Contingent Funds are funds that are not directly accessible to the buyer. Examples of Contingent funds include but are not limited to:
- Funds from your family or friends.
- Funds that are in the stock market and require you to sell them.
- Funds that require approval to move (401Ks).
- Hard Money Lenders (this is a loan at closing).
- Home Equity Line of Credit (HELOC) (unless already approved)
Tip: If you have to ask for money or sell anything, your funds are contingent and they must be disclosed to the seller.
If an offer is going to be all cash, sellers generally want to know where these funds are coming from. Does it make a difference if the funds are coming from grandma or if the funds are sitting in the buyer’s checking account right now? You bet it does! What if grandma died unexpectedly or your friend decides not to lend to you?
The point here is, while you may think they are guaranteed funds, your family member may back out, the stock market could crash one of your strongest equities, you may have delays getting money from your 401K, and your hard money lender may require an appraisal. Experienced Realtors have seen good giving relatives change their mind too many times.
Non-Contingent Funds are the easiest. They are funds that are 100% in your possession and do not require being sold or gifted. Non-contingent funds exist in a checking or savings account.
Examples of Non-Contingent Funds
- Cold hard cash in your refrigerator
- Money in your checking or savings account
Reasons to Disclose Your Funds
To be Prepared
Before writing an offer, your agent should ask you, “How do you plan to purchase the property?” This question is probing to understand if your funds are contingent or not.
What if you are buying a property with a group of people, and you are creating an LLC that will be pooling their money together? This would be a contingent source of funds unless the LLC was already registered with the state, you completed your operating agreement, opened a bank account, and the funds were in the bank waiting to be spent.
It is a Contingency for Buyer’s Safety
In both Oregon & Washington, if you do not disclose that contingent funds are being used, and then you end up in a situation where your grandma does not follow through with the money at the closing table, you, as the buyer, would be in default. Not grandma. This is because, if you do not disclose that you have contingent funds, it is by default considered that you have “liquid” non-contingent cash at your disposal to buy the subject property. In this instance, you would lose your earnest money.
Your Offer May Look Stronger
Here in the Columbia Gorge, depending on where you are buying will depend on if your offer will be considered strong or not. In our market, a cash offer is nearly always the winner. If it came down to a non-contingent buyer and a contingent buyer offering the same price and terms, the non-contingent buyer is the stronger offer (there are some exceptions to this).
It changes when you show Evidence of Funds
You can’t talk about contingent and non-contingent funds unless I mention a quick bit about Evidence of Funds. When writing an offer with contingent funds, you are given towards the end of the transaction (usually) to show that you have converted your contingent funds to non-contingent funds. Whereas, with non-contingent funds, you usually show the evidence of these funds within the first week of mutual acceptance.
Evidence of funds can look like a formal letter from your bank saying that you have sufficient funds to cover the purchase price or a screenshot of your online statement. So long as your name is visible on the account. A screenshot of your grandmas bank account with her name displayed would not work (unless her name was on the purchase and sale agreement).
Both parties have a legal responsibility to deal honesty and in and good faith with one another. While it is the duty of your agent to ask the right questions to guide you from making accidental mistakes, it is your job to be honest in return and transparent about where your money is coming from.
Don’t worry much about contingent funds. If you are unsure, just talk to your Realtor and they will help you decide if your funds are contingent or not. Stay transparent about where your funds are coming from and let your Realtor know so they can guide you into the best offer writing position. This will be the smoothest way to closing on your desired property!