“Crowdfunding” has been a buzzword among investors and entrepreneurs for several years now, often bringing to mind successful startups, movie projects—and even a potato salad—made possible by online donations from people around the world who believe in an idea. In exchange, these investors often receive a token from the project—a shirt, tickets to a premiere, or even a bite of the salad.

Equity crowdfunding, however, is a more serious activity, and subject to regulations from the federal government. The term refers to the online offering, through a platform or portal, of private debt or equity securities to a group of people for investment. In return, those investors get equity or debt investment in a commercial enterprise. Congress made this practice legal in the Jumpstart Our Business Startups (JOBS) Act of 2012, Title III, which allows for equity crowdfunding when conducted by a licensed broker-dealer or via a registered funding platform. Through this type of crowdfunding, a company can raise up to $1 million in a year from both accredited and non-accredited investors. Because it involves investments into commercial enterprises, it is subject to regulation by the Securities and Exchange Commission (SEC). Crucial to attracting investors (especially those who are unaccredited), the JOBS Act also allows for a form of “general solicitation,” the practice of giving notice directly to the public about the existence of an offering.

The regulations for equity crowdfunding have been published, but the debate among policymakers on this new form of investment is far from over. Legislators on Capitol Hill are divided. Some think the SEC’s crowdfunding rules—especially the compliance and registration requirements—are too onerous and time-consuming for it to be profitable, effectively hobbling the practice before it takes off. On the other side of the spectrum are those who think that the SEC has not done enough to protect investors, especially those who are unaccredited (and thus new to investing). Since the JOBS Act was signed into law four years ago, several bills have been introduced to address these conflicting issues, but none have been made law yet.

So, what does equity crowdfunding mean for real estate agents? For now, it can be a new source of capital for commercial real estate projects, bringing in investors from near and far with a lot or a little money to invest. This is especially important to smaller projects and in areas that rely on regional and community banks, which may struggle to find financing from traditional lenders. Using a crowdfunding platform to finance a real estate project provides an alternative to working with banks, and allows developers to reach a wider audience of potential investors. However, real estate agents whose clients choose to go that route must be careful of their involvement in the crowdfunding aspect of a development project. Unless a real estate agent is registered with the SEC as a licensed broker-dealer, they cannot yet host a crowdfunding platform for their clients, or receive a commission for referrals to/advising done on behalf of one.

There has been a sharp rise in the number of crowdfunding platforms specializing in real estate investments in the past few years, and that growth is expected to continue as the practice becomes more common. NAR has and will continue to, advocate for crowdfunding legislation and regulations that will enhance the flow of capital to commercial real estate.

Erin K. Stackley is a policy representative – Commercial Real Estate, for the National Association of REALTORS®.

For more information, visit www.realtor.org.