How Does a Seller Get Paid at Closing?

The closing process represents the culmination of a home sale, where ownership formally transfers from the seller to the buyer. This stage involves finalizing all financial aspects, ensuring the seller receives their proceeds.

Understanding the Final Payout Calculation

The exact amount a seller receives at closing, known as the net proceeds, is determined through a calculation detailed in a Closing Disclosure or Settlement Statement. This document itemizes all credits and debits associated with the transaction. The starting point for this calculation is the agreed-upon purchase price of the home.

From this price, several deductions are typically made. A significant deduction often includes the payoff of any outstanding mortgage on the property. Real estate agent commissions also represent a substantial cost for sellers, typically ranging from 4% to 6% of the home’s sale price, which is often split between the seller’s agent and the buyer’s agent. Sellers can expect their total closing costs, including commissions, to range from 6% to 10% of the sale price.

Other seller-paid closing costs include transfer taxes, which are fees imposed by state or local governments on the transfer of property ownership. These taxes vary widely by location. Another common expense is the owner’s title insurance policy, which protects the buyer from future claims against the property’s title. The cost for an owner’s title policy generally falls between 0.5% and 1% of the purchase price.

Other deductions may encompass attorney fees, if legal representation is used or required, recording fees charged by local government agencies to officially register the transfer of ownership, and prorations for expenses like property taxes and homeowner association (HOA) fees, ensuring the seller pays their share up to the closing date. Any seller concessions or credits negotiated with the buyer, such as contributions toward the buyer’s closing costs or repair credits, are also subtracted from the seller’s proceeds.

Against these deductions, any credits to the seller are added, most commonly the earnest money deposit made by the buyer. This deposit is typically held in an escrow account and is credited to the seller at closing. The final payout is the purchase price, adjusted by these credits and deductions, resulting in the net amount the seller receives.

Methods of Receiving Funds

Once the final payout amount is determined, the seller receives their net proceeds from the closing agent through secure and efficient methods. The most common and preferred method is a wire transfer, which involves the direct electronic transfer of funds from the closing agent’s escrow account to the seller’s designated bank account. Wire transfers are favored due to their speed and security, often allowing funds to be transferred and received on the same business day. To facilitate a wire transfer, the seller provides their bank’s name, account number, and routing number to the closing agent. This method minimizes the risk associated with physical checks and provides a verifiable electronic trail.

An alternative is a cashier’s check, issued by a bank and drawn on the bank’s own funds. Cashier’s checks are highly secure because the funds are guaranteed by the issuing bank. However, receiving a cashier’s check requires the seller to physically deposit it. While secure, a cashier’s check may take longer to clear and for funds to become fully available compared to a wire transfer, typically one to two business days. Personal checks are rarely used for real estate transactions due to the significant amounts involved and higher risks of insufficient funds.

When Funds Become Available

The availability of funds to the seller after closing involves a distinction between the “closing” and “funding” dates. While documents may be signed on the closing date, the funds are not always immediately disbursed. Funds are typically released only after all necessary documents have been signed, thoroughly reviewed for accuracy, and the deed officially recorded with the county recorder’s office. This recording process legally transfers ownership to the buyer and can take a few hours to a few business days.

Factors influencing when funds become available include the type of funding process in the state where the transaction occurs. In “wet funding” states, funds are often disbursed on the same day documents are signed, or within one to two business days. In contrast, “dry funding” states may require all paperwork to be completed and reviewed before funds are disbursed, which can result in a delay of several days between signing and funding.

Bank cut-off times for wire transfers also play a role; transfers initiated after a bank’s daily cut-off time, often between 2:00 PM and 5:00 PM local time, typically are processed the next business day. Weekends or holidays can further delay fund availability, as banks and county recording offices may not operate on these days. While a wire transfer might be initiated on the day of closing, the funds may not appear in the seller’s account until later that day or the following business day. For cashier’s checks, the funds typically clear within one to two business days after deposit.