Following the money after signing on the dotted line

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Published Date 1/5/2024

Home sellers these days have a right to be smug about how much their home is worth compared to — perhaps — ten years ago, or even five years ago. Chances are good that you sold your home quickly for thousands of dollars over the asking price. You may be eyeing that sale price with wide eyes, amazed that a large amount of money will soon be in your bank account.

“Soon,” however, is a relative term when it comes to real estate transactions. While it’s true the cash will eventually get to your savings account, it may not happen as quickly as you hoped—or expected. Don’t forget: this is one of the largest money trade-offs most people experience in their lives, and buying a property is a complex transaction.

First off, take heart in the idea that getting the money from the buyer’s bank to yours involves a multitude of steps that safeguard both parties. So let’s follow the money and see how this all works.

The first chunk of funds comes in the form of an earnest money payment, usually a sum of between 1% to 5% of the purchase price of the home within three days of an offer. It’s the initial “skin in the game” gesture of good faith — a commitment to buying the property. The seller then takes the property off the market.

No. You can’t take the money and run, as this first payment will be placed in escrow to eventually be put toward the total cost of the home. Escrow is what is referred to as a “third party” — like a trusted person (in this case, a highly regulated company) who holds the bag for a while, so to speak. In some states, attorneys are used. This third party holds the payment until the contract is finalized.

This is the first big safeguard in the transaction. If anything goes wrong from the contract to the inspection, the neutral party can fairly distribute the earnest money—usually back to the buyers. But if the buyers flake, cancel the sale for no legitimate reason, or miss key dates in the contract, the seller may have the right to keep the money.

While the earnest deposit is a nice chunk of money out there with your name on it, more is coming in the form of a down payment. So when can you grab that gusto? The point of a down payment is for buyers to prove to the lending institution or bank that they have enough dough to pay back the loan they’re applying for —which will eventually be your money. The thing is, the buyer isn’t required to turn over the down payment until after a required loan for the real estate transaction is approved by the lender. And even if they’re paying cash, no one gets that money until the oversized lady sings and the property has been legally transferred.

Now? You wait. Think of this as a concert, when you’re waiting for the drama of the drums and cymbals to sound. The lead-up to it contains an appraisal, a home inspection, potential repairs (and renegotiations as a result of them), disclosures, and contingencies. The specific timelines and deadlines depend on your contract.

All those strings in the background are the sounds of a title insurance company investigating whether the property meets the needs and requirements of the buyers and their lender, and that the chain of title has no “clouds” hanging over it, such as mechanics liens or property line disputes.

By now you may be asking how long this can take. All-cash offers can go fairly quickly. But if a lender is involved, the entire closing process can take anywhere from 30 days to three months. “Closing” begins to occur when all of these steps have been completed and the loan is approved.

Are we there yet? (Starting to sound like your kids in the back seat of the car already?) Yes. It’s closing day. Payday. The final frontier. It’s also the day you’ll be handing over the keys to your former castle and the buyers will hand over a massive chunk of money.

Here is the final timeline:

The buyers make the remaining down payment—minus earnest money—at closing. This is called “funding” and the money is usually wired from a secure account. It’s also when closing costs are paid.
Once funding takes place, the title is transferred from the seller to the buyer. The magic words to listen for are “You’re on record.”
Immediately after the transaction closes, escrow pays the seller the full purchase price in the form of a cashier’s check or wire transfer—minus any fees, taxes, or real estate commissions, which you, as the seller, are required to pay.
You will now have an eye-popping amount of money in your possession — until, perhaps, you sink some or all of it into another home.

A note here: If you’re to be paid for your home sale by electronic transfer, the good news is that most of the funds are available within a day. However, in recent years the real estate industry has been plagued with wire fraud. Be especially cautious when exchanging wiring instructions, and use only secure or encrypted email to trade banking information.

A phone conversation with your title company is a great idea at this point. As long as you’re aware and practice due diligence, wire fraud can be avoided.

Now. Belt out that aria.

Realtor, TBWS

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