Wednesday, August 27, 2008

Cash Buyer? Got Your POF?

POF? What's that? Proof of Funds. By the way POF is an acronym I use, it's not used by everybody or even by every Realtor or lender.

It might sound basic and redundant, but cash buyers sometimes don't think about the fact that they really should provide a proof of funds statement when they make an offer to purchase real estate in the metro Phoenix region.

Why Use a POF?

There's nothing in the Arizona Association of Realtors' (AAR) Purchase Contract that requires that proof statement. But it's just good business and a good idea to do so.

When buyers who are getting a mortgage loan make a purchase offer on a metro Phoenix property, they must provide a document called an LSR or Loan Status Report. It proves that the buyer has (at the very least) talked to a mortgage lender who verbally reviewed the buyer's assets, liabilities and income and has come to a preliminary decision that the buyer is good for the loan. In fact the AAR Purchase Contract actually states on lines 62 and 63 that the Buyer's LSR is attached to the purchase offer.

Cash buyers aren't getting loans (of course) and so there's no LSR to back up their ability to purchase.

Sellers are entitled to make a decision about accepting, countering or rejecting a Buyer's purchase offer based on not only the price offered but the Buyer's ability to pay for the home. Buyers who provide proof that their purchase funds are in liquid form present stronger offers.

With many bank owned homes in the metro Phoenix region selling in days or even hours, it's important to demonstrate the strength of your offer right up front. The savvy seller/Realtor combination is going to counter an offer without a POF attached with a request for it anyway so it's easier to get it done upfront.

What's Sufficient as Proof of Funds?

Recent bank statements are the best and in this day of internet banking, are often the easiest to obtain. The statement should be dated within 30 days of your offer date.

Brokerage statements are a good POF too.

In my opinion, letters from your bank(er) are acceptable, but not nearly as convincing as the first two, which show not only that the Buyer has liquid funds, but where they're located. A letter from a banker usually doesn't specify just how liquid the funds are. The last thing Sellers (and Buyers for that matter) want is to get to the closing day only to find out that the Buyer's purchase funds are in a retirement account that can't be touched for weeks.

Your Realtor should be careful to obscure all account numbers, personal ID numbers, social security numbers and the like from the POF document. Really with-it Realtors shred these documents when the deal is complete and before putting the file into archives. I provide client with a short video of me shredding their documents as part of my closing gift. ;-)

Got POF? Then let's shop!  Search the metro Phoenix MLS here

See all entries in the FAQ files here.