Editor’s note: This feature originally appeared in the March issue of MReport, out now.
Do you remember what depositing a check looked like a decade ago? Someone sent or handed you a paper check, and you proceeded to your local bank branch to fill out a deposit slip. You walked up to a bank teller who processed the deposit and handed you a printed receipt. Today, we open our banking app on our mobile devices and within a couple of clicks and swipes the check is processed and deposited for us. The technology can process the picture quality and even detect a proper endorsement. Some platforms also read the check text and suggest the deposit amount. That is an example of innovation in banking, and a whole host of innovative and disruptive fintech startups are taking money movement and payment systems to a whole new level.
Now let’s recall what buying a home was like a decade or two ago. You meet a real estate agent to look at a home, write up a contract, go back and forth negotiating with a seller and ultimately (unless you can pay in cash) go through the unbearable experience of providing a bank countless of items to get a mortgage approved.
And then we have your closing–the anticlimactic pinnacle of your purchase transaction that requires you to sign countless pages of paper in the presence of a notary or attorney. Hopefully, you are closing in the comfort of a nice office with comfortable chairs, nice pens, and your choice of tea or coffee. But many people have to travel to a governmental registry–and get the privilege of consummating the most significant financial transaction of their lives in an old county building, sitting in mismatched chairs under flickering lights and a draft coming from old windows.
Sound like 1999? Remarkably, most people continue to endure this exact process in 2019. Sure, there are tools online to find new home listings and even estimate a value. We can sign an offer or contract remotely using a digital signing platform, and also wire a deposit. We can apply for a mortgage using a fancy web portal, but the overall process remains fragmented, slow, and just plain old.
Many theories claim to explain why real estate has been so slow to embrace and adopt innovation. After all, mortgages are highly regulated and the process requires checks and balances to ensure such regulatory compliance– but lots of other regulated industries including banking itself have managed to innovate and develop tools for greater efficiency and smoother customer experience.
Ultimately, we are an industry resistant to change. We love to throw around terms like “this is how it’s always done” or “this is a standard agreement.” When it comes to all of the services and products necessary for a real estate transaction to come together, we have a select group of players that dominate the market share nationally, regionally, or locally.
And therein lies the problem. We get comfortable. How comfortable? Blockbuster comfortable.
Disrupting the Status Quo
How many of us remember the bright lights of a Blockbuster in our neighborhood? It was the place to go on a weekend evening and pick out a movie to enjoy in the comfort of your own home. Started in Dallas, Blockbuster was three times larger than its nearest competitor.
While Blockbuster gobbled up competitors and focused on expanding offerings in their physical retail locations, however, innovation was brewing. A small company called Netflix was building a platform that didn’t require you to drive to a store only to find nothing good to rent. Pay-per-view on cable television networks and streaming video over the internet began developing on-demand content that didn’t require you to rewind that tape or return that DVD.
Technology–and your customers’ expectations–are changing the game. Innovation is the key to not only survival but success. Real estate professionals need to follow technology better and listen to their customers to adapt. Moore’s Law states that computing power grows at an exponential rate–specifically, it doubles every 18 months. Reflect on that concept– we hold mobile devices in our hands that have computing power and capabilities that embarrass older generation desktop computer towers. This machine power coupled with the availability of massive amounts of information at a customer’s fingertips has changed the rules. It has placed real estate agents, title companies, mortgage lenders, and all other stakeholders in the real estate settlement and financing process into unchartered territories.
Technology companies and start-ups are drooling over the countless opportunities to disrupt our massive multi-hundred-trillion-dollar industry. And as legacy companies now recognize the impending threat of these trailblazers, we enter a new generation of hyperactive need to innovate. It is a scramble to beat out the competition, whether it’s the competitor we know and have wrestled with for years–or the Kendall Square start-up that wants to change the way consumers buy a home.
Let’s look at an incomplete and non-exhaustive list of some innovation and technology looking to disrupt the real estate industry and change the status quo:
Big Data: Big data is the phrase to describe taking large data sets and using algorithms and computers to analyze them and predict pricing, trends, and behaviors. It is as simple as knowledge is power. The more data analyzed, the more accurate predictions can be made. Big data is being used in health care, construction, retail, and politics. Big data can be utilized in real estate to predict valuations, neighborhood development, and the overall trend and health of the housing market. Big data can also be used to accomplish an appraisal of a property by using thousands of “comparables” rather than a select few.
Artificial Intelligence (AI) and Machine Learning (ML): Computers don’t make mistakes, arguably they don’t have feelings (yet), and bias doesn’t affect a machine’s decision. AI and ML have become so powerful and refined that they can read documents and summarize the terms of a contract. AI and ML can optimize prospecting by reviewing leads and determining which ones are real, weak, or just plain tire-kickers. AI and ML can also review documents submitted for mortgage approval and identify potential fraud, inaccuracies, missing information and the like.
