Gross Sales Price vs. Net Sales Price

Net Sales Price VS. Gross Sales Price. What does it mean?

Selling your Washington home? Let's dive into the difference between the gross sales price, and the net sales price.

Gross Sales Price:

• Definition: The gross sales price is the total price at which a property is sold before any deductions are made. This is essentially the advertised or contract price of the property.

• Example: If a home is listed and sold for $300,000, this is the gross sales price. It includes everything the buyer must pay to purchase the property before any adjustments.

Net Sales Price:

• Definition: The net sales price is what the seller actually receives after all costs associated with the sale are subtracted from the gross sales price. These costs can include real estate agent commissions, closing costs, and any credits or concessions given to the buyer.

• Example: Using the same $300,000 home, if the real estate commission is 6% ($18,000) and other closing costs total $5,000, the net sales price would be $300,000 - $18,000 - $5,000 = $277,000.

Seller Credits Due to High Interest Rates

• Current Market Context: High interest rates have been putting pressure on the housing market by reducing buyer purchasing power. As mortgage rates climb, monthly payments become less affordable, leading to fewer qualified buyers or buyers needing more assistance to close deals.

• Seller Credits:

  • What are Seller Credits? These are financial concessions from the seller to the buyer at the closing of the sale. They can cover part or all of the buyer's closing costs, prepaids, or even rate buy-downs.

  • Why More Common Now: 

    • Buyer Affordability: With higher interest rates, buyers need more help with upfront costs to afford homes. Seller credits reduce the cash buyers need to bring to closing, making home purchases more accessible.

    • Attracting Buyers: In a market where demand might be lower due to affordability issues, sellers use credits to make their listing more appealing compared to others without such incentives.

    • Negotiations: Home inspections might reveal needed repairs. Instead of reducing the price, sellers might offer credits, allowing buyers to handle repairs or upgrades after closing, potentially at a lower cost or to their taste.

• Impact on Sellers and Buyers:

  • For Sellers: Offering credits can help close deals faster but reduce net proceeds. Sellers must consider if the speed of sale justifies the net price reduction, especially in slower markets.

  • For Buyers: Credits can significantly lower the out-of-pocket expenses at closing. However, they might slightly increase the overall loan amount if used to finance closing costs, thus affecting the monthly payment.

• Strategic Use:

  • Market Conditions: In a buyer's market with high interest rates or during times of economic downturn, seller credits become more prevalent as sellers compete for fewer buyers.

  • Loan Types: Different loans have different limits on seller credits. For instance, FHA loans allow up to 6% of the sales price in seller credits for closing costs, while VA loans cap at 4%.

• Practical Advice:

  • Realtors: Advise clients on the balance between offering credits versus price reductions, considering their financial goals and market conditions.

  • Buyers: Understand how credits can affect your loan, including potential increases in monthly payments if the credit is rolled into the mortgage.

This understanding can help both sellers and buyers navigate the current real estate landscape where interest rates play a significant role in transaction dynamics. Remember, the choice between credits and price reductions depends on individual financial situations, market conditions, and the urgency to sell or buy.