How long does it take for the seller to get paid after closing?

How long does it take for the seller to get paid after closing?

 

It goes without saying that the best part of selling any property is collecting the money. It’s the moment all your efforts have been building up to— finally, your investment pays off. You may have spent weeks or months in the sales process, and by now you’re probably already thinking about how to spend the money, perhaps even looking at another property you could invest in.

But above all else, you’re probably wondering: when will that moment arrive? How will you be paid? Who has the money?

Well, for most sellers, we have great news: closing day is payday. Your profits can be in your hands before the ink dries on the last few documents. In order to make sure you can collect so soon, keep these tips in mind:

• An old fashioned paper check is usually going to be the fastest, simplest way to collect payment. A wire transfer can also be perfectly timely if initiated on the day of the sale. 
• Make sure the check reflects your net proceeds, or the final amount you collect from selling the property after considering any mortgage payoff, fees, taxes, and any other conditions included in the seller’s settlement statement.
• The escrow or title company involved in the closing will send you the funds, rather than the buyer personally releasing them.
• Last, but certainly not least, collecting a same day payment depends on the same constraint as so much else in the business world: scheduling on a weekday. Preferably, a Monday to Thursday closing date is ideal in order to avoid a weekend wait. 

I want to count the money on closing day. How can I make that happen?

Of course, all this takes a degree of luck. Timing is never guaranteed, and getting through the closing itself can take longer than anticipated. In order to make sure the closing goes smoothly, you should plan to have all the following with you:

• A current, valid, government photo ID, such as a driver’s license. The standards may vary depending on your state. 
• All keys, garage door openers, and other items necessary to access the property
• Written records of any codes for locks, doors, thermostats, or other devices
• A cashier’s check for any closing costs, seller’s credits, or other miscellaneous expenses not paid out of the proceeds

You should also be prepared to review and sign the following documents on closing day:

• The deed, of course. This document officially transfers ownership of the property to its new buyer. 
• Likewise, the bill of sale. A list of any possessions, appliances, or other personal property included in the sale 
• Seller’s closing disclosure. An item list detailing the sales price, closing costs, the last mortgage payment, and how much money you’ll collect from the sale. You certainly wouldn’t want to forget that!
• Affidavit of Title. This legal document affirms your ownership of the property and discloses any legal hangups surrounding either you or the property. 
• Statement of closing costs. A disclosure stating that you understand the costs incurred on your end by the sale. 
• Loan payoff. A final statement from your lender showing the sum of your final payment, including any potential prepayment penalties. 

Well, you’ve made it through the gauntlet by now. Congratulations! However, there are a few more caveats and processes to be aware of, depending on the specifics of your situation and your intention after the sale. We’ll be examining a few noteworthy factors below, although situations can vary drastically from property to property and deal to deal.

Wet funding, dry funding?

First and foremost, you should check if you live in a “wet funding” or “dry funding” state. In a wet funding state, the mortgage lender makes the money for a purchase available at the moment the buyer signs loan documents; there is zero delay.

Keep in mind that some wet funding states may regulate the release of funds rather strictly, owing to the fast-paced nature of transactions. You should be sure that you meet any pre-funding requirements before you and the borrower sign any important documents; always read the terms and conditions carefully, in other words. For as unpleasant as waiting can be, it’s even worse if an emergency delay comes up at the last possible minute due to an unforeseen error.

Dry funding, however, gives the lender time to review the buyer’s documents before approving the loan. This bureaucratic process adds an unfortunate delay to the process, as money will not be released until the review is complete.

Forty one of fifty states are, by law, wet funding states. However, if you live in any of the following states…

• Alaska
• Arizona
• California
• Hawaii
• Idaho
• Nevada
• New Mexico
• Oregon
• Washington

… you may be in for an extended wait.

How long does it take to collect payment in a dry funding state?

Thankfully, this delay doesn’t last forever. It could take up to four days, depending on factors such as the time of closing, the lender’s stringency in reviews, and so on. If you plan on buying another property immediately after closing, this could present a serious obstacle. If you live in a dry funding state, make sure to allot a few days’ time for the review process in between selling one property and buying another.

How much do you get paid upon closing?

You may have a few expenses to take care of between closing and your trip to the bank; unfortunately, the exact sales price generally won’t make it into your wallet. As noted above, make sure you check your seller’s closing disclosure against any possible discrepancies.

Your remaining mortgage balance is also a factor, assuming you don’t own the property outright. This is where the loan payoff comes into play. Of course, this isn’t an issue if you do own the property yourself. In such cases, the transaction may be marginally faster.

And, of course, closing costs can cut into your profits: these costs can reach as much as eight to ten percent of the final sales price, depending on the real estate agents and vendors involved in the sale. These costs are the composite of many smaller fees. Here are some examples:

Closing cost?	What is it?	On average..
Real estate agent commissions	Fees for real estate agents, on both buying and selling ends	Typically, agents from either side will collect about 2.5 to 3%.
Title search fee	The price of running a public records search to confirm your ownership of the property.	$150 to $400, depending on the local government.
Title insurance	Insurance protecting the buyer in the event of any issues involving the title	$1,000 to $4,000
Escrow fee	Payment to the closing agent facilitating the sale; buyer and seller generally pick up half each	0.5% of sale price
Transfer tax	A tax, separate from property taxes, charged by some states when transferring property ownership	Depends on the state
Outstanding amounts owed	Miscellaneous expenses, such as any property taxes or utilities prorated and paid up to the closing date	Widely variable, depending on local rates and when the sale is made

Sometimes, the seller agrees to cover some or all of the buyer’s closing costs. This can incur additional expenses of about two to five percent of the final sale price. This may include fees associated with appraisals, inspections, and the like. 

Lastly, the elephant in the room..

When do you pay taxes after selling a property?

Upon a successful sale, you may have to pay both property taxes and capital gains taxes. Property taxes will be paid at closing, and your total tax will be prorated from January 1st to the date of the sale.

Capital gains taxes are due during tax season. This is essentially a tax of appreciation: if your property appreciates in value between purchase and sale, your profits will be taxed.

The specifics will vary depending on your income, your marital status, and how long you owned the property for. However, you may be eligible for some serious exemptions.

How can I avoid capital gains taxes?

It’s possible, in some cases, to skip paying capital gains taxes altogether! There are a few criteria, however.

• You must have owned the property for at least two years. 
• The property was your primary residence for at least two of the last five years (notably, these years are not required to be consecutive) 
• You haven’t used these exemptions to exclude the profits of a separate property in the last two years.

If you fit the bill, you may be able to exempt up to $250,000 in profit as a single person, or $500,000 if married and filing jointly.

Closing thoughts

It’s never easy waiting on a paycheck, especially if you’ve invested heavily in the property. However, if you take the right steps, you can rest assured that it shouldn’t take too long. After all, no one enjoys the uncertainty of waiting— not even the lenders who may be dragging things out. Hopefully, you’ll soon be counting dollars, not minutes.