New Software: Look for new software platforms that are built from the ground up with easy-to-use interfaces that allow for easier scheduling, negotiating, and communications between stakeholders. Old legacy software will continue to die on the vine as startups introduce robust software that’s also easier to use. In the next few years, investigate for platforms that integrate, decreasing errors and increasing productivity. Gone will be the days of taking a loan application and manually entering the information into a loan production platform–only to then deal with vendors such as appraisers and title/settlement professionals using fragmented platforms like email or portals.
Virtual Reality: Health care, tourism, aerospace, and construction are using advanced virtual reality to train professionals and reach customers that have been unavailable to them in the past. As virtual reality has become affordable, more mobile, and more “real,” look at how developments could help market the experience of walking through your client’s future living room.
Distributed Ledger Technology (DLT) and Smart Contracts: Commonly dubbed “blockchain,” DLT and smart contracts are now being used by title insurance companies to manage back title policies. Banks have been testing and piloting programs to see how they can leverage the power of these ledgers that allow for recording of transactions of shared databases using cryptography that prevents altering of transactions and records.
Real estate transactions and DLT sound like a match made in heaven–the peanut butter to the jelly sandwich. In March of 2018, Vermont completed the first blockchain-based deed transfer in the U.S. Look for other governmental recording offices to step up and embrace the concept of DLT for land records.
If blockchain, DLT, and bitcoin don’t already cause anxiety and confusion for nontechnologists, let’s add the complementary concept of a “smart contract.” No, this isn’t a contract drafted by a lawyer from an Ivy League school, but rather a contract that essentially administers itself. Parties would enter into a smart contract by setting forth the parameters and conditions for an agreement (such as a transfer of property).
Once the respective parties fulfill their obligations, the deal is consummated automatically, without the need for a third party (such as a title agent to record the deed and cut the checks).
Smart contracts would essentially execute on autopilot once the requirements are met–and if they aren’t? Well, a smart contract can enforce itself–for example, by automatically releasing a deposit as liquidated damages if a buyer fails to fulfill their obligations.
E-Notarization and Remote Notarization: Several companies are looking to take advantage of the growing list of states enacting legislation that allows for either electronic notarization (where the notary can stamp and sign digitally while still in the presence of the signer) and/or remote notarization (where the notary can participate online or remotely to effectuate an acknowledgment or attestation).
Several stakeholders are carefully monitoring the risks and rewards associated with this technology— including title insurance companies and governmental recording offices and regulators. These regulations will lead the way to digital mortgages and digital closings, where documents can be reviewed online and signed digitally to complete a real estate purchase, financing or refinance.
Drones, Robotics and the Internet of Things (IoT): Can a drone deliver keys to a co-broking agent to show a property? Maybe– but why not just unlock the front door, turn the lights, and start the fireplace remotely, using devices that connect the smart home to the listing agent or homeowner via the web? That is the power of IoT. But there are probably a whole host of use cases in real estate in which robotics can change the way things are done. Can a robot conduct a home inspection? What about drones being used to assess the quality of a roof, chimney, or gutters? That technology already exists and will likely become much more mainstream in the years to come. Drones can be used to fly over sites and provide data for faster, more affordable and more accurate surveys and plans.
The True Spirit of Innovation
I often will present on cybersecurity threats to real estate brokers and title agents, or discuss my thoughts on the future of closings and title leveraging some of the technologies that I’ve discussed above. Many times, people will approach me afterward, shaking their heads in frustration. They ask me whether technology is just going to put them out of business. They share stories of how they do business the “old fashioned way.” With the constant threat of wire fraud, lawyers and title agents ask me if it’s “time to go back to cutting checks.”
The bottom line is that residential real estate is inherently a personal business. There are still plenty of customers that want to talk to a human, meet their loan officer, and sit with their broker to review deal terms. Technology will continue to develop and change the way we do business, but ultimately our responsibility is to our clients and customers. Listen to them and follow their lead, they will tell you what is important to them. Never stop learning: read books, take an online course, go to seminars and presentations, attend conferences for your industry, and use the same power of technology to train you and teach you about these new tools.
I always stress the difference between technology and innovation. All innovation is not technology. And all technology is not innovation. Real estate innovation includes the adoption of micro-housing, the changing workplace and office space, and how we commute to and from work. Innovation ultimately is a new method, idea, product, or device. Innovation is about fresh ideas and new ways of looking at things (both existing and new).
These are exciting times for the real estate, title, settlement, and mortgage banking industries. Small ideas and little changes sometimes have the power to change your mindset and the way you look at your business.
Former General Electric CEO Jack Welch (aka “Neutron Jack”), and his wife Suzy Welch are quoted as saying, “So when you think about innovation, don’t let it scare you. Don’t let it be a buzzword that isolates 10 people in your company while the other 90 sit on the sidelines, waiting for the innovators to innovate. You’ve got to make innovation everyone’s job, all the time.”