Three Real Estate Formulas You Need to Know

Three Real Estate Formulas You Need to Know

Practical formulas for appreciation, future appreciation, and a handy formula for converting circumference to diameter that you can use out in the field.

I don't know how much you remember about high school math, but I can assure you that I have never once used the quadratic formula in my day-to-day life or as a real estate agent. I haven't had to find the cosine of an angle or determine the slope of a hyperbolic graph. However, there are some formulas that I use on a very regular basis.

Even though anyone can use Google to find a calculator that can quickly calculate what you need, understanding these three simple formulas and how to calculate them will allow you to determine the information you need so you can easily do these on the fly and out in the field.

Appreciation / Depreciation

This is an easy one that trips up people all the time because they don't know what number gets divided into which number. One easy way to remember is that if you want to know how things have appreciated, or depreciated, you are going to divide the newest number by the oldest number. So just start with new. Here is the formula:

New Number / Old Number = x -1 and then convert to a percentage

You Need: The two sales prices you are comparing

Let's say that we want to determine how prices have changed in the last year. This last May, the median sales price was $550,000 whereas last May, it was $525,000.

$550,000 / $525,000 = 1.048 – 1 = 0.048 = 4.8%

You can actually use this formula for any change that you are trying to measure. Days on Market? Number of Sales? Inventory? As long as you have a new number and an old number, you can do the math!

Future Appreciation

Likewise, you can also determine what a future value may be if it increases at a certain percentage. This one is super-easy! Here is the formula:

Current Value x Percentage = Future Value

You Need: Current value and the percentage of increase. The challenge with this one is you need to convert the percentage as follows because it is retaining 100% of the current value and then increasing from there. For example, if you are going to see what a 5% increase looks like, you need to convert that multiply your current value by 1.05. A 10% increase converts to 1.10. A 20% increase is 1.20.

For our example, let's see what a 3% increase on $100,000 looks like:

$100,000 x 1.03 = $103,000

This is easy, but the conversion from a percentage to a decimal is what trips people up.

Converting Circumference to Diameter (or Radius)

There is a lot of attention being paid to trees. In some areas, some homeowners are suddenly finding that trees on their property may be protected due to their girth. For example, here in Bellingham, an emergency tree ordinance just passed which automatically protects trees of a certain size, in this case, those with 36" diameter or greater at 4.5 feet off the ground. This will affect the developability of lots. For example, a tree of 36" diameter in the backyard may impact the development of an ADU. In Bellingham, the formula for determining the protected area, the diameter of the trunk at 4.5 feet high, in inches, will then become the radius of the protected area in feet.

For example, a tree that has a diameter of 40 inches will have a protected area with a diameter of 80 feet. And it is not just trees on the subject lot that can impact buildability. Like a wetland or critical area, these buffers extend past property boundaries.

You may have similar rules in your area, so as a real estate broker representing a buyer, it is important to identify trees that may reduce the buildable area of a lot. Get your flexible tape measure because you are going to need it!

You need: Circumference of a tree.

Let's say we have a big tree. Here in Bellingham, such trees have a protected area around them that limits what can be done on that land. To do this we need to know the diameter of the tree in inches. That diameter then becomes the radius around the tree in protected feet. How do we do that?

  1. Take a tape measure and measure around the trunk. That is the circumference. Our tree has a 150-inch circumference.
  2. Divide the measured circumference by Pi. Pi is equal to roughly 3.14159. So, 150 inches divided by 3.14159 = 47.75 inches. That is the width of our tree, its diameter. In other words, how thick the tree is if we drew a line straight through it.
  3. That diameter becomes the radius of the protected area in feet. Now we know that any land within 47.75 FEET of our tree is protected. Wow, that could really change what can be done on this property lot and how a potential homebuyer might value it.

If you ever need the radius of something, that's the distance from its center to its outer edge, just divide your diameter by 2!

Don't be afraid of math. Having a few formulas at the ready will empower you just as much as knowing facts like how an acre equals 43,560 square feet. You've got this!

By Denise Lones CSP, CMP, M.I.R.M.
The founding partner of The Lones Group, Denise Lones has over three decades of experience in the real estate industry. With agent/broker coaching, expertise in branding, lead generation, strategic marketing, business analysis, new home project planning, product development and more, Denise is nationally recognized as the source for all things real estate. With a passion for improvement, Denise has helped thousands of real estate agents, brokers, and managers build their business to unprecedented levels of success, while helping them maintain balance and quality of life.