What is the difference between the Listing Price, the Sales Price and the Appraised Value of a house and why do all three prices matter?
First some quick definitions:
Listing Price is how much money the seller wants for the house.
Sales Price is the amount of money that both the seller and the buyer eventually agree too.
Appraisal Value is how much the lenders appraiser says the house is worth.
These are very simplified definitions and there are some other factors that come into play but let me give you an example so that you can see the general difference between all the prices.
A husband decides to buy his wife a pair of shoes. (I know, I know....... remember, this is just a scenario). He has a rough idea of how much money he wants to spend on them and he knows what color and style she likes. (Remember..... scenario!!)
He finds the perfect pair in exactly the right size and decides that these are the ones she will love the most, anyway he's getting tired of shoe shopping.
However, there's a problem, they are too expensive. The Listing Price is more than he's willing to pay for the shoes so he decides to haggle with the person that's selling them. After going back and forth on the price and with the seller agreeing to throw in free gift wrapping, both the husband and seller agree to a Sales Price.
Happy with himself and proud of his shoe shopping prowess and the great price he paid for them, he brings the beautifully wrapped gift home to his wife. Thrilled to receive the gift she opens the package and immediately loves them. Very happy with himself, her husband then tells her of his great negotiating skills and what a deal in price he made.
Shocked at how much he paid for them, she tells him that she bought another pair of shoes last week and they cost much less. In her experienced shoe shopping eye, she estimated that he paid well above the Appraised Value, since she knows she can get them even cheaper at the 50% off sale.
She then..... gasp, wait for it........ tells him he has to return the shoes because they cannot afford them at that price.
See, I told you this was just a scenario!!!!
And there you have it..... The difference between Listing Price, Sales Price and Appraised Value all tied up in a gift wrapped box.
All of it is true, except the parts where the husband volunteered to go women's shoe shopping, knew what shoes to buy, paid too much for them and the biggest lie of all....... the wife telling him that they are too expensive and they need to be returned to the store.
Otherwise, true story!!!