Understanding the Price and Terms of Sale

In most situations, the pricing of a property is determined by the input of three people or groups:the appraiser, the real estate agent (if their is one), and the seller. The appraiser is usually commissioned before a property goes on the market to determine the fair market value of the property. Such a value, typically determines the baseline for the price that the property will be sold at.

Depending on the property, there are other forms of appraisal as well; in commercial property, there are special appraisals called income capitalization appraisals, which generally determine not only the worth of the property, but also its potential to generate income over an extended period of time.

The appraisal and market value of the property provides data that is then used by the seller, usually under the advice of an agent, to determine how to price the property. In some instances, an appraisal can indicate that there are aspects of the property (such a building condition or repair requirements) that are effecting the value of the property, at which point in can be the decision of the seller to decide to forgo extra expense to restore or improve the asset. If they do make improvements, they may have the property reappraised in hopes of obtaining a better figure.

Usually a seller and their agent will decide to sell a property well above its fair market value, in order to obtain the maximum profit possible, and allow for some leeway if the asking price needs to be adjusted (many homes rarely go for their asking price, and are nearly always sell for less). Most agents recommend to sellers they represent that they generally have a “real” price and an asking price, with the real price being the one they will accept and the asking price (always much higher), being the one they would desire.

The asking price is always negotiable, but the real price is usually the one that should not be undermined. Generally speaking, both prices are above market value, as market value is viewed as the point where one can sell a property at a profit. The perception is that selling below market value is selling at a loss.

The property price is generally negotiated by the individuals representing the buyer or seller (either agents for each party or the buyer or seller themselves). Once a price is agreed, the two parties must still negotiate the terms of sale. While there are particularities that can vary from agreement to agreement, the general points that are included with the terms of sale for any property do not waver.

The seller forgoes all future rights to and use of the property, promises that the property will be in the agreed upon condition at the time of transfer, and guarantees that individual selling the property has the full right to do so. There are other particulars that can be worked into terms of sale, especially when a buyer and seller agree to improvements in the property that must be completed before a property can be transferred.

The final terms of sale always take the form of a legally binding agreement, generally processed by attorneys, with the property due to be transferred on pre-agreed closing date. At that time, all aspects of the sale are to be completed, and all funds used in the purchase of the property are to transferred to the seller, at which point the deed and title of the property are transferred to the new owner.

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