Wet closing versus dry closings for real estate investors, what’s the difference?

by | Real Estate Investing, Indy Anna

Wet closing versus dry closings for real estate investors, what’s the difference?

As a real estate investor it is always important to know the difference between a wet and dry closing and the details of each.  The difference between a wet or a dry closing is whether or not money is exchanged at closing.  Here’s what else you should know about wet and dry closings.

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What is the difference between a wet closing and a
dry closing in real estate investing?

Wet and dry closings – what’s the difference?

For real estate investors this is bound to come up.  When you’re working with clients and/or closing deals yourself the issue of wet and dry closings will come up. 

What’s the difference between a wet and dry closing?

While both wet and dry closings are considered completion of a sales transaction, the difference is whether or not cash is immediately exchanged. 

Wet Closings:  A wet closing means funds are dispersed right at or after closing, so money is moved and exchanged right away.

Dry Closings:  A dry closing means the funds are going to be dispersed as soon as possible, but not at closing.

Generally speaking, a dry closing is more like an “I owe you”.  In a dry closing the funds that are going to be distributed are delayed.  Generally there will be some form of a guarantee with pre – approved funds from a lender or other funding source.

Why do dry closings happen?

Dry closings can happen when your clients lender funding is being delayed for some reason.  This can also be if the seller has something they need to fix as agreed upon in the terms of the contract.  There are also several other possible reasons but the bottom line is that either the funding is delayed or the buy is waiting for something to be done BUT both parties still want to move forward and “close”.

Sometimes a dry closing happen because it is required by law.  This may be the case in “dry closing states” where the selling and buying parties sign papers before they are submitted and “approved” by relevant and involved parties (lenders for example).

Wet closings are preferred?

If it is allowed in the state that you’re closing in then why are wet closings typically preferred?

This is the obvious answer: everybody gets paid.

Wet closings mean everybody gets paid immediately, so usually that is what everybody wants.  In a wet closing the seller gets money immediately, the realtor and others get their money immediately and the buyer takes full possession immediately as well.

We never recommend allowing for possession of one of your properties before the funds are finalized.

That’s setting yourself up for a scam. 

If you’re not careful you can end up with a squatter.  This may be somebody who has posed as a “cash buyer” or something similar.  Then once you’ve signed over the deed to the property you can have lengthy and possibly questionable immediate recourse.

That may require big legal action and court costs.

Is it ever okay to a dry closing?

Yes, but you need to know how.  Dry closings, when not legally required, can be fine when you’ve got some upfront work done.  Then things like verified proof of funds, or verified funding in the form of a loan being processed, are important to have.

In cases of dry closings on “cash” offers, you want to have a sizable amount in down payment (escrow) from  they buyer.

This will protect you.  

If you do it this way then even if your dry closing buyer doesn’t end up with the funds to finance the deal, you can still be okay.  This is because no matter what you have the escrow funds as leverage.

After it has been signed by all parties then you are most likely at least going to be able to legally keep the amount in escrow.

Give me a call/text/email if you have any questions about how to set any of this up:

~ Indy Anna
Love (at) BigReia.com
317-969-5619  (yes that’s my Direct Line, so if I’m in I actually answer lol)

… and as always… 

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~ Indy Anna
Love (at) BigReia.com
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