Investors sometimes ask us why our accreditation process is more stringent than what other real estate or equity crowdfunding sites require. It’s a fair question. After all, if we are asking investors to do a little more leg work, we should have a good reason for it.

The simplest answer is that SEC guidelines require that offerings following the Rule 506(c) regulations must take “reasonable steps” to verify that investors are accredited. The days of self-certification and check-the-box accreditation do not hold water in this new method of raising capital.

Now, unfortunately the phrase “reasonable steps” has not been as well defined by the SEC as many would like. This is why the accreditation verification process varies from one organization to the next.

The reason we opt for a “stronger” interpretation of the phrase is that the strength of the accreditation process correlates directly to the quality of deal flow.

Without a strong accreditation process in place, quality deal flow from the best real estate operators would cease to exist. First-rate operators would go elsewhere to fund their deals. Our investors would miss out on outstanding offerings.

More Than Just Quality Control

We want to attract the best operators around. The best operators keep deal flow quality high for investors. And the best operators want a strong accreditation process.

But it’s larger than that: We also want real estate crowdfunding itself to succeed. The industry is in its early days, and following best practices now will it help it mature successfully and sustainably.

A strong process to verify accreditation is one of those best practices.

When it’s in place, everyone wins: Operators win, because they can rest assured the funds raised are free of undisclosed liabilities; and investors win, because operators continue bringing excellent offerings to the table.

In the end, it’s worth noting that even though our accreditation process is considered strong, it’s still relatively straightforward, only taking a little work on the part of the investor. It can be as simple, for example, as providing a letter (or e-letter) from a licensed attorney or a certified public accountant stating that they have taken “reasonable steps” to establish accreditation.

We are sure this industry will continue to mature, and what is perceived as a minor inconvenience right now will help ensure that protections are in place that truly benefit all parties involved.

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