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CEO’s Message: How Will the eClosing Impact the Brokerage Sector?

Jim Harrison: MLSListings Inc CEO and President

Jim Harrison
President and CEO, MLSListings

Over the past 18 months, changes, transitions, new trends, and, yes, that hated word, disruptions, have been introduced into the real estate marketplace on an almost monthly basis.

New technologies, revolutionary advances in data and information provision, emerging brokerage business models, expanding consumer influence, and alternative selling and buying options are but a few of the significant new trends and forces that have found their way into the real estate marketplace.

Interestingly enough, none of these factors had a total game-changing impact yet. Accordingly, the mainstream real estate industry has, for the most part, generally either ignored or denied these changes. “Business as usual” continues to be the rule of the day.

So, it should come as no surprise that the growing eClosing movement has, likewise, been generally ignored by industry thought leaders and decision-makers.

The eClosing movement has actually been around for several years. In fact, the condition that gave birth to the movement has been around for decades. This non-game changing factor is the nightmare of the industry-sponsored traditional real estate transaction.

Few buyers or sellers, even among the most sophisticated of consumers, recall their last real estate transaction with anything less than disgust, annoyance, and in some cases, horror. During their transaction experience, that commonly lasts for several weeks, consumers have routinely been subjected to a long series of procedures, many that approach psychological harassment and torture. Without a mind-numbing review of the gruesome details of this invasive system, it is sufficient to say that most in the industry have always supported the transaction process by suggesting that it was nothing more than the pain and suffering that one must endure in order to take part in the American dream.

Another of the many changes that have occurred within the industry over the past few years is a dramatic increase in the amount and level of research that the industry has conducted regarding consumer attitudes and responses regarding real estate. While this research has disclosed several realities, none has been more of an eye-opener than the discovery that significant numbers of consumers are either avoiding or delaying entering the market or matching their real estate assets to their current lifestyles. A leading reason for consumers electing this “let’s not play” attitude is the intimidating real estate transaction.

Earlier this year, from virtually nowhere, the iBuyer trend emerged. Beginning with three pioneers, Opendoor, OfferPad, and Knock, the movement quickly moved to take a significant position in the marketplace. While actual volume of sales has yet to be a significant factor, the sheer number of firms participating has become most impressive. By late Spring, both the Zillow Group and Redfin had joined the movement. Since then another five or six firms have found Wall Street investors willing to underwrite what promises to be a very meaningful buying and selling option.

What is the attraction here and what does this have to do with the eClosing?

One of the most significant benefits offered by iBuyer programs is speed. It turns out that the research discussed above has established that many consumers are willing to pay a monetary premium to avoid the traditional agent drive transactional experience. New entities are rushing to fulfill this consumer expectation and/or demand.

The eClosing experience has been under discussion within title and mortgage industry circles for several years. Among several other concepts taunted by eClosing advocates is that the duration of a real estate transaction should be measured in days rather than months.

Here again, the benefits of such an event are, for all involved, financial, legal, and relationship-based. In the words of one title industry leader, “More progress has been made on this issue in the past six months than over the past six years.” Behind the scenes, real progress is being made with respect to the eClosing becoming a reality. Unfortunately, these discussions do not include representatives from the brokerage and/or agent sectors.

For the purposes of this analysis, one must equate the relationship between the industry and the transaction to the relationship between a railroad and its track gauge. As railways developed and expanded in the United States, one of the key issues was the track gauge (the distance, or width, between the inner sides of the rails) to be used. The result was the adoption throughout a large part of the world of a “standard gauge” of 1435 mm (4 ft 8½ in), allowing inter-connectivity and inter-operability.

If, under consumer pressure, of course, the title and mortgage industries are successful in changing real estate transaction processes (the gauge) from the traditional model (around 45 days) to, say a 15-day duration to closing, such would require a complete set of new procedures and processes.

Remember, everything in real estate is tuned and tied to closing the deal, passing the title, and distributing the proceeds, including the commission. The power that comes with whoever gets to control this “gauge changing” process will be immense. With procedural changes will also come the financial benefits and raw power of being in charge of the new gauge (transaction). A new transactional gauge will necessarily require new standards and best practices for all matters that lead up to the closing. Whatever entity controls this process will almost immediately become a central authority in the industry.

It is quite likely that such a central authority will affect matters in a manner that will positively impact its own financial standing.

At the onset of a NAR annual meeting that will likely be focused largely on inter-family issues, the brokerage and agent sectors would do well to take notice of what is happening relative to the transaction design process.

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