Real Estate Transactions Close The Deal On The Digital Shift

The real estate market is all about the seasonal cycle. Homeowners start preparing for sale early in the year and start listing in the early spring, followed by a buying bulge throughout the late spring and summer. It slows down in the fall and basically freezes up for the holidays.

But 2020 wasn’t a normal year for real estate.

The market mostly froze up in the first half the year as uncertainty dominated and then roared back to life in the second half of the year as consumers reconsidered ideas about the importance of home and hearth.

That dramatic shift in cycle has left the industry in a bit of a lull today partially due to what HomeLight CEO Drew Uher referred to as “real estate fatigue.” In a conversation with Karen Webster, Uher said there’s a genuine lack of housing supply in the market. There are plenty of people looking to buy, but far fewer people ready to pull the trigger on selling. The current lull, however, is likely to be short lived, a fact confirmed by Uher and by forecasts like Zillow’s that predict the market will grow by another 21 percent in 2021.

We can expect to see a “a lot of loosening up in the summer,” Uher said.

HomeLight connects home buyers to real estate agents in their local area by using a proprietary algorithm that matches the client’s needs to the agent’s expertise. When Uher talks about the market loosening up, he said he knows it will be a different, more digitized one than what came before it. Technological tools are cropping up to change how housing deals are financed, negotiated, titled and transacted end-to-end as consumers’ wants and needs are adjusting to a new reality. PropTech (property technology firms) is rising to make the entire industry more efficient, accessible and navigable for all parties with one goal in mind: “to turn the real estate market on its head.”

“People are seeing the possibility for something like the Amazon effect here,” Uher said. “If you look back in the late ‘90s, early 2000s, before 2005, Amazon had these crazy multiples and was losing money and had these tiny margins. But if you look at the size of the industries and the percentage of the industries that they had actually disrupted and the trajectory, you can draw a straight line to massive business potential they were actually tracking after. People are doing that now in real estate.”

Creating The Friction-Free Real Estate Environment

And the industry, in less than a decade, will be highly transformed. When discussing digitizing the real estate environment, Uher said people can get the incorrect impression that consumers will buy new homes sight unseen entirely online. That day probably isn’t coming. Home buying is a big experience emotionally and financially speaking and even when Uher bought a new home last year, he said he wasn’t signing on the dotted line until he had physically seen it.

But by working with one of the 30,000 or so agents that work with HomeLight nationwide on his own house, Uher got an experience in which digitization had simply removed or ironed out a lot of the friction points that bedevil traditional real estate processes, making them take longer and cost the participants more than they should.

What the pandemic accelerated and made possible was the regulation and mindset necessary for starting to change a lot of the infrastructure around the transaction, he said. From digital walk-through, to virtual notarization, to escrow, to financing, to putting in the offer, digitization has knocked down a lot of the historical friction points known for making real estate transactions drag on. Moreover, it has created a bigger market for products HomeLight offers, like Cash Offers or Trade-In, that, via its partner real estate agents, allow consumers more freedom and a better leg up in a real estate negotiation.

Cash Offers, he said, simply moves the financing up so that instead of making an offer contingent on financing finishing, the potential buyer is putting in a cash offer because the financing is done, and the funds are available. Trade-In eliminates that other killer contingency that slows so many transactions and pushes so many buyers out of convention: selling off their old home before they can officially sign on their new one.

These are both services that have costs to the customer and extract a point-and-a-half of interest in the transaction, he said. But it’s a cost that is both more convenient and, frankly, actually money saving than the alternative.

“If you are forced to accept an offer on your home because you have to sell, or if you’re forced to go buy a home that might not be quite right, that puts you in a place that results in a much larger difference of outcome versus an extra point or two of fees,” Uher said. “People would much rather pay HomeLight one-and-a-half percent to eliminate the friction so they can really push hard in that negotiation. And that could save me 10 percent on the new home.”

The Quickly Coming Change

Home buying as an industry was ripe for disruption, he said. It hadn’t changed very much in the last 100 years or so. And engrained and interconnected systems like real estate are hard to change. Something simple like remote online notarization (RON), which is nearly universally preferred by consumers for all the time it saves and paper it eliminates, takes an incredible amount of buy-in. The customer has to find an escrow company that accepts it, make sure their lender accepts it, and ensure that the lender who is eventually going to sell their loan accepts it as well. Without buy-in from that whole chain, RON can’t get off the ground.

What the pandemic did was create the space to make changes, he said. Tightly regulated jurisdictions like California loosened requirements that necessitated physicality where it wasn’t really necessary. Those changes could become.

Moreover, PropTech firms need to grow and scale, he said. In HomeLight’s case that means making increasingly popular products like Cash Buy and Trade-In more widely available. Today, only about 150 agents on the 30,000-agent platform are authorized to offer those two products. Unsurprisingly those 150 are now the most productive agents on the platform. The next step is to expand out to all 30,000.

“In the last 15 years, we’ve seen a lot of innovation in real estate around the ability to find a home,” Uher said. “And now we’re seeing all this innovation around the way in which we buy and sell the home and how the transactions connect. I think 10 years from now, it is going to be a faux pau, or it’s going to be uncommon and concerning, if you receive an offer with a finance or sales contingency.”