As recently as 30 days ago, the idea of transacting real estate 100% online would cause dismissive laughs, at best, from most real estate professionals. Perceptions are quickly being changed by a shocking dose of a new reality. Transacting real estate in a post-Covid-19 world will require different, unique skills… the ability to be highly adaptable. History says this will be problematic for many current practitioners who are either dismissively unwilling or ill-equipped to adapt fast enough to account for such a fluidly changing landscape.
A Brief History
Adapting to change in the real estate industry has historically had to come in the form of unprecedented events. In the midst of the housing crisis of 2007-2009, the Department of Justice settled its antitrust lawsuit with the National Association of Realtors which was the impetus for unlocking valuable housing data including the ubiquitous availability of property listings online. Innovations born from these events such as Automated Valuation Models (AVM’s), pioneered by Zillow Groups Zestimate, once damned by the industry are now table stakes for real estate professionals competing for today’s consumers.
These events fundamentally changed the value of a real estate professional from the gatekeeper of property information to advisor/negotiator and logistics coordinator. It also rewarded those who figured out how to increase business efficiencies at scale. Cooperative, departmentalized business models (often called real estate teams) emerged and adapted to the new landscape by being nimble and open to doing things differently. They leveraged the digitization and automation of many traditional functions around lead generation and database marketing, document management to deliver relevant information, significantly improving the consumer experience along the way.
Unprecedented Times, Unprecedented Actions
A similar but different historic event is currently upon us with the Covid-19 pandemic which will fundamentally change how the industry works, again. Some level of physical distancing and certain other safety measures will likely persist for well more than a year as many epidemiologists predict Covid-19 infections will continue in smaller waves until a combination of antibody treatment and a vaccine is available to at least those most at risk. This is causing real-time dynamic change to how real estate needs to be marketed and transacted.
Open houses, appraisals, inspections, and notarizations and are just a few of the critical services required to complete a real estate transaction. They have all been rife with inefficiencies that have been kicked down the road over the past ten or so years partly in an attempt to preserve the status quo who may not benefit from a change and out of plain complacency. Today, not solving for these problems is untenable as the various orders around social/physical distancing are brute-forcing what will feel like transformative changes across these key services, bringing the industry to the doorstep of a truly digital real estate transaction and shoving it through.
Experiential technology, specifically virtual and augmented reality (VR/AR) is not new to real estate, virtual tours and the like have been on the market for quite a few years. However, the broader application of this class of technology is fueling this rapidly evolving landscape. (Note: I began to write this article on March 14th, three weeks ago before getting pulled into more pressing work. Within those two weeks, there have already been substantial changes across the aforementioned services which I’ll cite accordingly).
Prior to Covid-19, most consumers had little interest in meeting a real estate agent at a house to unlock a door and have them point out they’re in the kitchen or other obvious facts that can be read from one’s smartphone. Today, open houses are currently either restricted or restrictive in many states under stay at home orders. Providing more convenient ways for consumers to immersively experience homes is a key marketing requirement during these times and going forward.
- VR apps and hardware like Matterport that provide a full 3D model of a home to ‘walk through’ via the comfort of your couch complete with information about room dimensions, amenities, and building materials are readily available. And, you no longer have to buy their $3500 camera as far less expensive options are available. iStaging supports real-time guidance using AR, allowing agents to walk customers through properties live and completely remote via their smartphone.
- Add a smart lock like August to let prospective homebuyers access a listing remotely by assigning them temporarily PIN’s. Know when they enter and when they leave.
- Set and program an Alexa powered device (using an internal skill called Houseguest) to answer more nuanced questions about the home.
If you’re not providing basic virtual walkthroughs with an accurate floor plan as a minimum in this environment and going forward, the consumer will look for and find those that do adapt. This level of experiential marketing technology will become table stakes for every agent, just like ordering photos.
