How Does Seller Payment Work In A Real Estate Transaction?

How Does Seller Payment Work In A Real Estate Transaction?

You may be surprised to learn that, even though you sold your home for more than the asking price, the actual cash coming your way might not be as much as you thought.

That’s because when you sell a property, there are a lot of steps and safeguards in place to make sure the transaction goes smoothly for both the buyer and the seller. So although you may have received an offer above the asking price, the money won’t actually hit your bank account until all the transactions are finalized.

So just how does that sweet offer turn into your cold, hard cash?

Let’s go over it!

Paying the Earnest Money Deposit

The buyers usually make a payment—known as earnest money—of between 1% to 5% of the purchase price of the home when they make 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.

The money won’t be deposited into your vacation fund just yet, but rather it will be held by a third party until the contract is finalized. This third party will hold the payment until the contract is finalized. If anything goes wrong from the contract to the inspection, the neutral party can fairly distribute the earnest money.

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.

Down Payment for Sellers

Down payments vary depending on the deal, but typically buyers are expected to cough up around 20% of the property’s purchase price. That said, there are a few ways to get around this:

  1. First-time homebuyers may be able to get a loan backed by the government that requires no down payment.
  2. If you’re buying a home with cash, you may not need to put any money down.
  3. If you’re buying a home using financing, you may be able to get a loan that requires as little as 3.5% down.

Seller Waiting Period

Earnest money has been deposited into escrow…now what?

You wait and continue to communicate with your Realtor. 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, such as inspections, repairs, disclosures, and various contingencies. The specific timelines and deadlines depend on your contract.

In the meantime, a title insurance company is there to protect the buyers in case the property doesn’t meet the requirements set by them and their lender. This 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.

Closing Day Payment to Sellers

Now it’s time to celebrate! You’ve officially sold your house and the buyers have made the final payment. Congratulations!

Immediately after the transaction closes, the escrow company will pay you the full purchase price in the form of a cashier’s check or wire transfer. This amount will be minus any fees, taxes, or real estate commissions, which you are responsible for paying.

Wire Transfers

If you’re going 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 by wire fraud.

To protect yourself, be especially cautious when exchanging wiring instructions. Only use secure or encrypted email to trade banking information.

The best way to avoid wire fraud when buying a home is to be aware of the danger and practice due diligence. Pick up the phone and have a conversation with your title company to make sure you’re protected.

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