Definition
The Purchase Price is the finalized dollar amount that a buyer agrees to pay a seller for a property. This amount is stated in the sales contract and represents the agreed-upon value of the property. The Purchase Price is exclusive of any adjustments such as seller concessions, closing costs, or financing arrangements.
For example, if Sally and the seller agree that the home is worth $200,000, then $200,000 is the purchase price stated in the sales contract, regardless of any incentives the seller might offer like paying the closing costs or any rebates for repairs.
Examples
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Example 1: John agrees to purchase a home for $300,000. The contract stipulates that the seller will pay $10,000 towards closing costs. Despite this concession, the purchase price remains $300,000.
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Example 2: A commercial real estate property is sold for $1,500,000. The seller agrees to provide financing for $200,000 of the price. The purchase price stated in the sales contract remains $1,500,000 despite the seller-financing agreement.
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Example 3: Sarah buys a property for $850,000. The seller provides a $10,000 concession due to faulty roofing. The recorded purchase price, however, is still $850,000.
Frequently Asked Questions (FAQs)
1. What is included in the purchase price of a property?
The purchase price includes only the amount agreed upon by both the buyer and seller for the sale of the property. It does not include additional costs such as closing costs, agent fees, or seller concessions.
2. Can the purchase price change after the sales contract is signed?
Typically, the purchase price remains fixed once the sales contract is signed. However, if significant issues are uncovered during due diligence or inspections, the buyer and seller might renegotiate the purchase price.
3. Is the purchase price the same as the market value?
Not necessarily. The purchase price is the amount agreed upon by the buyer and the seller, while the market value is an assessed value based on current market conditions, comparable sales, and property appraisals.
4. Does financing affect the total purchase price?
No, financing arrangements may help fund the purchase but do not alter the purchase price stated in the sales contract.
5. Who determines the purchase price of a property?
The buyer and seller mutually agree upon the purchase price through negotiations and by considering factors such as market conditions, property condition, and comparable sales data.
- Sales Contract: A legal agreement between buyer and seller outlining the terms and conditions of the property sale.
- Market Value: The estimated amount a property would sell for on the open market.
- Closing Costs: Fees and expenses, aside from the property price, that buyers and sellers incur during the completion of a real estate transaction.
- Concessions: Compromises made by the seller to handle certain expenses or repairs to assist the buyer in closing the deal.
- Seller-Financed Mortgage: A mortgage in which the seller of the property provides a loan to the buyer to cover part or all of the purchase price.
Online Resources
References
- National Association of Realtors. “Guide to Purchasing Real Estate.”
- Zillow. “Real Estate Terms and Definitions.”
Suggested Books for Further Studies
- “Real Estate Investing for Dummies” by Eric Tyson and Robert S. Griswold
- “The Millionaire Real Estate Investor” by Gary Keller
- “Principles of Real Estate Practice” by Stephen Mettling
- “The Book on Investing in Real Estate with No (and Low) Money Down” by Brandon Turner
- “Real Estate Law” by Marianne Jennings
Real Estate Basics: Purchase Price Fundamentals Quiz
### What is the purchase price of a property?
- [x] The dollar amount agreed upon by the buyer and the seller for the sale of the property.
- [ ] The assessed value of a property by a municipal appraiser.
- [ ] The replacement cost of the property.
- [ ] The total cost including closing fees and agent commissions.
> **Explanation:** The purchase price is the dollar amount agreed upon by the buyer and the seller for the sale of the property, as stated in the sales contract.
### What term describes a dollar amount paid exclusively unadjusted for any financing, concessions, or seller-paid closing costs?
- [x] Purchase Price
- [ ] Market Value
- [ ] Closing Costs
- [ ] Net Price
> **Explanation:** Purchase price is the dollar amount agreed upon in the sales contract and doesn't account for any financing, concessions, or seller-paid closing costs.
### Can the purchase price be adjusted for seller concessions?
- [ ] Yes, it must always include the seller concessions.
- [ ] No, seller concessions change the purchase price.
- [x] No, seller concessions do not change the purchase price.
- [ ] Yes, only if both parties agree.
> **Explanation:** The purchase price is not adjusted for seller concessions. It remains the same as stated in the sales contract.
### Who determines the purchase price in a real estate transaction?
- [ ] The appraiser
- [ ] The real estate agent
- [ x] Both the buyer and the seller
- [ ] The local government
> **Explanation:** The purchase price is determined by negotiations between the buyer and the seller.
### Is the market value the same as the purchase price?
- [x] Not necessarily
- [ ] Yes, they are always the same
- [ ] Only if property assessments are consistent
- [ ] Yes, but only if appropriately appraised
> **Explanation:** The purchase price is agreed upon by the buyer and seller while the market value is an assessed value based on market conditions.
### What remains the primary component of the sales contract in a property sale?
- [ ] Commission paid to the agent
- [ ] Financing details
- [ ] Property dimensions
- [ x] Purchase Price
> **Explanation:** The purchase price remains the primary component of the sales contract between buyer and seller.
### When might a purchase price change after a sales contract is signed?
- [x] During re-negotiation phases when issues are discovered during due diligence or property inspection.
- [ ] After loan approval.
- [ ] During the title transfer process.
- [ ] After the buyer occupies the property.
> **Explanation:** The purchase price might change if significant issues are discovered during due diligence or property inspection, leading to renegotiations.
### How are seller concessions typically documented in a real estate deal?
- [ ] As part of the purchase price
- [x] Separate from the purchase price in the sales contract
- [ ] As monthly leasing costs
- [ ] As municipal property taxes
> **Explanation:** Seller concessions are typically documented separately from the purchase price in the sales contract.
### What happens if a borrower has low credit but together the purchase price is high?
- [ ] The seller must decrease the purchase price.
- [x] The buyer may need to seek additional financing or pay a higher interest rate.
- [ ] Title companies might refuse the property exchange.
- [ ] The deal cannot go through.
> **Explanation:** The buyer may need to seek additional financing or pay a higher interest rate to accommodate their lower credit score combined with a high purchase price.
### What additional fees are not reflected in the stated purchase price?
- [ ] Utility connection fee
- [ ] Property taxes
- [x] Buyer-paid closing costs
- [ ] Property appraisal fee
> **Explanation:** Buyer-paid closing costs are additional fees that are not reflected in the stated purchase price of the property.
