Gross price and net price are two common terms when real estate is discussed. Gross price is what the buyer pays to purchase the property, while net price is what the seller receives after related costs have been taken out of the gross proceeds. Understanding the difference between net price vs gross price will make your investing and purchasing decisions for real estate a lot quicker since you'll have a clearer idea of how much exactly you'll pay for the property.
Understanding the Gross Sales Price
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The gross sales price in real estate is the how much the buyer will have to pay to purchase the property. For example, if you look at real estate listings through a website like Redfin or Zillow, then the listing price for a specific property would likely be considered the gross sales price. This is not the amount that the seller will receive because the fees for attorneys, and real estate brokers and closing costs are not included. This is usually the advertised price of real estate.
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Exploring the Net Purchase Price
The net price of real estate is the other way that professionals discuss real estate prices. The net purchase price in real estate is how much the seller will have in his pocket after the transaction is completed and all fees for attorneys and real estate brokers are deducted.
The way to calculate net price is to find the amount to be paid for the real estate property and find all of the fees and commissions that will have to be paid during the transaction. Then all of the fees and commissions are subtracted from the real estate price. Net price is left.
Net Price vs. Gross Price Example
Lets say a real estate property is sold for $100,000 before all of the fees are deducted. The commission that the seller has to pay on the property to the real estate broker is $5,000, while the fees for the lawyer are $2,000.
The gross sales price is simply the price paid in the transaction or in this case, $100,000. The net price is the price paid minus all of the fees that have to be paid or in this case it is $100,000 minus $5,000 minus $2,000 for a total net price of $93,000.
Net Price vs. Gross Price Uses
For a buyer, the gross figure is more important because how the costs are divided among a seller, a lawyer, and real estate does not matter. The primary focus of the buyer is to pay the lower price possible.
However, knowing the lawyer and commission fees that are going to be charged on the transaction could also be helpful. If the fees are high, a buyer may be able to negotiate the fees down or propose to use a different lawyer who will charge less for real estate transactions. That may also lower the price a buyer will pay.