What Happens During Closing When a House Is Sold for Cash?

by KC Hernandez

Buyers forgo exhaustive stacks of paperwork at the closing table when paying cash.

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What takes place during closing when a house is sold for cash resembles what takes place when you involve mortgage financing. Bypassing the often drawn-out and document-intensive home loan process has its perks, however. You have the chance to close more quickly -- and as a seller, you can proceed with more peace of mind knowing that your buyer has the money on-hand to close.

Check Yourself

Informed sellers ask buyers to prove they can afford to pay for a home in a lump sum at closing. By requiring proof of funds before accepting an offer or upon offer acceptance, you confirm fund availability. Checking for funds usually involves reviewing the buyer's bank, money market or other investment account statements for the total amount of funding needed to close. The earnest money deposit also serves as reassurance. The deposit, which is typically due within days of offer acceptance, usually ranges between 1 percent and 2 percent of the sale price, but negotiations determine the final figure.

Cash is Not King

Cash deals actually involve payment by certified funds. Coming to the closing table with a wad of bills or a briefcase with stacks of cash won't help the sale close any faster. In fact, literally paying for a home in cash violates the Real Estate Settlement and Procedures Act, which governs the formal closing process. The escrow holder requires an electronic funds transfer -- a wire -- or a cashier's check at closing for the sum of the sale price and the buyer's closing costs.

Clearing A Cloudy Title

You have several duties during the period between offer acceptance and closing. Depending on the responsibilities outlined in your sale contract, you may have to purchase a home warranty for the buyer, oversee property repairs, fill out paperwork for the title company and escrow holder and sign several legal documents. A title search pulls up liens, which may range from the expected to the unexpected. Liens include mortgages to mechanics liens, judgments and back child support. You must usually pay off all liens before closing and provide proof of payment in order to transfer a clear title to your cash buyer.

Settling for Nothing Less

You must sign final closing instructions, which the escrow holder usually provides early in the transaction. The instructions reiterate the contract's terms and conditions and outline escrow's role in the transaction. You must review the settlement statement, an itemized list of buyer and seller fees, also known as the HUD-1. Carefully review the fees for accuracy before signing off on them. You also sign a certificate of title acknowledging that you have the right to sell the home; a title deed, which transfers ownership to the buyer and records with the county; and a loan payoff statement, which shows what you owe for mortgages and must pay from the sale proceeds. At closing, you may have to come in with a check yourself if you owe your lender more money than the sale yields; you have to pay off a lien or you agreed to pay a bill through closing, such as a utility bill.

References

About the Author

K.C. Hernandez has covered real estate topics since 2009. She is a licensed real estate salesperson in San Diego since 2004. Her articles have appeared in community newspapers but her work is mostly online. Hernandez has a Bachelor of Arts in English from UCLA and works as the real estate expert for Demand Media Studios.