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Three Strategies for a Simple, Stress-Free, Affordable Home Transaction Process

This event took place before the COVID-19 pandemic.

For any homebuyer, there’s the known costs of the deal. Typically, those are the price of the house and the cost of the mortgage to make it yours. But less well-known are the costs of the deal itself: The embedded fees and other charges that make the transaction more significant and a maddeningly complex cost center for homebuyers.

“The average cost of a home transaction is 10.5% across the nation, which is insane,” said Chief Revenue Officer Tyler Baldwin of Reali, a tech-enabled real estate platform streamlining the process for home buyers and sellers. “Name any other industry where you’re charging 10.5% just to execute that transaction.”

With an average of nine different service providers needed to complete a single real estate transaction — everything from title companies and real estate agents to appraisers and notaries — the process can be cumbersome, fragmented, and expensive. Home buying and selling can ultimately become a major hassle at closing, often producing sticker shock for consumers.

Enter a small but growing industry of startups to wring the costs and complexity out of this process. Leaders from three of these pioneering companies spoke at the InnovateHousing conference hosted by the Washington Center for Real Estate Research and Fannie Mae. Each agreed that applying emerging technologies to the home transaction process can make it less expensive, simpler, and less stressful, while lowering the barriers to entry to make housing more accessible and affordable.

Below are their approaches to tackling the issues.

  1. Provide an end-to-end transaction platform.
    Some technologies and approaches to the customer journey that have become common in other industries haven’t yet found a footing in real estate. A tech-enabled real estate brokerage based in the Bay Area, Reali is part of a new wave of property technology companies developing online platforms that support customers through the entire homebuying process.“What we’re trying to do is disrupt the existing model by putting the consumer first,” explained Reali’s Tyler Baldwin. But it’s not just technology that he believes will cause that disruption. “It’s a business model,” Baldwin continued. “It’s a financial engineering disruption. By enabling a more efficient process, we can then give those savings to the customer.”
  2. Change the way people buy homes.
    Consumers have been locked into one way of buying homes for many years — typically at specified locations, times, and even languages. New transaction models are changing that.“When traditionally you have the title company, the mortgage broker, [and] the real estate broker on Main Street putting together a transaction, you’re operating on a very small scale, and so you’re limited in the expertise and the options you can offer people,” said Quinn Hawkins, head of RedFin’s iBuying business, RedfinNow.Transaction companies known as iBuyers — the “i” stands for “instant” — provide home sellers an instant (24 to 48 hours) offer on a home. Using automated valuation models (AVM), iBuyers enable individuals to sell their homes without involving an agent or having home viewings.With today’s fast-paced lifestyles, many people are looking for convenience and speed. For a flat fee, RedfinNow provides homeowners with an all-cash offer. Homeowners in turn are able to choose their move-out and closing dates without the marketing costs and hassles (think advertising and open houses) that go into selling a home the traditional way.
  3. Eliminate the paper work.
    Closing on a real estate transaction remains largely paper-based and time-intensive. Companies like Spruce are developing fully digital title and escrow processes to create the kinds of simple, stress-free experiences consumers want.But progress toward that goal has been slow, in part because of the fear of disruption among the industries that provide transaction-related services.“There’s so much low hanging fruit in this industry that I would say the biggest barrier to giving consumers more access to better services [and] better deals is entrenched interests,” said Spruce CEO and Co-founder Patrick Burns. Spruce provides digitized and streamlined title and closing services.“People are making a lot of money in real estate,” he added. “In these superheated markets where things are very competitive, you have gatekeepers that can essentially force buyers into their specific type of transaction, provided the demand continues to outstrip supply.”

Disclaimer: The views and opinions expressed in this article are those of the panelists and do not necessarily reflect the official policy or position of Fannie Mae.