Editor’s note: The paperless real estate transaction is back in vogue. Big companies, trade groups and entrepreneurs are investing in technology platforms, back-end systems and software to automate the home sale. This three-part series looks at new technologies that are streamlining various parts of the real estate process, making it less cumbersome, costly and time consuming. (See Part 2: Paperless Realtor free to roam and Part 3: Moving to e-mortgages.)
Read this and sign here. Turn the page. Read this and sign here. Turn the page. Read this and sign here. It’s a familiar mantra in real estate sales.
There are dozens of pages of documents associated with real estate transactions, and an elaborate web of communications and exchanges of information between the various players. The end product for consumers can be a long wait for closing and a weighty stack of documents that they don’t thoroughly read or understand.
Technology is changing this process, bringing the digital or “paperless” real estate transaction back in vogue. Big companies, trade groups and entrepreneurs are investing in technology platforms, back-end systems and software to automate the real estate transaction, and digging deeper for change to revolutionize the closing process.
A growing number of companies have built products that digitize the paperwork and offer more seamless document management and communications related to real estate transactions. Companies also are providing consumers with the opportunity to view and review real estate documents online throughout the transaction. But a truly paperless real estate transaction, one in which there is never a need to print out a thick clump of files, is still on the horizon.
After an initial surge in interest and budgets for the development of transaction management systems during the dot-com boom, several major efforts failed or were abandoned. A handful of the ventures survived the fallout. The potential rewards for such “paperless” systems are great: increase automation and efficiency while electronically integrating various office functions; streamline communication and expedite orders for transaction-related services; and keep consumers posted on the progress of their real estate transaction at every step.
Clareity Consulting and Communications, a company that provides services to the real estate information and MLS industries, estimated in a report last year that about $150 million was invested early-on in transaction management systems.
“Many of the companies have closed, some sold their assets for pennies on the dollar, several of the technologies were killed off or shelved by the acquirer, and a few survived under new ownership,” the report states. Some reasons for the widespread failure: Consumer demand was overestimated, the early systems lacked robust features, many platforms were not open to all vendors, and a “viable, sustainable business model was never proven,” the report states.
The surviving technologies have developed into more robust systems, and a new wave of innovation seeks to evolve these systems and the industry they serve.
Online Documents, a part of Stewart Information Services Corp. and Stewart Title and a provider of mortgage documents, is working with Fannie Mae and other key players in the mortgage industry to develop a next-generation electronic document standard called eMortgageDocs, a type of “smart” document that features automatic validation of data in mortgage documents.
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“Boiling it down to its simplest form, it can be read by a computer as well as a person, and that enables automation of the process,” said Terry Ward, vice president of corporate development for Online Documents. While professionals currently must print out or view documents electronically to verify mortgage data and validate the documents, eMortgageDocs can be scanned by computers to automatically verify important information, such as mortgage rates and property addresses.
Also under development is a method for electronically signing mortgage documents using an electronic pad that registers the signature via a stylus. Similar systems are already in use among some package-delivery companies and retail shops.
While a truly paperless process may be several years away, Ward said “great strides are being made.” Eventually, consumers may be able to apply digital signatures to loan and other documents without the need for a physical signature on paper, he said. There is also a need to develop an electronic “vault” to safeguard important e-documents. Already, the industry has developed standards for the use of electronic documents, Ward added, and the company’s technology is designed to be compliant with these standards.
The average residential real estate transaction has about 85-100 pages of documents, Ward said. Electronic documents can empower consumers, he said. “It gives the borrower the opportunity to go home the night before closing, open up their (Web) browser and review the documents,” he said. These technologies also offer the opportunity to speed up the closing process, and to rapidly lock in a mortgage interest rate.”
Smart documents technology is “just in the very earliest stages,” he said, but it has potential to touch a number of industries. “We have provided the vehicle or the instrument of change. It really postures the industry to now be able to create the infrastructure that’s going to make this work.”
