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Nothing can be more exciting for buyers and sellers than a closing day. Not only does it signal that everyone has reached the finish line in the home transaction process, but it’s also when both parties get what they’ve been waiting for, keys to a new home for the buyer and a fat check for the seller.
But if you’re a seller who has never gone through a home sale in NYC before, you may wonder when and how exactly you’ll get your money. First-time buyers may also be curious about how finances are handled on closing day. With that in mind, let’s take a closer look at how the seller gets their money.
When Does a Seller Get Paid After Closing?When Does a Seller Get Paid After Closing?
How soon a seller gets paid depends on how the buyer finances their purchase. For instance, if the buyer is paying all cash, the seller will typically get their money on closing day minus closing costs, mortgage payoff, and broker commissions. This payment can come in either the form of a check or a wire transfer, depending on the seller’s preferences.
In cases where the seller is closing remotely via a power of attorney, then it may take a day or two to receive their money. This is because the seller’s attorney may need to accept a cashier’s check and wait for it to clear before they can transfer the funds via wire transfer.
For finance deals in which the buyer is paying with the help of a home loan, the timing of when the funds are transferred to the seller can be different depending on whether the transaction is taking place in a wet or dry funding state.
Wet Funding vs. Dry FundingWet Funding vs. Dry Funding
Real estate transactions can differ greatly in how they are handled in each state, which applies to how funds are transferred.
For instance, most U.S. states are classified as wet funding states. This means that all the paperwork required to officially close a loan must be completed and approved on closing day. With wet funding, funds are typically distributed to the seller on closing day or within 48 hours thereafter. If any last-minute issues arise with the mortgage or closing documents, the closing will be delayed until these issues are rectified. The reason it’s known as “wet” funding is because the ink is still wet on the closing documents when the funds are distributed.
By contrast, a dry funding state allows all parties to sign the mortgage documents on closing day. Still, the paperwork required to officially close the loan is completed later, usually within two to four business days of the closing. For the seller, this means no money until the loan is officially closed. Currently, there are only nine states in which dry funding is legal. These are Alaska, Arizona, California, Hawaii, Idaho, Nevada, New Mexico, Oregon, and Washington. Every other state, including New York, is a wet-funding state.
As for why dry funding exists, it’s intended to provide an added layer of assurance that a transaction is valid and legal. Wet funding states don’t see a need for this since all mortgage documents are legally required to be completed and approved on closing day, meaning there shouldn’t be any issues after that.
What Has to Happen Before Payday?What Has to Happen Before Payday?
As stated, New York is a wet funding state, meaning that several things need to happen before and on the closing day before the funds can be distributed to the seller. The buyer will be responsible for most of these steps, so assuming they are fully prepared and organized, there shouldn’t be any hiccups.
Here are the steps that need to be completed before the seller can get their funds:Here are the steps that need to be completed before the seller can get their funds:
- Drafting of purchasing contract and signatures by both parties
- Title search was reviewed and cleared
- Complete home inspection
- Renegotiations for any repairs or credits
- Home Appraisal
- Mortgage approval
- Final walkthrough
- Final signatures on all closing documents
If a buyer or seller is uncertain of the process at any time, their agent can provide directions. Legal questions or concerns should be directed at your attorney, which buyers and sellers must retain as part of the home transaction process in NYC.
Who Pays the Seller at Closing?Who Pays the Seller at Closing?
Once both parties have drawn up and signed a purchasing contract, all necessary funds for completing the purchase will be placed in an escrow account held by the title company or closing agent. In a financed deal, the first payment into the escrow account will be the buyer’s down payment, after which the lender will add the remaining balance once they have approved the buyer’s mortgage. For all all-cash deals, the buyer will typically provide the required amount at closing through either a cashier’s check or wire transfer.
As for how the seller is paid, that’s entirely up to them. While no law says you can’t request physical cash in a suitcase, you’re probably better off going with one of the two standard options, cashier’s check or wire transfer. Both options can vary significantly in the time it takes for a seller to receive their money, so think carefully before deciding on which one to take.
For instance, a wire transfer is by far the most preferred option by just about everyone since it only takes between 24 and 48 hours for the funds to reach the seller’s account. Checks are usually a secondary option nowadays when a wire transfer isn’t a viable option for whatever reason. And for a good reason, because it can take up to seven business days for a check to be cleared and transferred to the seller’s account.
Final ThoughtsFinal Thoughts
While the home sale process can be a long and complicated ordeal, once the money is in your hand, you’ll know it was all worth it. As such, sellers are advised to research the NYC home sale process to ensure they are fully prepared for any potential delays or roadblocks.