BC Real Estate Trading Services Course Real Estate Math and Calculations 1 — Questions and Answers
Question 1: A commercial property generates a net operating income (NOI) of $48,000 per year and sells for $600,000. What is the capitalization rate?
- 6.0%
- 8.0% (Correct answer)
- 10.0%
- 12.5%
Correct answer: 8.0%
Cap rate = NOI ÷ Purchase Price = $48,000 ÷ $600,000 = 0.08 = 8%. The capitalization rate expresses the relationship between annual net income and property value.
Question 2: A commercial lender offers a maximum loan-to-value (LTV) ratio of 75% on a property appraised at $840,000. What is the maximum mortgage amount the lender will provide?
- $210,000
- $580,000
- $630,000 (Correct answer)
- $756,000
Correct answer: $630,000
Maximum mortgage = LTV ratio × Appraised value = 75% × $840,000 = $630,000. The remaining 25% ($210,000) must be covered by the borrower's equity or down payment.
Question 3: A listing brokerage and cooperating brokerage agree to split a 4% commission equally on a sale price of $720,000. The cooperating brokerage pays their agent 55% of the cooperating side. How much does the cooperating agent earn?
- $6,480
- $7,920 (Correct answer)
- $8,640
- $14,400
Correct answer: $7,920
Total commission = $720,000 × 4% = $28,800. Each brokerage receives $14,400. The cooperating agent earns 55% × $14,400 = $7,920.
Question 4: A rental property has gross annual rental income of $72,000. Vacancy and credit losses are estimated at 5% and annual operating expenses total $22,000. What is the net operating income (NOI)?
- $46,400 (Correct answer)
- $50,000
- $54,400
- $68,400
Correct answer: $46,400
Effective Gross Income = $72,000 × (1 − 0.05) = $68,400. NOI = $68,400 − $22,000 = $46,400. NOI is calculated after vacancy losses and operating expenses, but before debt service.
Question 5: A home with 2,200 square feet of finished living area sells for $880,000. What is the price per square foot?
- $350
- $375
- $400 (Correct answer)
- $440
Correct answer: $400
Price per square foot = Sale Price ÷ Square Footage = $880,000 ÷ 2,200 = $400 per square foot. This metric is commonly used to compare property values within a neighbourhood.
Question 6: A first-time buyer purchases a property in BC for $520,000. Under current CMHC rules, the minimum down payment is 5% on the first $500,000 and 10% on the portion above $500,000. What is the total minimum down payment required?
- $26,000
- $27,000 (Correct answer)
- $28,000
- $52,000
Correct answer: $27,000
Down payment on first $500,000 = 5% × $500,000 = $25,000. Down payment on remaining $20,000 = 10% × $20,000 = $2,000. Total minimum down payment = $25,000 + $2,000 = $27,000.
BC Real Estate Trading Services Course Real Estate Math and Calculations 1
A commercial property generates a net operating income (NOI) of $48,000 per year and sells for $600,000.
What is the capitalization rate?