How the Real Estate Transaction's Weak Link Became Its Strength

Good news: the weak link in the digital transaction chain is finally being mended.

For years, real estate professionals have been able to manage transactions digitally, from start to close, with one exception: the transfer of earnest money. This creates a peculiarly analog moment in a sequence of events that otherwise occurs entirely online. That's not just inconvenient—it's less secure, too, and exposes your clients to the risk of fraud and identity theft.

Fortunately, that old school method of collecting earnest money is now being digitized to match the rest of the transaction. In fact, you may have seen the headlines: major brokerages like Howard Hanna are adopting digital earnest money solutions like Earnnest. Even better, digital transaction companies like dotloop are integrating digital earnest money solutions right into their platform, so users can manage the entire transaction from one place.

So how do digital earnest money solutions work, and how do they improve the transaction experience for agents, brokerages, and their clients? Let's explore.

The Problem with Earnest Money

Before solutions like Earnnest debuted, the process of collecting and depositing earnest money was time consuming: the buyer delivers a paper check to their agent, who gives it to the listing agent, who gives it to the Designated Trust Account Holder, who—finally—deposits it into a trust account.

That's a lot of hands for a single check to pass through, and each exchange puts the check at risk of being lost or stolen. What's worse, many brokerages have been targets of earnest money scams where hackers spoof an email from the brokerage to the buyer with fraudulent wire transfer instructions. Not only does this mean missed deadlines and derailed transactions, but this can put brokerages at regulatory risk and subject them to legal liability.

Fortifying the Transaction

Digital earnest money solutions make the transaction more secure (and efficient) by moving the entire process online, from requesting the deposit all the way to deposit and completion.

The process is simple, and can be completed in just a few steps. As an example, let's take a look at this process in Earnnest's integration with dotloop:

1. Send a payment request

From within a transaction in dotloop, click Send Earnnest Request in the top right of your screen. You'll be prompted to log in to Earnnest, and once you do, information will be automatically populated into the request form. Next, add your escrow holder. If their name doesn't appear, you can invite them to join the transaction. Once they enroll, send the request.

2. Buyer receives alert and completes the process

Next, the buyer receives an email and/or text prompting them to complete the earnest money request. All they need to do is confirm their identity, add a funding bank, and send the payment. Earnest then completes the process via a digital transfer with bank-level security. Once the buyer is done, the requesting agent receives an email notification.

On average, according to dotloop, it takes agents less than two minutes to send the earnest money request, and 80% of buyers complete this process in under three minutes. That's potential hours saved over the traditional method of passing a paper check between multiple parties!

The process is further streamlined when the earnest money solution is integrated directly into the agent's transaction management program. It promotes, as Earnnest President and Chief Operating Officer Russell Smith notes, simplicity of use.

"If I'm a real estate agent or brokerage, and I'm evaluating a digital earnest money partner, a few of the things that I'd be looking for: simplicity of use," Smith says. "Is it a tool that, if I'm an agent, fits in my workflow? If I'm a brokerage, is something that I think my agents are going to be able to adopt? And really when you look at adoption … one of the ways we've seen to really increase that is making sure it's within their workflow."

Learn more about dotloop's integration with Earnnest here, or watch this short webinar for a more in-depth look.