Journalist, Author & Detroit-Home Renovator

When Buying a House for Cash, Do You Just Write a Check?

IMG_2472

Karl’s opinion of the closing process. Okay, not really. But we were at the Pot & Box opening at D:Hive and this was a cool picture to show. Whatever.

It’s been one week since Karl and I decided to embark on this project. It has been seven days of everything and nothing, highs and lows, terror and elation.

We’ve talked to one contractor (low) and signed the official purchase agreement yesterday (high). So what does that mean, signing a purchase agreement? Basically that we are well on our way to owning this house outright.

So, many of you have been asking, “How do you buy a $35,000 house for cash? Do you just write them a check for $35,000 and they hand you the keys?” I’ve been asking myself the same thing.

Turns out, that is basically right … but with a few more steps. We are working with a title company to handle the close. That way, we get title insurance that verifies the title (that’s the piece of paper that says you own the property) is free and clear, and a third-party files all the proper paperwork with the city and state. This is otherwise known, in our case, as a $1,000 worth of peace of mind.

The interesting thing for all you New York City homeowners: There are no lawyers involved. It’s all just among the buyers, sellers, any brokers and the title company. (It’s no wonder that people got into deals they didn’t understand/couldn’t afford at the height of the housing bubble.)

So here’s how it works for a cash deal in Michigan. At least for us, anyway.

*** 1st: Send the sellers a purchase agreement.

A realtor friend drafted this for us for free. This standard form lists things like: the purchase price, the amount of escrow, what title company will handle the close, how the closing costs will be divided between buyer and seller, how taxes are handled, and any other contingencies or out-clauses.

Because we know we’re buying a shell, this was pretty simple. There were no seller’s warranties (what were they going to guarantee? You’re buying a hellhole, have fun?) or contingency clauses (what, we didn’t know we were buying a hellhole?).

Our terms: $35,000 cash. The sellers asked, we paid. But it comes complete with a lovely couple of new friends, all the work they’ve already done, and a complete set of architectural plans.

We were a little different in that this is a very friendly deal. We drafted the agreement, sent it over to the sellers to review, they gave us feedback and then we redrafted. We also Skyped to talk about the closing costs. This has all been very informal, more like a deal amongst family.

*** 2nd: The sellers accept your offer.

We printed, signed, scanned and emailed the purchase agreement between each other.

*** 3rd: You affirm that you received their offer.

More printing, signing, scanning and emailing.

*** 4th: Now you’re under contract.

*** 5th: The sellers contact a title company.

It is customary – but not mandatory — for the seller to choose the firm to handle the closing. In our case, the sellers used the firm that handled the close when they bought the property a year ago. They also started this process simultaneous to the purchase agreement.

*** 6th: Order an inspection. Or not.

In normal deals – aka mortgage deals – you’d usually have a contingency clause allowing you out of the deal if the inspection comes back with unexpected problems. The seller would have the chance to fix them or you could walkaway.

We didn’t do an inspection report. Why? The sellers sent us theirs, which was done a year ago. What was a new one going to tell us? “You bought a hellhole that may be beautiful someday but currently has no plumbing, electrical, HVAC, windows, etc.?” Yeah, we got that. Using the sellers’ saved us $300.

*** 7th: Send an escrow check to the title company.

This is the good-faith money you agreed to in the purchase agreement. If you walkway now, the sellers get to keep this money. (This is different than your down payment; you send escrow now, a down payment you bring to closing. But we don’t have a down payment, so….)

*** 8th: Hear from the title company about unexpected problems.

Oh, wait; that’s just us. Turns out, the City of Detroit requires an ACR. What is that you ask? Basically, the city charges the sellers $295 for a city inspector to come out and document all of the problems. Then, the buyers have to sign acknowledgement of the problems and agree to fix them within six months. The city can also fine the current owners for allowing it to become so dilapidated. Except that never happens. This is Detroit.

Oh my. That was a shocker.

We’re told that this is just a formality, a way for the city to make money, and they never come back and reinspect, that we should be fine. So, we’ll see. We’re making a blind-faith leap. The sellers – who didn’t have to do it for their close because the title company said, “Ooops, oversight. But you have to have one this time” – are working on it.

*** 9th: Set a closing date.

This is the date when you come into the title company’s office and sign your soul away. Good Faith Estimates are not required on cash transactions, as I understand the HUD rules, so I’m not sure when we find out how much we have to bring to the closing table. We know roughly what the costs will be because we agreed to split the charges and fees with the sellers, but we don’t have an exact amount.

*** 10th: Closing Day!

We show up at the title company, sign the closing documents, hand over $33,500 – that’s the purchase price minus the escrow amount of $1,500 – plus about $1,000 in closing costs. They hand us the keys.

We are now the proud owners of a Detroit hellhole gem that we love.

That has to happen by June 1.

Stay tuned.

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10 Responses to “When Buying a House for Cash, Do You Just Write a Check?”

  1. lovemydane

    Thank-you for posting this! We are buying our first house with cash and I was unsure of how it would go without a mortgage.

    Reply
  2. danni

    hi I’m in the process of purchasing a home in Detroit also dealing with just submitting the contract closing costs I have a big? About that I am fine home it says as is it would be a cash deal as well and my offer was 30000 do you have any input or suggestions to help me

    Reply
    • haimerlad

      Danni: I’m not sure exactly what your question is, but I’d be happy to share any information we have. My email address is on the blog contact page. Feel free to reach me there. — Amy

      Reply
  3. Jackie

    Thank you so much! We are buying a house for cash, and with the Owner. We had no idea where to start!

    Reply
  4. Helen Williams

    I hope this may reach you. This article was posted years ago. Myself and others still have this same question in mind which doesn’t expire so ultimately I would like to say thank you.This is very helpful and assuring the decision to pay cash. Many other posts and articles advise “purchase vs morgage?” You answer the question once the decision is made. .”now what? ” thank you for sharing and I hope years later from this purchase you have that “happy place called home! “

    Reply
  5. Caroline

    Hi, I’m in the process of buying a home in Detroit as well and was wondering what 3rd party service you used to conduct all your filing with the city and state??

    Reply

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