The gross inefficiency of having to wait 10 days to 2 weeks to physically inspect a property that may or may not validate what a buyer is willing to pay for a home and paying $500 or so for the privilege was already in the crosshairs of innovation born out of necessity. Before Covid-19, lending institutions and investors were increasingly receptive to appraiser assisted AVM’s and other methods in place of full physical appraisals.
On March 23rd the FHFA instructed Fannie Mae and Freddie Mac to adopt alternative home appraisal methods and employment verification through May 17th. Although the FHFA does not specify which appraisal alternative methods qualify as such, a Forbes article that quotes the highly insightful and reliable Jonathan Miller who expects the FHFA to allow for a combination of methods to complete an appraisal without having to physically enter a property, including appraiser assisted AVM’s, or remote ‘desktop appraisals’, as well as curbside appraisals where the homeowner walks the appraiser through the home via a secure video application (similar to what has enabled the world of telemedicine). So, anyone with a smart device may walk through a home with the guidance of an appraiser and precisely measure every room while recording high definition video/photos for subjective assessments. An inconvenient process for consumers, agents, and lenders that took weeks may now take days.
The FHFA’s directive is set through May 17th (which will almost certainly get extended), though I don’t know how you put all that completely back in the bottle. Once desirable innovation happens it tends to stick.
Inspections are in a similar position as appraisals regarding technology required to adapt to this landscape of physical distancing. Not so coincidentally I received an email from a fintech company called Land Gorilla whose AR driven home inspection products primarily use is for construction loan management, though it appears they’ve quickly leveraged their products economy of scope to offer remote inspections to address the needs of the current residential sales landscape. From their site:
This mission-critical solution allows businesses to order Remote Inspections and receive a completed inspection report within hours of the scheduled inspection time. No physical visit to the property is required.
Now that’s being adaptable. What took 7-10 days as recently as two weeks ago may now be completed within hours of the homeowner walking an inspector through the property using their smart device and Land Gorilla’s product. The biggest most well-tenured, well-capitalized home inspection companies do not stand a chance against the pending rush of similar competitors unless they pivot, now.
Remote Online Notarization (RON) services are the lynchpin to all digital real estate closings. The service is what it sounds like- using secure online video technologies a licensed notary remotely validates if someone is who they say they are and are of sound mind. They were only legal in 14 states as of January 2020. If you were in any of the remaining 36 states, a notary had to physically be in the room with a signor to validate their identity and state of mind. That’s currently a non-starter.
States have been slow to approve RON services as members of the National Notary Association lobby against such in favor of their status quo who are technologically incapable or unwilling to compete in a landscape that allows for RON, claiming such innovation would reduce their ability to maintain their fees as competition increased while their expenses remained the same. That’s not a ‘we’ problem, that’s a ‘you’ problem.
Early entrants into the RON space like Notarize and NotaryCam (who work with and through existing notaries!) have been waiting patiently anxiously for states to pass the applicable laws to validate their services. A brief history:
- 2012- Virginia is the first state to pass RON services into law
- 2017- Five states had passed laws allowing RON services
- January 30, 2020- 14 states were on board
- March 18, 2020- Senate Bill 3533, titled the “Securing and Enabling Commerce Using Remote and Electronic (SECURE) Notarization Act of 2020,” was introduced to permit “immediate nationwide use” of RON services. American Land Title Association, Mortgage Bankers Association, and the National Association of Realtors all backed the bill, though it’s unclear when it will be voted on for passage.
- March 30, 2020- 33 states now allow for RON services, (some via emergency short-term measures) with more announcing similar permissions by the day.
It took 8 years to get from 1 to 14 states to pass RON laws. It took 60 days to get from 14 to 33.
Again, I don’t see how you put these temporary measures fully back in the bottle especially with the pending Senate Bill. RON services are quickly becoming the standard, existing notaries had best adapt or find another income stream.
