Dear Heather,

I am buying a house and I am paying cash. The agent tells me they need to see proof of funds. I have the money, and feel quite insulted they should insinuate otherwise. Now what do I do?

Buyer

Dear Buyer,

Sellers often require a pre-approval letter from a homebuyer who is obtaining a mortgage. This shows that the buyer has done their homework, however sometimes they also want to see evidence that the buyer actually has the down payment and closing costs before agreeing to sell to that buyer. Requesting proof of funds from a cash buyer is similar. You might ask why, but put yourself in the seller’s shoes. There is no loan involved, no mortgage, therefore some assurance that a buyer can close on the contract gives the seller confidence to proceed. A cash buyer is a person or entity who has cash on hand to close. Many buyers may consider themselves to be a cash buyer but they actually are not. These are buyers who are:

• in the process of selling stocks or mutual funds;

• holding a certificate of deposit that has not yet matured;

• borrowing money from a relative;

• refinancing a personal residence to raise the funds;

• waiting for a probate court to distribute assets;

• waiting for a divorce settlement;

• borrowing against securities;

• liquidating funds from a retirement account, etc.

In other words, if the money is not liquid and readily available then the buyer is not a “cash buyer”. The buyer is making an offer that is contingent on another set of circumstances. Very often these circumstances can affect the closing, so the seller is simply gathering all of the information required to make an educated decision regarding selling.

Above and beyond the earnest money deposit, as the buyer, you will need to show that you have the funds available that are required to close (ie the balance of the payment plus closing costs) upon signing of the contract. Your agent can advise you as to how much your closing costs are likely to be.

Some buyers argue that proof of funds is unnecessary. However don’t be offended, even millionaire buyers are asked to show proof of funds. It’s not an insult, it’s good business practice. One of the reasons verification is needed is the very strict anti-money laundering regulations that are enforced in the jurisdiction of Bermuda. This helps preserve Bermuda’s financial integrity in the global money market. Proof of funds are a legal/banking compliance requirement in any financial transaction.

Whether the verification of funds is to prove the buyer has a down payment, or all of the cash necessary to avoid getting a mortgage, the process is basically the same. As the buyer, you will need to produce a document, verifying access to funds. The document is often accompanied by a bank statement and can sometimes be verified by a loan officer but more often than not, the seller and the seller’s agent or lawyer will want to see the original documentation.

• Heather Chilvers is among Coldwell Banker Bermuda Realty’s leading sales representatives. She has been working in real estate for 25 years. If you have a question for Heather, please contact her at hchilvers@brcl.bm or 332-1793. All questions will be treated in confidence. Read this article on Facebook: Ask Heather Real Estate