Meanwhile, title insurance giant First American offers one of the most mature transaction management platforms on the market, which was launched in 1999 and acquired by First American Residential Group in 2001. Kelly Pantis, vice president of marketing for First American Residential Group, said flexibility is key for transaction management technologies. First American offers transaction management and electronic document technologies for the title, escrow, mortgage and real estate brokerage and MLS sectors, and “each segment feels like it was built from them and around them,” Pantis said. “It’s all very configurable.”
Pantis said that modern transaction management systems have integrated more and more technologies, so that the very nature of transaction management platforms may become obsolete once all of the various electronic systems become seamless. “The more systems we can connect with then the less anybody actually uses the system,” she said.
Chip McAvoy, senior technology officer for First American Residential Group, said there are about 50,000 registered users for First American’s transaction management systems, which are available as a Web-based application. The platforms that are facilitating these transactions are becoming more and more robust and feature-rich,” McAvoy said.
Pantis said that among the users of the electronic systems are consumers. The system “makes the consumer feel far more empowered and a little less stressful. It’s a huge customer service win,” she said. The systems also allow real estate brokerages to keep in touch with consumers even after closing. “It’s a great way to keep that ‘customer for life’ idea.”
McAvoy acknowledged that the adoption curve of transaction management systems has been slower than the industry anticipated, though he said many advances have been made and the technology is still evolving.
A top paperless transaction management platform for the real estate, closing and mortgage industries is SureClose, which offers online document management and a CD-ROM with the documents upon closing. SureClose, launched about three years ago, now accepts about 25,000 documents per day, and has an archive with about 5 million documents, said Mark Cira, vice president for product development at Stewart Realty Solutions, a subsidiary of Stewart Title Co. That number grows by about 500,000 documents a month, he added, and about 670 offices are using the SureClose platform.
“Adoption is greatest in the title industry simply because they’re more process-oriented,” Cira said. “Our customers are very far down the path of migrating toward paperless workflow.”
SureClose uses bar-coding technology for document submission and automated filing, and users of the system can transmit multiple documents as a single electronic file. Cira said that Stewart Realty Solutions has a large market share in paperless transaction systems. “Where we are today is that consumers can electronically sign everything except for documents that require notarization,” Cira said.
Consumers still have to physically visit the title office at the time of closing, but instead of signing “30 documents in 100 locations they are signing once and then clicking many times,” he said. “It just speeds the process quite a bit.”
The process “benefits (consumers) in the same way Expedia or Travelocity benefits them. In as little as two years it will be unheard of not to provide them with a real-time view of transactions. There is less stress involved because they’re more informed throughout the process,” Cira said. Now that SureClose is a mature system, the focus has shifted to integrating with other systems, he said.
Ike Broaddus, chairman and co-founder of Guru Networks, a real estate technology company, said that modern transaction management systems tend to encompass more functions than earlier systems. In addition to document management, Guru’s transaction management systems can also handle virtual office Web sites, lead management, document management, commission calculation, and report generation functions. “What people thought of as transaction management five years ago is today a tiny part of a major transaction management system. The language we use in our company: We call it the ‘business engine,’ “Broaddus said.
The transaction management industry is still relatively small, he said, for a lot of reasons. “Nobody has traction in the transaction management space yet. If you added us altogether, we are in less than 10 percent of the (total) market,” he said.
So far there are not a lot of success stories among real estate companies that have attempted to craft their own systems for digitizing the transaction process, he said. “I don’t know of any mega-company that has successfully built their own in-house system. Many have spent millions trying. Most companies don’t have the patience. To build a highly customized software program it takes dozens and dozens of iterations and feedback.
“I think the real estate industry has had a very hard time learning that as compared with other industries. (The industry is) light-years behind because we’ve always been able to get by on our charm, and we’ve been lucky — the market’s been good,” he said.
The technology is already there to create a fully electronic, paperless real estate transaction, Broaddus said, but it will take a major consortium of industry players, such as the National Association of Realtors or the Mortgage Bankers Association, before this technology will be set in motion. “We are still in the infancy of data standards.”
Tomorrow: Learn how one real estate broker stripped the paper and wires from his day-to-day business.
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