If a buyer can’t meet escrow dates, the entire purchase agreement can fall apart. That’s not something brokers, agents, or home buyers want to see. For the real estate professionals, it means a lot of work potentially down the drain or more work to save the commission. For home buyers, it could mean losing out on a dream home or starting over with the home buying process.
Understanding how to send money to escrow and knowing the right choice for each situation can help avoid these issues. Find out more about the pros and cons of ACH and Real-Time Payments® below.
What Are ACH Transfers?
ACH stands for Automated Clearing House, which is a network that allows the transfer of money between bank accounts. The technology has been around for about five decades, and it doesn’t rely on card networks, as transfers through credit or debit cards do.
ACH transfers are often used for direct deposits, which occur when someone is sending money to a consumer or employee. Tax refunds occur via ACH as do many employee paychecks. Another form of ACH is called direct payments, and this is what’s used when a consumer or business pays a business. Direct payments are how you send money to escrow when using ACH as an option.
Benefits of ACH Transfers for Escrow
One of the biggest benefits of ACH, especially for the high-value transfers that might be related to the escrow process, is that they don’t go through the credit card networks. Credit card networks charge fees on all transactions that process through them — often as a percentage of the amount being sent. On a high-dollar escrow payment, such fees could add a significant cost to closing.
Another benefit of ACH is that it’s available to anyone who has a U.S. bank account. It’s also secure, as transactions are encrypted, and typically easy to accomplish. With access to the right technology, most people can initiate an ACH transfer within a minute or two.
Challenges of ACH Transfers for Escrow
One of the main challenges associated with ACH transfers is how long they can take. It may take three or more business days for funds transferred from one account to show up in the receiving account. How long the process actually takes depends on factors that include:
- When the transfer was initiated, as there are typically cut-off times for processing each business day
- Whether there are any flags associated with the transfer that might require a manual review by a person with the financial institution
- The policies of the receiving bank
Another challenge for ACH transfers that’s specific only to international real estate transactions is that ACH is a U.S. network. Sending money internationally may require a different option.
The fact that ACH transfers take a few days to complete also means there’s a window for the sender to cancel the transfer. Depending on the situation, this can be a pro or con. Home buyers who believe they may have been duped into a scam could potentially stop the ACH transfer from going through, which is a positive. But cold feet could also cause such an action, and that’s not necessarily a good thing for brokers or real estate agents late in the escrow process.
What Are Real-Time Payments?
Real-Time Payments occur on a network run by The Clearing House. The network is available to U.S. banks and other depository institutions as long as they are federally insured.
This network is relatively new, having been established in 2017. However, the Federal Reserve supports what it calls instant payments and has signaled willingness to work with institutions to make these options more available to Americans.
Benefits of Real-Time Payments for Escrow
Probably the biggest benefit of Real-Time Payments for escrow is the instant nature of the payments. When money is transferred, it hits the receiving account in as close to real-time as possible. That equates to seconds or minutes in most cases. If buyers are worried about making an escrow deadline, this can be attractive.
Real-Time Payments are also similar to ACH when it comes to security measures, making them potentially a better choice than another option that can support fast funding: wire transfers.
Challenges of Real-Time Payments for Escrow
Perhaps the top challenge for Real-Time Payments is that this network isn’t available to everyone. According to The Clearing House, only around 60% of U.S. demand deposit accounts are reached by the network.
The network charges fees to banks for each RTP transfer. The fees are not more than a couple of dollars, but the banks may charge consumers more than that for the service to cover administrative costs or make a profit. It depends on the sender’s bank whether RTP transfers are less expensive than wire transfers. They are typically more expensive than ACH transfers.
Because of their instantaneous transfer, Real-Time Payments are irrevocable. Again, this can be a pro or a con, depending on the situation.
Which Is Better for Sending Money to Escrow?
It comes down to the situation and needs of the buyer and seller to determine how to send money to escrow. If money is required in escrow immediately, Real-Time Payments can be a good option. However, since they’re not available to everyone and run on a fairly new financial network, they aren’t the best option in some cases. And same-day ACH transfers do exist, though they’re more expensive than regular ACH transfers.
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Paymints.io takes the confusion out of sending money to escrow. You and your clients can trust the bank-level encryption that helps ensure security, and our API lets you integrate with CRM and other solutions for holistic management of the escrow and closing process.
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