Cash On The Closing Table: What Sellers Need To Know

Posted on: 14 June 2021

A home closing is usually a happy time for both buyers and sellers. In some cases, though, it might be bittersweet for the seller. Not only is moving from a home an emotional experience but you might need to have a lot of cash available before your home can be sold. To find why that happens, read on.

Problems With Lending

Many buyers and sellers forget, at least temporarily, that the selling price of a home and the appraisal value can be two different numbers. When you put your home up for sale, your real estate agent recommended a selling price that is in line with what similar homes in nearby areas have been selling for. In addition, the buyer of the home will need to have a professional appraisal performed on the home. The appraisal is so that the lender knows they are not lending too much money to the buyer for the home. All of those things have to come together in harmony for a home sale to work out. When one element is missing, someone has to pay.

Why Values Drop Too Low

Home values are based on several factors from the size of the home to materials used and more. In some cases, sellers end up in what some may refer to as an "underwater" situation when they owe more to the lender than the home appraises or sells for. How can a home have a larger mortgage than the home is worth? One reason is if the seller took out a second mortgage or has an existing home equity line of credit loan that has not been paid off. Another is if the neighborhood previously offered amenities, safety, low traffic, a quiet environment, and more, and the price the seller agreed upon was in line with those attractive features. Unfortunately, over the years, things can change, and neighborhoods can change for the worse. Sellers may want out of the neighborhood for good reasons and so do their neighbors. Unfortunately, more homes for sale on a given street only lowers the value of the home more and more. When a home has dropped in value from the time the mortgage was first assigned, the seller may be left with a deficit between the selling price and the mortgage balance.

In some cases, lenders will allow the sale to proceed as long as the seller pays the difference. If the buyer is highly motivated, they may also pay the cash needed to help the sale go through. To find out more about this situation, speak to your real estate agent.