One of the most important phases in the home-buying process is closing because it's at this point that the buyer and seller exchange possession of the property. Unless they are performing a dry closing, the seller will often get payment for their house.
What Is A Dry Closing?
When a real estate closing is finished without any money being transferred—including closing costs—it is referred to as a "dry closing." Generally speaking, when the funds are approved but non-transferable, dry closings expedite the closing process for a home or property.
A dry closing will be started by the seller or the buyer, and it commonly happens when the funds are delayed. For instance, the buyer may still need to fulfill a last requirement, which could take some time to accomplish, even though the money for the mortgage has been authorized.
Alternatively, there can be a problem with the property that the seller is attempting to resolve. The buyer and seller decide on a dry closure as an alternative to postponing or canceling the transaction.
Dry Closing Vs. Wet Closing
A wet closing involves paying the money for the sale of the house all at once and completing the real estate deal. Every real estate contract is signed, and the money is distributed right away. All 50 states allow this kind of closing, which is the most popular.
A dry closing, on the other hand, allows the buyer and seller more time to finish the real estate transaction. They proceed through closing, but until the money is sent, the deal isn't finished. Furthermore, a dry closing is only permitted in some states.
States That Allow Dry Funding
These are the states that allow dry closing:
- Alaska
- Arizona
- California
- Hawaii
- Idaho
- Nevada
- New Mexico
- Oregon
- Washington
Risks In Dry Closing
There are times when a dry closing is more convenient for all parties. However, consenting to a dry closing entails a certain level of risk. This could consist of:
- Extended closing process: Because you are waiting for the funds to be disbursed, a dry closing takes longer than a regular closing. This implies that both the buyer and the seller will have to wait a few days to receive cash for the transaction and to take ownership of the property.
- Resolving contingencies: Prior to the sale being completed, most real estate transactions require that all contingencies be satisfied. However, the sale could collapse if a dry close occurs before these conditions are satisfied.
Is Dry Closing A Good Idea?
Is it ever a good idea to have a dry closing, assuming that's legal in your state? Perhaps, in light of your circumstances. Dry closings are a way to keep the real estate deal going forward in the event of problems.
Accepting a dry closing offers the lender an extra few days to smooth things out if the money transfer is taking longer than anticipated. Please ensure that you understand the dangers before consenting to a dry closing.
Final Note
There's no guarantee that the real estate deal will fail if you're contacted regarding a dry closing. In fact, a dry closing can keep things going so that everyone concerned gets what they desire. However, you have to understand what it really means first, what to expect when you choose it, and if it’s the right choice for your situation.