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ACH transactions are a secure and cost-effective alternative to wire transfers for real estate payments.

One in three real estate transactions in 2020 were subject to fraud attempts, 8% of which included funds wired to the wrong bank account as homebuyers mistakenly sent closing costs to fraudulent accounts.

Earnnest, a digital payments platform for real estate transactions, is innovating to provide a fraud-free and seamless experience for their clients. The company has built a platform to mitigate fraud in real estate transactions by using ACH.

Since 2018, more than 120,000 earnest money deposits have occurred on the platform with no instances of fraud, says Earnnest Chief Revenue Officer Russell Smith.

How does Earnnest do it? They’ve implemented a tailored payment solution using Dwolla’s ACH API.

“A lot of escrow holders today are accepting earnest money payments via a wire, a certified check or a personal check—methods that are riddled with risk and fraud,” Smith says. “Earnnest’s use of ACH transactions via Dwolla is what our industry calls ‘good funds.’ ACH is the best method to transfer funds because it’s safe, secure, trackable, cost-effective and easy.”

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ACH: Secure, Trackable & Priced to Scale

Wire transfers and paper checks have long been the backbone of real estate transactions, with agents shuttling closing costs and earnest payments back and forth between banks and homeowners. Wire transfers in particular dominate the industry due to their speed and finality. Traditionally, real estate transactions have been prone to fraud and cybercrime due to a combination of factors. While a wire transfer’s “good funds” model is effective in terms of instantly transferring large sums between bank accounts, homebuyers are given instructions to wire funds to an escrow holder, with whom they typically have very little familiarity with—which makes spotting fraud or phishing difficult.

The timeliness of a real estate transaction and high dollar amounts only exacerbates these factors.

“Real estate wire fraud continues to be one of the most prevalent cybercrimes in the U.S.,” according to the National Association of Realtors.

Wire fraud in real estate transactions was up 17% in 2020 over 2019, with losses of more than $213 million. According to the National Association of Realtors, real estate and rental wire fraud rank seventh out of more than 30 types of fraud tracked by the FBI.

Earnnest, one of the largest digital earnest money services in the U.S., operates a closed network of escrow holders that they onboard and verify before having access to the platform. This ensures that money moving through Earnnest lands in verified accounts.

Powered by Dwolla’s API, more than 120,000 earnest money deposits and $700 million in real estate transactions have flowed through the Earnnest platform—with zero instances of fraud.

The Dwolla API provided Earnnest the flexibility to create customers that have access to a digital wallet that gives them the ability to hold funds in a balance for a more connected experience with collecting and sending payments. With this specific customer type in the API, agents, homebuyers and escrow holders have a secure way to digitally collect and disburse real estate costs, including earnest money deposits and disbursements, agent fees and commissions and rental payments.

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An integral piece of the fraud prevention plan includes onboarding escrow companies with Dwolla. Once a company is onboarded and added to Earnnest’s secure network, neither the home buyer nor the escrow company has to provide each other with account and routing details. Dwolla’s tokenized integration with Plaid allows Earnnest to offer a robust account verification experience.

“That’s where fraud creeps into these real estate transactions,” Smith says, explaining how buyers and agents exchange information via email, opening the door for fraudsters to insert themselves into the conversation and trick people into sending money to fraudulent accounts.

“The fact that no party ever has to see each other’s account information is integral to fraud prevention,” Smith says.

The use of addenda records allows Earnnest to track transactions from the time a real estate agent requests an earnest money deposit to the time a home buyer sees the request and transfers funds from their bank account to the escrow holder. These records help provide more predictable cash flow with less concern for returns.

Earnnest’s use of Same Day and Next Day ACH transfer timing ensures funds clear and settle in the recipient’s bank account in one to three business days. Without initiating expensive wire transfers or labor-intensive checks, real estate agents can request earnest money from the home buyer, who then repeats the request and sends the funds to the escrow holder.

“Faster is always better when it comes to payments, as long as you’re maintaining security, visibility, all those things,” Smith says. “Our ability to have those funds settle—the authorization to settlement timetable shortened—is a value-add to our customers.”

Smith and Earnnest are on a mission to put ACH transactions and faster payment methods at the forefront of real estate transactions. Transforming a manual process for transferring money in a way that is much more secure and transparent—like ACH—can save just the agents, on average, 30 minutes to an hour of drive-time for each deal. The Earnnest platform combines data, tracking and automation to create more trust with their customers to move faster.

‘Dwolla Speaks to Us in our Language’

Dwolla’s consultative approach to payments allows Earnnest to take an old problem (wire transfer fraud) and present a new solution (faster account-to-account transfers).

“Dwolla has always been really helpful in understanding our use case and our product,” Smith says. “It’s like Dwolla has one foot in the door with us, understanding why these features would be beneficial to us, what our concerns might be and the lift to implement them.”

When Earnnest launched in 2018, it launched with Dwolla. Since then, the platform has facilitated hundreds of millions of dollars worth of real estate transactions.

“Dwolla understands the problems we’re solving for our customers and how our product does that,” Smith says.

“The Dwolla team is able to really understand our use cases, our needs—how we might actually think about or need those features—rather than just throwing a bunch of things at us that we have to sort through. Dwolla speaks to us in our language.”

Faster Payments: A ‘Game-Changer’ for Real Estate

When it comes to payments, Smith says, fast is best. “People want money in their account now.”

In today’s real estate industry, the speed and finality of wire transfers can come at the expense of high fees and fraud rates. As Same Day ACH and Real-Time Payments grow in popularity, the ability to securely initiate transactions that clear and settle nearly instantaneously is on the horizon. Processing times will continue to be shortened from days, to hours and soon—seconds.

“I’d be underselling it if I said anything less than a complete game-changer for real estate,” Smith says, referring to Real-Time Payments, which the company plans to implement in the near future.

“We’re excited to continue to scale our payments with Dwolla because it will only make our clients’ lives better and continue to reduce fraud.”


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