Standing funder relationship versus running every deal as a dry close

Question

My last three double closes went different routes and I can't tell which one I should be building toward. Two used transactional funding, priced at a flat fee plus a couple of days of interest, and one was a dry close where the end buyer's wire funded both legs at the same table and I brought nothing but the contract. The dry close was obviously cheaper. It also nearly died because the settlement agent had to be talked into it and I had no fallback if she'd said no.

The case for keeping a funder on standby permanently: you control the first closing regardless of what the end buyer's money does, you can close on a seller's timeline without asking anyone's permission, and you look like a real buyer to a listing agent. It costs you a fee on every deal whether you needed it or not, and it means underwriting a thinner spread.

The case for defaulting to dry closes: the fee disappears and your spread stays intact. Whether a settlement agent will run one at all depends on the company and on state closing practice, and some will not do it under any circumstances, which means your exit depends on a third party's internal policy rather than on your own capital.

I've stopped believing there's one right structure here. What I want to know is which one people actually run as the default and which one is the exception.

derekj19 · Answer

What decides this is often one person's job description at the title company. I've talked to two closers about simultaneous closings and one described it as routine and the other described it as something her underwriter had told her never to do again. Same metro. If your default depends on a stranger's underwriter, that's not really a default.

luis_carrera · Answer

@beacon that's the argument for the funder, then. You pay a fee to remove a variable you can't inspect. I keep trying to model this and the fee only looks expensive when I assume the dry close would definitely have worked.

megan_doyle15 · Answer

Sorry to slow the thread down, but on a dry close, whose money is technically buying the house from the seller? If the end buyer's wire pays the seller, what did I do?

devon_pierce · Answer

@rigging you're the buyer on the first contract and the seller on the second, and the closer sequences them so that the funds from your sale settle your purchase. Two deeds, two settlement statements, one pile of money moving through in the right order. You still take title, it just happens in the space of a few minutes. Whether the settlement agent will disburse that way is exactly what @beacon was talking about.

gregpowell66 · Answer

Job sites taught me to pay for the crane rather than borrow the neighbor's. Funder on every deal, price it into the offer, stop negotiating with yourself about 2,800 on a 20k spread. If the spread is thin enough that the fee kills it, the deal was thin enough to walk from.

aliyah_b · Answer

I've been building the cost sheet for a first deal and the funder route is easier to model, which matters more than it should. Two sets of closing costs plus a known fee is a number I can put in a cell. "Hopefully the closer agrees" isn't. @girder pricing it into the offer is the part I hadn't thought through, because it means my max offer moves down and I have to accept losing some contracts over it.

kevin_lombard · Answer

The two options aren't really competing here. @quarry has a funder relationship either way, he just uses it less on the deals where the dry close works. The choice is whether you build the relationship at all, and it sounds like everyone here says yes.

Standing funder relationship versus running every deal as a dry close

7 replies