platforms that will help you learn the math you need to know for your exam and provide tests to help you practice. 

  1. The CE Shop – they are widely trusted and offer exam prep in all states. 
  2. Van Education Center – they offer national prep courses at a reasonable price
  3. Real Estate U – a great option for your state portion
  4. Real Estate License Wizard – this company offers a free practice exam and combined pricing for both national and state pricing. 

Summary

Math is a required part of the exam, but it is also essential for your real estate career. If you stick to your study schedule with allotted time to study math terms and take practice tests you will naturally become more familiar with how and when to use appropriate formulas. 

Take advantage of resources such as online courses, YouTube tutorials, and practice exams to reinforce your understanding and prepare effectively. 

With dedication and perseverance, you’ll be well-equipped to tackle the math portion of the real estate license exam. Don’t sweat it, and keep a positive mindset… and you’re well on your way to getting your license. 

Good luck with your exam!

Chris Heller Headshot

About the Author

Chris Heller brings 27 years of experience in real estate. Chris serves on the AgentAdvice Editorial Board and is the Chief Real Estate Officer at OJO Labs. Chris brings deep expertise having held influential industry positions including CEO of mellohome and former CEO of Keller Williams Realty International.

Last Updated: 3/14/2024