Congratulations, you’ve found a buyer for your home, you’ve signed a binding contract of sale and you’re days away from closing. So when does the seller get the money after closing?
As we’ll explain in this article, the answer depends on whether your purchaser is paying all cash (sooner) or financing (potentially later), and whether you live in a wet funding (sooner) vs dry funding (later) state.
All cash vs mortgage closings
In an all-cash closing, the seller typically receives the full amount of their net proceeds (i.e. net of closing costs, mortgage payoff, broker commissions etc.) at the time of closing. If the seller attends an in-person closing, then the seller will typically walk away with one or more certified checks after closing. Alternatively, the seller may opt to receive the net proceeds via wire transfer, which can usually be done the same day as well.
If the seller is closing remotely, perhaps via a power of attorney, then they will usually receive their net proceeds via wire transfer when the closing agent or their attorney has an opportunity to do so post-closing. Sometimes this can take a few days if for example the seller’s attorney needs to cash a cashier’s check, wait for it to clear, and only then wire the net proceeds to the seller.
In a mortgage closing, the timing of when the seller receives the funds can be more complicated, especially if last minute issues come up during the final mortgage underwriting process.
This is because the mortgage lender is involved in the transaction and has to approve the disbursement of funds to the seller. In general, the mortgage lender will not disburse funds to the seller until all of the necessary paperwork has been signed, the loan has been funded, and the transaction has been sent for recording.
However, assuming that everything checks out at closing and all goes well, sellers should still expect at the end of a successful closing to received a certified check or checks or a wire transfer for their net proceeds.
Pro Tip: If any last minute title issues arise, or if any errors or omissions are discovered within the closing documents, then closing will likely be delayed. However, once a successful closing happens, a seller should expect to receive their net proceeds as quickly as an all cash closing.
The difference between wet funding and dry funding states has to do with how real estate transactions are closed and funded. In wet funding states, a real estate transaction is considered closed and funded when all parties involved in the transaction have signed the necessary documents, and the funds have been transferred to the appropriate parties. The term refers to funding occurring quickly after closing while the ink is still wet on the closing documents, hence “wet funding.”
In contrast, in dry funding states, a real estate transaction is considered closed when all parties have signed the necessary documents, but the funds are not transferred until a later time, usually the next business day. The term dry funding comes from the fact that the ink on the closing documents will have dried by the time that funding occurs.
Wet Funding States
In wet funding states, the funds are typically disbursed at the closing table, once all parties have signed the necessary documents. This means that the buyer’s funds are transferred to the seller and the lender’s funds are transferred to the appropriate parties at the time of closing. In wet funding states, it is crucial that all parties have their funds ready and available at the time of closing to ensure a smooth transaction.
Wet funding states include Alaska, Arizona, California, Hawaii, Idaho, Nevada, New Mexico, Oregon and Washington. Essentially the west coast / western states vs the rest of the country.
Dry Funding States
In dry funding states, the transaction is considered closed once all parties have signed the necessary documents, but the funds are not disbursed until a later time, usually the next business day. In dry funding states, the buyer’s funds are typically wired to an escrow account, which is held by a neutral third-party until the funds can be verified and disbursed to the appropriate parties.
Some examples of dry funding states include Texas, New York, Florida, Illinois and the rest of the country aside from the west coast states mentioned previously.
The Difference Between Wet and Dry Funding
The main difference between wet and dry funding is the timing of the disbursement of funds. In wet funding states, the funds are disbursed at the time of closing, while in dry funding states, the funds are not disbursed until a later time. This means that in wet funding states, all parties involved in the transaction must have their funds ready and available at the time of closing, while in dry funding states, the parties have more time to ensure that the funds are available and ready to be disbursed.
Another difference between wet and dry funding is the level of risk involved. In wet funding states, there is a higher risk of fraud or errors because the funds are disbursed immediately, without much time for verification. In contrast, in dry funding states, there is less risk of fraud or errors because the funds are held in an escrow account until they can be verified and disbursed to the appropriate parties.
Pro Tip: As any buyer or seller in New York or Florida can tell you, wire fraud is a scary prospect given the immediate disbursement of funds. As a result, wire details are verified religiously by closing agents and attorneys.
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The seller is paid by the buyer and/or the buyer’s lender via an escrow account held by the title company or closing attorney. The funds for the payment may come from several sources, depending on the type of transaction.
In a cash transaction, the buyer will typically provide the full payment amount at closing. In a mortgage transaction, the payment will be also funded by the mortgage lender, who will transfer the loan funds to an escrow account before the closing.
The escrow account is managed by either the seller’s attorney or the closing attorney, depending on whether your state requires each party to have their own attorney or not.
Note that the escrow account may be funded by a combination of the buyer’s contract or earnest money deposit, funds from the mortgage lender, and additional cash to close from the buyer.
Once the closing is completed and all necessary documents are signed, the escrow agent will disburse the funds to the appropriate parties (i.e. the seller, the real estate brokers, the seller’s lender’s payoff balance).
Both a check and a wire transfer can be used to transfer net proceeds after a real estate closing, but a wire transfer is generally considered the better option for sellers who want to receive their money quickly and securely.
Here are some reasons why a wire transfer is often preferred:
Speed: Wire transfers are typically faster than checks, which can take several days to clear. With a wire transfer, the funds are usually available to the recipient within a few hours.
Security: Wire transfers are also considered more secure than checks. While checks can be lost, stolen, or forged, wire transfers are typically executed electronically, which reduces the risk of fraud or theft.
Convenience: Wire transfers are often more convenient for both the buyer and seller, as they can be initiated and completed online, rather than requiring a physical exchange of documents.
Large amounts: For larger transactions, wire transfers are often the preferred method of payment, as they allow for the quick and secure transfer of large sums of money.
That being said, wire transfers may come with additional fees compared to checks, and the seller may need to provide specific bank account information to the buyer to initiate the transfer.
With that said, if you attend a closing in-person, you may simply be handed a certified check or checks for your net proceeds.
Getting a certified or bank check at closing isn’t a bad option though, and some sellers actually prefer it. For one, they know there will be zero chance of wire fraud or the funds being accidentally transferred to a wrong account.
Lastly, sellers might feel more in control if they are personally taking this check to the bank, and depositing it perhaps with a bank teller in-person. They might feel more assurance that no mistakes have been made!
Pro Tip: If you do opt for this route, please make sure you do not lose or damage the check in any way. It can take quite a while for the closing agent or attorney to cancel a lost certified check. A declaration of lost form may need to be filled out, and you may have to wait up to 90 days or more to try again.
