You’ve worked hard, saved up your 20% down payment and found the perfect place. You’re finally ready to buy a house. Unfortunately, many tedious monetary transactions are in your near future that may include writing personal checks, sending wire transfers, or even visiting your bank to get certified cashier’s checks. These are necessary transactions, of course, related to earnest money deposits and the eventual closing of the real estate transaction.
How you make these transactions is extremely important, both for the safety of your money and the legitimacy of each transfer. Many home buyers face the same dilemma when purchasing a new home: finding the safest, most acceptable way to transfer money. In the past, one of the most common ways to transfer money has been through wire transfers. However, an ACH money transfer is quickly becoming one of the most preferred ways to transfer money.
What’s the difference? Both are methods of sending money electronically. Both are (supposedly) secure. But minor—and major—differences in the transaction types could make or break your home buying deal or subject you to an increased risk of wire transfer fraud.
A wire transfer is a way to send money from one person to another using either your bank or a provider such as Western Union or TransferWise. A bank-to-bank wire transfer typically takes place using the SWIFT or Fedwire networks, and you can send them either domestically or internationally.
People used to think that wire transfers were the easiest, fastest, and safest way to send money to someone else. But more and more industries are seeking better ways to transfer money, especially the real estate industry. That’s because wire transfers pose a high risk of real estate fraud, while ACH transfers are much more secure.
ACH stands for Automated Clearing House. When you send money via ACH, the money passes through a central clearing house before reaching its destination. The National Automated Clearing House Association (NACHA) approves the transaction before sending it to the receiving bank.
Automated Clearing House transfers are becoming more popular because of their ease of use and speed. They are also one of the safest ways to transfer money. In fact, there were 7 billion ACH payments during the fourth quarter of 2020, reflecting an 8.9% increase over the same period in 2019.
At the core, ACH and wire transfers serve the same purpose: getting money from one place to another, quickly and with as little hassle as possible. That, however, is where the similarities end.
One of the most essential differences between ACH and wire transfers is the level of security. When you send large sums of money, there is nothing more important than ensuring your money is safe.
While some buyers still believe that checks and wire transfers are the more secure payment methods, ACH is proving that theory wrong. Consider for a moment the type of information that exists on a single paper check. Your name, address, phone number, bank account and routing number all appear on every check you write (or don’t write).
NACHA advises consumers to consider their bank account and routing number as highly sensitive information, much like their social security number. Handing it out via a paper check could be one of the riskier ways we make transactions.
Wire transfers are equally risky. In order for a transfer to take place, you must exchange complete banking information with the person on the other end of the transaction. Once you send the wire, the transaction is final, and you can only hope that the money makes it into the correct account.
Because of the large transactions that take place in real estate, wire transfer fraud is on the rise. The FBI reports that consumers lost more than $220 million due to wire transfer fraud in 2020, a 13% increase from 2019.
Scammers send convincing emails with wire details to home buyers, getting them to transfer their down payment to what they think is the lender’s bank account. It is not until later that the buyers find out it was a con. Some home buyers lose their entire down payment—and sometimes their entire savings—due to wire transfer fraud.
Conversely, a survey conducted by the Fed revealed that ACH payments have a lower fraud rate than any other payment type. The central clearing house transaction process adds a layer of protection that is not available with wire transfers. Not only that, but the flexibility of an ACH vs. wire transfer boosts its security—and yours—even further.
Another significant difference of ACH vs. wire transfers lies in the payment’s flexibility. With wire transfers, once you schedule and send the payment, it is irreversible (except in some cases of international wires). With the increase in fraud, this is especially devastating for home buyers who have sent closing fees via wire transfer.
ACH payments, however, are reversible. You can deal with unexpected changes in a home sale, incorrect account information or any number of issues by swiftly reversing the ACH funds transfer. Your can protect your money when you can control where and when it gets transferred.
Wire transfers are notoriously pricey. For domestic transfers, you can spend from $25 and upward for your bank to manage the transaction. International wire fees can be especially costly. Not only are transfer fees charged when you send money, but many banks charge small administrative fees on incoming wire transfers as well.
This is not the case with ACH. Almost all ACH transactions are free (with a few, minor exceptions) and allow consumers to send money to friends, family, lenders, and any other individual or institution—at no cost to either party.
This new era of ACH limits brings with it a new era for the home buying experience. Why put your money and yourself at risk when you can make every transaction through the safety of ACH instead of a wire transfer? From depositing earnest money to receiving your buyer rebate, ACH is the safest, most effective way to send and receive money.
ACH money transfer platforms are just one technology being adopted by the real estate industry to make things easier for clients and to improve security. To learn more about other available options and to keep up with the latest industry news, visit various online forums and blogs for a wealth of useful information and helpful resources.
If you want to make things easier for your clients, see for yourself how paymints.io provides convenience and security during a real estate transaction. Schedule a free demo today!