Disclaimer: Before implementing instant payments, title companies will need to consider whether any state or local laws limit the ability to use instant payments in real estate transactions for some or all of the uses discussed in this article. Where such limitations exist, title insurance associations and trade groups should consider working with their state legislatures to ensure that instant payments are recognized as valid for real estate transactions.

In the last decade, the real estate industry has fervently embraced innovation. Real estate stakeholders have leaned into new technologies to optimize real estate transactions and operations – and interest in innovative new technology is only growing. In a 2023 JLL survey, 85% of global real estate leaders said that they planned to increase investment in new technologies, with many citing a competitive advantage as the reason why tech adoption has become so important.

The real estate industry has been transformed by smart locks, virtual tours and data platforms that make it easier to see available homes for sale. Technology is also improving back-office operations with digital dashboards to consolidate and streamline access to important information; predictive analytics tools to track market patterns, property values and transaction velocity; and AI chatbots to better service prospective clients and respond to common questions. While the industry has taken important strides toward modernization, many real estate offices are still missing key opportunities to evolve and unlock value. Instant payments, also known as real-time payments, are one of the best examples of an underutilized financial technology that could have a major impact on the real estate closing process, particularly for title companies.

Instant payments can transform and expedite the distribution of funds during a real estate transaction. Plus, in many cases, title companies may find it relatively easy to unlock this powerful tool. Here is a closer look at instant payments and how title companies can join the instant payments revolution.

What are Instant Payments?
Instant payments are electronic transfers of funds that can happen 24x7 between two bank accounts that clear and settle in real time with immediate finality. The funds are available to the recipient in seconds, also 24x7. Many people use instant payments in their everyday lives, via moving money from their digital wallets to their bank account or an employer utilizing on-demand payroll to send earned wages to an employee earlier than a traditional biweekly or monthly pay period.

In a real estate setting, title companies can send and receive an instant payment to facilitate a transaction, such as a commission payout or a final closing payment, and disperse funds instantly via their financial institutions. To initiate an instant payment, title companies collect the same account information as they would to process other forms of electronic payments, such as a wire transfer or ACH payment, including the sender and receiver account numbers and the real estate transaction reference information.

Instant payments are a viable option for real estate transactions. Like wires and ACH credit entries, the payer initiates an instant payment. However, as a result of being processed over an instant payment system, the payment is cleared and settled in real time, the proceeds of the payment are made available to the payee immediately and with finality, with real time confirmation to the payer. Also different from a wire or ACH payment, the payee can send a Request for Payment (RfP) message through the instant payment system to request payment from the payer using secure bank channels. If the payer chooses to pay the payee, the payer can initiate an instant payment transaction in response.

Why Title Companies Should Integrate Instant Payments
Today, title insurance companies commonly use physical checks, ACH payments, and wire transfers to collect and distribute payments. Instant payments can replace all of these methods. Title companies will find the most value using instant payments to pay agent commissions, professional fees from the seller’s proceeds, managing split closings, and moving funds in and out of the escrow account. Here are the key benefits of instant payments for title companies:

• 24x7 Availability
  With traditional payment methods, title companies are limited to completing transactions during normal banking hours, which makes late-day Friday, weekend, and holiday closings impossible. When a transaction is held until the next banking day or over the weekend, additional interest payments can accrue as well. Instant payments are not limited to traditional business hours, and title companies can make transactions 24 hours a day, 7 days a week, and on holidays.

• Expedited Fee and Commission Payments
  In standard practice, title companies disburse professional fees, such as agent commissions and contractor disbursements, after receiving the seller’s proceeds from the transaction. Then, the title company issues a check to the appropriate party, which must be reconciled when cleared. It is a cumbersome process to issue multiple checks to different stakeholders in the transaction – but instant payments can make it more efficient. Rather than issuing a check, title companies can send an instant payment directly to the agent, who will have the funds in their account within seconds. With real-time payments, real estate professionals get paid faster and the title company can expedite the transaction process while streamlining the reconciliation of the payment in back-office systems.

• Streamlined Split Closings
  Some transactions require a split closing, where the proceeds from the transaction are shared between multiple parties. For the title company, this requires issuing several checks and physically sending them to the appropriate recipient. Again, the checks must be reconciled (after they have been cashed) on the title company's books before the title company can close the transaction. Like fees and commissions, these transactions can be streamlined with instant payments because they are immediate, with the proceeds being credited immediately to the payee and confirmation to the payor significantly reducing the likelihood of exceptions and returns. The transaction is made without cutting a check which can be immediately reconciled and eliminate check fraud and escheatment costs.

• Reduced Fraud
  Business email compromise and other forms of imposter fraud is a significant risk in real estate transactions. According to a recent study by Certifid, one in 10 real estate transactions is targeted for fraud in the United States. Buyers who are tricked into sending large deposits to scammers masquerading as a title company could lose their money and homes.
  
  With the Request for Payment (RfP) feature of instant payments, the title company sends a payment request directly through secure bank channels to the customer’s financial institution. The customer then authorizes the payment through their bank's interface, eliminating the need for email or phone communications that are susceptible to imposter scams and reducing the risk of fraud or human error.

• Faster Disbursements on Earnest Money
  Today, most real estate transactions are completed by check, which is often a slow and inefficient process. Instant payments enable 24/7 disbursements, allowing sellers to receive their money instantly, with confirmation to the title company. Similarly, the quick return of funds eliminates customer service calls and provides a positive experience for buyers whose deals did not go through.

• Reduced Administrative Work
  Instant payments expedite real estate processes and create valuable efficiencies for title companies. As a result, transactions can be completed faster and with less administrative work than traditional payment methods. In addition, real-time payments reduce the amount of cash held in processing, giving title companies better insight into finances and improving cash flow management. Overall, instant payments enhance the company’s business model and create meaningful value for customers.

How Title Companies Can Access Instant Payments
Currently, most title insurance companies have access to instant payments through their banking partners. Title companies can contact their financial institutions to discuss how they can access instant payment capabilities. If a title company’s current banking partner has not enabled instant payments, they should request it, as the financial institution may not know there is customer demand.

The technology is quickly becoming a standard for most financial institutions, and the faster banks and their customers incorporate it into business practices, the better for title insurance companies and real estate transactions. From 2023 to 2024, instant payment transactions increased 161%, and by 2028, the global real-time payment industry will grow to $58 trillion in transaction value.

Title companies have a lot to gain from the adoption and integration of instant payments — and they may be able to make the move with little effort or change to current processes and procedures. Instant payments are quickly becoming a global banking standard, and title companies that start adopting them now will secure that coveted competitive advantage that real estate leaders are seeking.

About the Author
As Vice President, RTP® Product Management, Cheryl Gurz is tasked with driving product adoption and usage of the RTP network by U.S. financial institutions and their customers. Cheryl advises clients on RTP topics, best practices, and market trends.