Unpacking all of this
Covid-19 and physical distancing have made isolated open houses, remote appraisals, inspections, and digital closings essential activities to transacting real estate. These (and other) long-needed capabilities will reappropriate the value of a real estate professional and the industry in unprecedented ways. From a news article out of Columbia, SC. (Emphasis mine)
“In light of social distancing, the process of buying or selling can now be done without nearly any contact. For the first time, Coldwell Banker is beginning to process contracts from what are known as sight unseen transactions.
“They’ve seen video, maybe FaceTime, Skype, things where somebody is in the house videoing for them. All the paperwork that comes along with buying or selling a home, we can do all that through our virtual platforms,” said Conley. “So, we don’t even really have to touch paper and we don’t have to sit in front of people at the kitchen table as we have in the past, and I really think it will change real estate for the long run, all the way around.”wistv.com/2020/04/01/coldwell-banker-historic-lows-listings-make-this-is-good-time-sell-your-home
A good friend who owns a data analytics company that services both residential real estate and institutional buyers presciently opined that consumers want to know the answer to two fundamental questions: “What’s my (the) home worth?” and “How’s the market?”… the rest is logistics. As mentioned at the top of this article, the last downturn enabled anyone to quickly get solid answers to both of those questions via readily available resources. Yes, there are fringe cases, I’m focusing on the supermajority. So that leaves logistics.
Consumer confidence in a number of facets must return before the industry sees them return to the market in numbers of consequence. The logistics required to support the ability to move around the critical aspects of the transaction in a safe and efficient manner is of paramount importance because you simply can not transact without such. Per the above, these new landscape requirements are being rapidly built and deployed right in front of our eyes. When the dust settles and markets begin transacting in line with historical norms, whenever that is, the industry is not going to go back to legacy processes and logistics.
iBuyers began to address these inefficiencies by transacting outside of the traditional real estate industry marketplace which allowed them to.
- Eliminate the need to market a home while someone else is living there
- Equip homes with smart devices to allow remote access and immersive digital tours
- Closing quickly, with certainty, and without having to be physically present
Consumers voted with their checkbooks and said they’ll pay (a lot) for the convenience, if at all possible. I expect iBuyers (i.e. OpenDoor, Zillow) and other ‘iFunding’ models to pounce on all of the above, tightly integrating the ability to order remote appraisals, inspections, and virtual closings into their core back end platforms (CRM, transaction management, doc management, and back-office) as well as consumer-facing technology, further improving their customer experience. Before anyone dismisses iBuyers and their likes because they paused buying, understand that buying and selling property has paused en masse.
Many real estate businesses, from brick and mortar brokerages to the sub-community of technology providers, will fold or get rolled up… consolidation is coming. New entrants who recognize the opportunity and the adaptable incumbents… not necessarily the strongest or the biggest… will be on the other side of all this to gobble up market share. Will you?
Questions for Real Estate Professionals
- What are you doing to pivot critical aspects of your core business offerings to account for a digital real estate landscape, right now? Cleaning up your database, tightening up legacy marketing and messaging, reminding clients that you’re ready when they’re ready, catching up on CE credits… is more motion than action.
- Have you assessed your ‘tech stack’…taking an accounting of every application, system, platform, product, service etc. paid and unpaid that you currently use? Which are truly core to your business going forward? Which are on the wrong side of the cost to value ratio? What are you going to cut, replace, and/or add? Focusing on technology that consumers need vs what agents want is the type of critical thinking required to adapt.
- As the logistics of transacting real estate evolve to ‘push the button’ simple for the consumer, coupled with their ability to confidently answer “How’s the market?” and “What’s my home worth?”, what is the value of your real estate services and how much do you charge for that?
- How many and what type of people will it take to run a lean, efficient real estate business going forward?
- How are you positioning to work with new transaction models to best serve potential clients, i.e. iBuyer, iFunder, iRenter?
Tough, complicated, yet vital questions to answer if you seek to be adaptable and pull through these times. It’s not the end of the world, but it is the end of the world as we know it.