How promising technology can further transform real estate transactions.
Real estate acquisition and sale has traditionally been a slow-moving process. When I purchased my first home in 1987, a typical home-buying process took 30 days. Today, with modern technology, electronic communication, searchable databases, and the ability to execute contracts online, a typical home-buying process takes – 30 days. How has technology transformed real estate so far? What is the potential when currently envisioned technology is applied to real estate? And why, with all the changes that have already been implemented in real estate, has the time from contract to closing remained relatively constant?
Over the years, numerous technologies have been introduced into real estate transactions. In many jurisdictions, title can be searched online via publicly accessible databases. No more going to the courthouse to dig out records. If you’ve purchased or sold real estate recently, you probably used DocuSign or another online capability for signing contracts or closing documents. No more appointments to sign; no more making copies and mailing to all the parties involved. Background checks and credit reports are electronic and effectively instantaneous. Appraisers can look up sales and find detailed information, pictures, even blueprints online from the convenience of their desks. Many of the previously time-consuming activities that justified a longer purchase and sale process can now be complete in hours.
And new technologies promise even greater transformation. Blockchain is being used in several prototypes (e.g., Cook County, IL, and the country of Georgia) to record title in an immutable and electronic format. Going beyond electronic signatures, some states have begun to approve electronic notaries. Multiple Listing Services are becoming more available to ordinary people and the services are gradually combining local services into regional. This consolidation is anticipated to continue into national and even international listing services. Several newer technologies (generally blockchain based) provide the capability to complete an entire real estate transaction online. And the advent of cryptocurrency can even make payment faster and easier with international transactions easily facilitated. The combination of all these technologies makes it faster and easier to find a property that meets your criteria, place an offer, sign a contract, qualify for a mortgage, and close.
Other technologies, in particular the tokenization of real estate with security token offerings, promises to further democratize the ability to own real estate. Historically, you could purchase large buildings as part of a syndication or a factional interest or within a real estate investment trust (REIT). Even time shares (despite their well-deserved horrible reputation) were a way to own property for investors with fewer resources. But tokenization and the technology that makes it possible (cryptocurrency and blockchain) provide the ability to sell shares of large real estate projects to the masses at a whole new scale and with extremely simple processes.
There are very few parts of the purchasing (or selling or investing) process that can’t be accelerated or haven’t already been accelerated by technology. But there are a few. Physical inspections still require onsite touring of properties. Renovations and repairs, when required, still need estimates and time to do the physical work. But most purchases really could be completed in a day or two. So why does the buying process still take 30-60 days?
In 1989, I bought a house in four days using a normal mortgage (the mortgage was applied for and approved in one day). The mortgage company was affiliated with the builder and the builder needed the house sold by a deadline. Their need drove a fast closing. All the paperwork was completed on time. All the necessary checks were completed. Why isn’t this the norm, especially now when so many of the forms, checks, and studies can be completed nearly instantaneously?
There are two reasons why the time from purchase to closing remains in the 30-day range. First, as it becomes faster and easier to do the required paperwork, the amount of required paperwork and number of checks and studies has increased substantially. The detail in the background checks increases. The sheer number of rules and regulations imposed by State and local regulators as well as mortgage providers and closing agents has proliferated with their ease in execution. Are all these new rules, protections, and processes really necessary? No. But they match the increase in bureaucracy and process in other aspects of life.
Second, a real estate purchase is a large investment for most people. Perhaps it should take some time to complete, if only to provide the psychological distance necessary to ensure it is the right transaction to do. That kind of distance can’t really be improved or sped up by technology. And while reports about properties can be generated nearly instantaneously, it takes longer for them to be reviewed, digested, and understood.
Technology has already impacted real estate purchases and investing, and new technologies are poised to make even more of the real estate process fast and efficient. As long as new regulation and process requirements don’t continue to extend the buying process and counter the technological efficiency, we can expect that buying real estate may become a much shorter process. But there will be human limits in evaluating a transaction that no technology can replace or improve.