Cash is still king in the real estate market, as a recent report from Redfin noted, but the U.S. Treasury may soon be asking real estate agents, brokers and mortgage lenders to take a closer look at the sources of money used for those cash purchases.
“Prospective homebuyers who offered all cash were more than four times as likely to win a bidding war as those who didn’t in 2021, making it by far the most effective strategy to win a home when there are multiple offers,” according to Redfin.
The study was based on an analysis of offers written by Redfin agents for their clients in 2021.
At the same time, a recent report by the Congressional Research Service said that “money laundering and other financial crimes in the real estate sector take many forms and continue to challenge real estate, financial institutions, law enforcement, policymakers, and regulatory stakeholders. Global scrutiny of the real estate market’s vulnerability to money laundering has grown in recent years.”
Thus, said the report, “An issue Congress may consider is how to balance the money-laundering risks posed by the real estate sector against differing views on how to implement appropriate oversight.”
The report also summarized that “Since 2003, the Financial Action Task Force (FATF), a division of the U.S Treasury, has recommended that real estate agents, as well as lawyers, notaries, accountants, and others categorized as ‘designated non-financial businesses and professions,’ be subject to anti-money laundering requirements when facilitating real estate purchase or sale transactions for clients.”
Previously, real estate professionals were not part of the investigatory equation.
“Under current Treasury rules, however,” the report continued, “U.S. real estate agents and other designated non-financial businesses and professions involved in real estate transactions are not subject to comprehensive anti-money laundering measures,” adding, “this is inconsistent with global AML (Anti-Money Laundering) recommendations.”
Late in 2021, according to the Congressional Research Service, the US Treasury’s Financial Crimes Enforcement Network (FinCEN), which administers the Bank Secrecy Act, pointed out that, ‘unlike banks and certain other financial institutions, the U.S. real estate industry as a whole is not subject to the full application of all BSA and anti-money laundering requirements. This includes real estate brokers and agents, title or title insurance company representatives, closing agents, appraisers, inspectors, attorneys, and others.”
On December 2, 2021, FinCEN issued an Advance Notice of Proposed Rulemaking to contemplate further anti-money laundering recordkeeping and reporting requirements for certain persons involved in real estate transactions.
FinCEN is now considering a few new rule-making approaches for addressing risks and vulnerabilities.
It could issue a tailored anti-money laundering reporting requirement on a certain class of domestic financial institutions within the non-financed sector of the real estate market, or push for more general requirements for Suspicious Activity Reporting, and the creation of an anti-money laundering program establishment for persons involved in real estate closings and settlements.
In other words, current rules remain in effect, but, timed with world governments now seizing Russian oligarch’s homes, yachts and planes, presumably bought with laundered US dollars, new rules could emerge sooner than later.
Not all real estate professionals agree with that direction, however, feeling that it adds far too large a burden on what is already a labor-intensive task.
Said Sarah Moore, president of the Pasadena-Foothills Association of Realtors (PFAR) Wednesday, “My take is that that really exceeds the scope of a realtor’s duties. We typically do not get directly involved in the finances of the clients that we serve, and therefore it wouldn’t necessarily be an appropriate role for us.”
Moore continued, “Currently, escrow and title companies are dealing with this issue and it seems like that should be sufficient, as they have access to the buyer’s personal and financial information. And we are not privy to that.”
Realtor Bryan Martin has a different reaction to the idea of cash purchases, and that would be to favor the buyer in whatever makes the deal happen.
“The terms of the deal are always what’s going to get the deal done,” he said. “It’s not just the price, it’s all the things attached to it. And people have a great amount of (leverage) with an all-cash, as-is, purchase.”
“When realtors see a proof of funds, the money in the bank, as opposed to a financial contingency where a buyer will only put up 10% of what the property’s worth, hoping to get 90% of it financed. If there is a contingency that if the buyer doesn’t get it financed, they can back out of this deal” — making all-cash undefinably more attractive.
No timeline has been set for Congress to consider new anti-money laundering regulations or legislation.
