Will some home buyers be left in the lurch?
When a buyer makes an offer on a home, it's common to put down a deposit that's held in escrow until the transaction is completed — a process that could take months between contract negotiations, home inspections, and mortgage closings. Escrow funds are designed to protect sellers and prevent buyers from simply getting cold feet and backing out of deals they've committed to.
At this point, it's unclear what SUCCESS's sudden closure means for clients whose escrow funds were being held by the firm. So far, no one has been accused of a crime. But according to Vetstein, "This money is supposed to be just sitting there." And he warned that if the escrow funds the firm was holding are now gone, "It’s a crime. And it’s a serious one."
To be clear, missing escrow funds are a problem for both buyers and sellers. When a buyer puts funds into escrow, the funds are usually applied to their down payments. Missing funds could put buyers in a position where they have to come up with that extra money on their own.
Meanwhile, it's common for escrow funds to be released to sellers at the close of a real estate transaction. So if there's a sale in progress but that money is gone, sellers risk being shorted, too.
Invest in real estate without the headache of being a landlord
Imagine owning a portfolio of thousands of well-managed single family rentals or a collection of cutting-edge industrial warehouses. You can now gain access to a $1B portfolio of income-producing real estate assets designed to deliver long-term growth from the comforts of your couch.
The best part? You don’t have to be a millionaire and can start investing in minutes.
Learn MoreHow to protect yourself
When a real estate brokerage closes, its active listings typically need to be transferred to a new brokerage. In some cases, your broker might find a new firm to take over its listings.
If you've engaged with a real estate brokerage to purchase your home — or if you've hired a firm as a buyer's agent but you're not in the midst of an active contract — then you can generally move on and find another firm to represent you. It's when you're mid-contract and funds have been put into escrow that things get dicier.
People who bank at FDIC-insured institutions get up to $250,000 of protection for their deposits. And the Securities Investor Protection Corporation (SIPC) exists to protect investors whose brokerages fail. The SIPC covers investors for up to $500,000 in cash and securities per account — you can look here to see if your brokerage is covered by the SIPC.
But real estate brokerages — and escrow deposits — generally do not enjoy SIPC coverage. The SIPC may, for example, make you whole on certain real estate investments, like REITs, which are registered with the Securities and Exchange Commission. But in a situation like the one described above, you can't bank on this coverage to kick in. That’s why it’s important to do a thorough job of vetting a real estate brokerage before signing on with it.
Doing your homework
First, you’ll want to review the history of the brokerage you’re considering. If the brokerage has been around for decades, that typically buys you some protection (though clearly, the case with SUCCESS Real Estate mentioned above is a glaring exception).
Also, check the brokerage’s rating with the Better Business Bureau. And if the BBB has any complaints for the firm on file, read them carefully so you know what you're getting into.
Finally, look at the brokerage’s recent sales to see if there's any indication that things are slowing down. If the firm you're talking to hasn't closed on a transaction in months, it could be a sign that it may be on the brink of closure.
Unfortunately, a good number of people are now stuck in limbo as authorities investigate the SUCCESS Real Estate closure. And clients who signed on with the company weren’t necessarily negligent — this may be one of those fluke situations. But the more you research your real estate brokerage, the less likely you may be to land in a similar boat.
The richest 1% use an advisor. Do you?
Wealthy people know that having money is not the same as being good with money. Advisor can help you shape your financial future and connect with expert guidance . A trusted advisor helps you make smart choices about investments, retirement savings, and tax planning. Try Advisor now.
