Definition
The sales price refers to the total amount of money required to be paid for real estate, as specified in the contract or previously paid. The sales price may include cash payments, financing obtained through a mortgage, or the assumption of an existing mortgage.
Examples
- Cash and Mortgage Assumption: A property has a sales price of $100,000. The buyer agrees to pay $30,000 in cash and assumes the existing mortgage of $70,000 held by the seller.
- Full Cash Payment: A buyer purchases a house for a sales price of $200,000 and pays the total amount in cash without obtaining financing.
- Financed Purchase: A buyer agrees to purchase a property with a sales price of $300,000 using a down payment of $60,000 and securing a mortgage for the remaining $240,000.
Frequently Asked Questions
What is included in the sales price of a property?
The sales price includes all payments required to acquire the property, including cash, financed amounts via mortgages, and the assumption of any existing debts tied to the property.
How is the sales price different from the market value?
The sales price is the agreed-upon amount between the buyer and seller as documented in the sales contract, whereas the market value is the estimated amount the property would fetch in the current market, often determined through appraisals.
Can the sales price be negotiated?
Yes, the sales price is typically negotiated between the buyer and seller during the transaction process and may go through several revisions based on counteroffers and negotiations.
Does the sales price include closing costs?
No, the sales price typically does not include closing costs. Closing costs are additional expenses such as taxes, legal fees, and insurance that are paid at the closing of a real estate transaction.
How does sales price affect property taxes?
Property taxes are often based on the assessed value of the property, which can be influenced by the most recent sales price. However, local tax policies and assessment methods can vary.
Related Terms
- Market Value: The estimated amount for which property should exchange on the date of appraisal between a willing buyer and a willing seller.
- Appraisal: A professional assessment of a property’s value at a given point in time.
- Fair Market Value: The price at which property would sell under normal conditions.
- Down Payment: The part of the total purchase price that the buyer pays upfront.
- Mortgage Assumption: The transfer of an existing mortgage from the seller to the buyer as part of the property transaction.
Online Resources
References
- “Real Estate Principles,” Charles F. Floyd and Marcus T. Allen. ISBN 978-1427788387.
- “The Language of Real Estate,” John W. Reilly. ISBN 978-0793156040.
Suggested Books for Further Studies
- “Real Estate Investing For Dummies” by Eric Tyson and Robert S. Griswold
- “Principles of Real Estate Practice” by Stephen Mettling and David Cusic
Real Estate Basics: Sales Price Fundamentals Quiz
### Which of the following best defines the sales price?
- [ ] The assessed value set by tax authorities.
- [ ] The estimated market value according to real estate agents.
- [x] The amount agreed upon by the buyer and seller in a contract.
- [ ] The appraisal value given by a professional assessor.
> **Explanation:** The sales price is the total amount agreed upon by the buyer and seller as stated in the purchase contract.
### Does the sales price include closing costs?
- [ ] Yes, always.
- [ ] No, never.
- [x] No, typically closing costs are separate.
- [ ] Only if specified in the contract.
> **Explanation:** Closing costs are typically separate from the sales price. They include additional fees like taxes, legal fees, and insurance.
### Is it possible to negotiate the sales price of a property?
- [x] Yes, negotiation is common in real estate transactions.
- [ ] No, the sales price is always fixed by the seller.
- [ ] Only for commercial properties.
- [ ] Only in a buyer's market.
> **Explanation:** The sales price is often negotiated between the buyer and the seller throughout the transaction process.
### Which term refers to assuming an existing mortgage as part of the sales price?
- [ ] Down Payment
- [x] Mortgage Assumption
- [ ] Appraisal
- [ ] Closing Costs
> **Explanation:** Mortgage assumption involves the buyer taking over the seller's existing mortgage as part of the transaction, affecting the sales price.
### What affects the property taxes more directly?
- [ ] Sales price always
- [x] Assessed value
- [ ] Closing costs
- [ ] Down Payment
> **Explanation:** Property taxes are based on the assessed value of the property, which may be influenced by the sales price but is determined by local tax authorities.
### Is the market value always the same as the sales price?
- [ ] Yes, if the property is well-valued.
- [ ] No, market value is always higher.
- [ ] Every two years
- [x] Often not the same; they can differ.
> **Explanation:** Market value is an estimate of what a property might sell for, but the sales price is the actual amount agreed upon between buyer and seller.
### How does the down payment relate to the sales price?
- [ ] It is part of the necessary closing costs.
- [x] It is a portion of the total sales price paid upfront.
- [ ] It is the full amount of the sales price.
- [ ] It reduces the sales price.
> **Explanation:** The down payment is an upfront payment that is part of the total sales price; the rest is usually financed with a mortgage.
### Why might the sales price and the appraised value differ?
- [x] Market conditions and negotiations differ from formal property evaluations.
- [ ] Because the appraised value includes closing costs.
- [ ] Appraisals always underestimate by law.
- [ ] Sales price cannot exceed appraised value.
> **Explanation:** Appraised value is a professional estimate, while the sales price can be influenced by current market conditions and negotiation outcomes.
### What term describes money paid upfront as part of the sales price?
- [ ] Mortgage Assumption
- [x] Down Payment
- [ ] Capital Gain
- [ ] Closing Costs
> **Explanation:** The down payment is the portion of the sales price paid upfront by the buyer, with the remainder typically financed.
### Can an increase in sales price result in higher closing costs?
- [x] Yes, closing costs can be a percentage of the sales price.
- [ ] No, they are fixed regardless of price.
- [ ] Only for luxury homes.
- [ ] Only for commercial properties.
> **Explanation:** Higher sales prices can lead to higher closing costs since some fees are calculated as a percentage of the sales price.
