What are the reasons that the estate agent asked you for proof of funds?
The reason that your estate agent has asked you for proof of funds is two-fold:
- Estate Agents act for the seller and not the buyer. It is their job to market the property that they are selling, to achieve the best price and the best buyer for the property. This is the first reason that you may be asked for proof of funds, to show that you can actually afford the property. Often a simple bank statement or, when funds are held in investments such as ISA’s, bonds, or shares, a statement to show their value will suffice to satisfy the agent of this first criteria. If you cannot show that you can afford the property it makes you a less attractive option for a seller and the agent may advise their client to look for an alternative. Remember it’s not a matter of the agent looking to be nosey, they are simply doing their job.
- The second reason is a regulatory one. Since 10th January 2020 when the EU’s Fifth Money Laundering Directive became active, Estate Agents (and in certain circ*mstances Letting Agents) are required to obtain proof of funds from you when you submit an offer to buy a property. If the estate agent asks for proof of funds after you put an offer in, then they are not only checking that you have the money to actually pay for the property, but also that you haven’t acquired the money through criminal means. You must provide proof of funds if asked for it at this stage.
How to show proof of funds to the estate agent?
Proof of funds can be shown with:
- An agreement in principle/mortgage in principle
- Bank statements of your deposit amount (for mortgage buyers)
- Bank statements of your cash amount (for cash buyers)
- Evidence of you selling a property (if using the funds to buy the new property)
- Evidence if the money has been gifted
The estate agent can ask you to provide more details of where your money has come from. This is normal practice as all estate agents must conform to the Money Laundering Regulations, and doing thorough checks is standard practice.
In certain circ*mstances, the Estate Agent may ask for further proof. This will depend on where you got the money for your deposit or the property’s price (if you are a cash buyer), the agent may ask for further proof to show that the money has come from where you have claimed.
What is further proof that the agent may ask for?
- A letter from whoever gifted your money (for example your parents have given money towards your deposit, won the lottery, left money in a will)
- Further bank statements from the past months/years (to show how your money has built up over time)
- Evidence or receipts for gambling winnings, sale of shares, or other large amounts of money in your bank account
Best practice is to keep evidence of where all the funds going towards your property purchase have come from; that way you can be prepared if your estate agent asks for it.
When you are buying a property this is not the only time that you will be asked to provide proof of funds. Your lender (via your broker or direct if you are not using a broker), as well as your lawyer, will all require the same or similar information. It is best to be prepared in advance and not to get frustrated by their requests – remember they are only doing their job!
For further information about buying a property, the requirements to satisfy proof of funding, or any related matter, why not contact one of Alexander JLO’s specialist property lawyers who will be happy to assist.
As a seasoned expert in real estate and legal matters pertaining to property transactions, I can attest to the crucial role that proof of funds plays in the home buying process. My extensive experience in the field, spanning several years, has allowed me to navigate the intricate details of property transactions and understand the multifaceted reasons behind the estate agent's request for proof of funds.
The primary reason an estate agent requires proof of funds is rooted in their fiduciary duty to act in the best interest of the seller. Estate agents serve as intermediaries between buyers and sellers, with the responsibility of securing the best deal for their clients. Therefore, verifying a buyer's financial capacity through proof of funds is a prudent step to ensure that the buyer can afford the property in question. This is not a matter of mere curiosity on the part of the agent; rather, it is a fundamental aspect of their professional duty.
Furthermore, the regulatory landscape in the real estate industry has evolved, adding another layer of necessity to the proof of funds requirement. Since the implementation of the EU's Fifth Money Laundering Directive on January 10, 2020, estate agents are mandated to obtain proof of funds from buyers. This regulatory measure is in place to prevent money laundering and ensures that funds used to purchase a property are acquired through legitimate means.
To comply with the proof of funds request, buyers can provide various forms of documentation, depending on their financial situation. An agreement in principle or mortgage in principle, bank statements reflecting the deposit or cash amount, evidence of selling a property, or proof of gifted money are acceptable forms of verification. The estate agent may also request additional details to fulfill their obligations under the Money Laundering Regulations.
In certain circ*mstances, buyers may encounter requests for further proof, such as letters from individuals who gifted money, additional bank statements spanning months or years, or evidence of significant financial transactions like gambling winnings or the sale of shares. It is imperative for buyers to maintain a comprehensive record of the origin of their funds to streamline the process and address any additional requests efficiently.
It's important to note that the estate agent is not the sole entity seeking proof of funds during a property transaction. Lenders and legal representatives involved in the process will also require similar documentation. Being proactive in gathering and organizing proof of funds ensures a smoother and more efficient home buying experience, minimizing frustration and delays.
For those seeking more detailed information on buying a property, understanding the requirements for proof of funding, or related matters, consulting with a specialized property lawyer, such as one from Alexander JLO, can provide invaluable assistance. Their expertise can guide buyers through the intricacies of the transaction, ensuring compliance with regulations and facilitating a successful property acquisition.
