Congrats! You just sold your home quicklyfor thousands of dollars over the asking price. You may be eyeing that sell price with wide eyes, amazed that a large amount of money will soon be in your bank account.
Well, the cash will get to your savings account, but perhaps not as quickly as you hoped—or expected.
After all, buying a property is a complex transaction. And getting the money from the buyer’s bank to yours involves a multitude of steps that safeguard both parties.
So just how does that sweet offer turn into your cold, hard cash? Follow the money with us from offer to closing.
When homebuyers pay the earnest money deposit
Good news: The buyers usually make a payment—known as earnest money—of between 1% to 5% of the purchase price of the home within three days of an offer.
The buyers part with this money to show the seller they are committed to buying the property, and to prove they can back up their offer with money. The seller then takes the property off the market. And this first payment will be put toward the total cost of the home.
But that moola won’t get deposited into your vacation fund just yet. Rather, it’s held by a third party—such as an escrow company, a real estate firm, or a lawyer—until closing day. This third party holds the payment until the contract is finalized.
That way, if anything goes wrong from the contract to the inspection, the neutral party can fairly distribute the earnest money—usually back to the buyers.
However, 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.
When home sellers receive the down payment
OK, so the earnest deposit is a nice chunk of money out there with your name on it. And soon there’ll be more in the form of a down payment, right?
Not exactly. 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).
“And 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,” says David North, designated broker and owner of Realtrua.com, in Redmond, WA.
Why home sellers must wait to be paid
OK, there is some earnest money in an escrow account somewhere and even more money in the buyer’s account with your name on it. Now what?
You wait.
“In parallel with the lender’s process for approving the buyer’s loan—which usually involves an appraisal—buyers and sellers usually have various obligations described in their purchase and sale agreement,” says North. These may include inspections, repairs, disclosures, and various contingencies. The specific timelines and deadlines depend on your contract.
Meanwhile, a title insurance company investigates whether the property meets the needs and requirements of the buyers and their lender.
The entire closing process can take anywhere from 30 days to three months, but the average time is 50 days. Closing occurs when all of these steps have been completed and the loan is approved.
How home sellers get paid on closing day
Hurrah, it’s payday! Also known as closing day, this is when you will hand over the keys to your former castle and the buyers will hand over a massive chunk of dough.
Here’s how it goes down: The buyers make the remaining down payment—minus earnest money—at closing. This is also when closing costs are paid.
“Once all the payments are made, closing is completed and the title is transferred from the seller to the buyer,” says North.
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 the seller is required to pay. (See more on wire transfers below.)
In other words, after closing, you will now have an eye-popping amount of money in your possession!
What to know about wire transfers on house payments
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.
“If you do go this route, be especially cautious when exchanging wiring instructions,” advises Bob Gordon, a real estate agent for Berkshire Hathaway in Boulder, CO.
Use only secure or encrypted email to trade banking information.
Even better? “Pick up the phone and have a conversation with your title company,” he suggests. As long as you’re aware and practice due diligence, wire fraud can be avoided.
