Editor’s note: Innovative technology can help simplify the home-buying process, eliminating unnecessary paper and making the transaction less cumbersome and easier for everyone involved. In this three-part series, we spotlight progress in the trek towards a paperless real estate transaction, and talk to early adopters, technology developers and standards gurus about how far we’ve come and how far we still have to go. (Read Part 1, “Case studies of paperless success.”)
Real estate technologists are working to digitize and automate bits and pieces of the process associated with real estate transactions, though the fully electronic real estate transaction remains an elusive target – but not for lack of innovation.
Industry participants say the technology is ready to make paperless real estate transactions a reality, and the only barriers to this revolution are integration, adoption and regulation. As is often the case in technology development, the solution is far ahead of its implementation.
“The obstacles to building the technologies do not exist. The only real obstacles are habits and laws. People are used to doing real estate business in a certain way – signing on a physical piece of paper,” said Martin Scrocchi, CEO of CDM Inc.
“But consumers are used to doing things electronically in many other areas of their lives so that will not be a long-term obstacle. The only other thing that stands in our way is for the remaining states to finalize their interpretation of the federal (electronic signature) laws so there is no question of legality in any part of the country,” he added.
CDM products include a real estate transaction management system, electronic real estate forms and digital signature capability. The company recently launched its AuthentiSign Service, which is a U.S. Postal Service-backed digital signature tool that works in conjunction with the company’s PDF-based electronic forms. “AuthentiSign allows consumers to sign forms without even having to print them,” Scrocchi said. “They can do so from virtually any Web-connected PC in the world without the need for a printer or fax machine.
The company’s other products include TransactionDesk and InstanetForms, which are used by real estate agents and their support teams. There are about 230,000 registered users for the company’s InstanetForms system.
“Electronic forms software is well established, but in order for the transaction to become truly paperless the digital signatures must take hold. That will take some time,” Scrocchi said, adding that it could take another 18-24 months for the industry to fully embrace digital signatures. “We’re just waiting for the market to catch up.”
The market is definitely moving faster than regulators to implement paperless products supporting real estate transactions, said Ron Frazier, president of Lender’s Service, a division of Fidelity National Financial, that offers property valuation and settlement services.
“I wouldn’t say that we’re spending a lot of time looking for (regulators’) blessing,” Frazier said. LSI has developed technology to fix known flaws in the transaction process, and that has been an easy sell to some of its clients, he said.
LSI in July announced that it has concluded a testing period for Closing Stream, a Web-based closing system for mortgage refinance and home equity lending transactions.
Closing Stream allows borrowers to participate in an online settlement process, talking on the telephone to a live professional as they are guided through the process visually on the Web. Couples can join the process from separate locations that have Internet access, and participating consumers agree to give LSI power of attorney to execute loan documents on their behalf. Consumers also can participate in a videoconference with LSI professionals. The whole process is recorded to protect the interests of all of the parties.
The automated closing process can save time and money for lenders, Frazier said, and it eliminates some of the potential for human error that has been inherent in the traditional system. So far, about eight companies have signed up to use ClosingStream.
Managing a national notary service can be “ripe for human failure,” Frazier said, because of the potential for lost paperwork and mistakes in paperwork associated with settlement documents. “We were faced with trying to come up with a creative solution that met clients’ needs,” he said. “We were tired of all the paper, we were tired of all the transmission of paper, of paperwork not being (transmitted properly) — why a specific document was either lost or wasn’t signed correctly.”
The traditional process of delivering, signing and transmitting loan documents can take three to four days, Frazier said, and “about 15 percent of those packages when they come back aren’t executed properly,” which necessitates more mailings or visits.
With Closing Stream, lenders who use the system receive a compact disc with a copy of files related to the online closing process.
Fidelity also offers TransactionPoint Suite, a Web-based real estate transaction management platform and ordering system. Scott Hoen, executive vice president and group manager for Fidelity National Real Estate Solutions, and Walt Clark, senior vice president for transaction management solutions at Fidelity, said that the company is developing an alert system for real estate agents and consumers to notify them about key stages in a real estate transaction. Agents, for example, could elect to receive a telephone message when a real estate transaction has closed.
Hoen said that there is also an ongoing effort to “integrate on an open-architecture basis so we can work with anybody,” and to eliminate the need for agents to re-enter information multiple times at various stages of the real estate transaction.
Hurricane disasters this year have highlighted the need to protect real estate documents, Hoen and Clark also noted, and real estate brokers and consumers seem to understand the benefits of digital documents and document storage.
Hoen said, “All of us are guilty of making the transaction management process complicated. I think we are learning that if we keep it simple, and make it easily accessible by agents…if we minimize the amount of keystrokes an agent has to go through I think it will get higher adoption. The hard part is going to be: Does one transaction management platform survive or do all of them?”
Fidelity has worked to support the Real Estate Transaction Standard, which was launched in March 1999 and supported by the National Association of Realtors as a standard in real estate information systems, and the company has one of the highest adoption rates in the industry for its products, Hoen said. Integration is key in driving up adoption for paperless technologies, Clark added.
First American Residential Group, another major player in developing paperless transaction technologies, noted a trend in integrating data from various parts of the real estate transaction process. The company’s Transaction Manager product has about 100,000 registered users, mostly brokers and agents. In some cases, the product has been adopted MLS-wide for use among MLS members.
The product, first released in 1999, can integrate data from multiple sources, including electronic real estate forms, MLSs and public records.
“Technology will move toward more integration with the tools already being used by real estate professionals and the settlement vendors serving them,” said a First American spokesperson. “A standalone document management or transaction management system will not be acceptable to brokers and agents. The technology will be expected to pull transaction data in from multiple brands of available sources (MLS and public record data as well as forms data) and export out to product ordering systems and broker back-office applications.”
While some regions are already implementing transaction management systems to foster a more paperless real estate transaction, other markets may lack such systems or are using incompatible systems. “If two large brokers in one market each adopt different transaction management systems which do not interface with each other, that could slow adoption … because of hurdles created between cooperating agents unable to communicate with each other,” the spokesperson said.
Piecemeal efforts will likely continue to drive the paperless movement, while “critical mass” in industry-wide adoption is likely several years away, said Terry Ward, vice president of corporate development for Online Documents, a company that offers eMortgageDocs to support a paperless mortgage process. Online Documents also has developed Web-based eHud to assure any changes made by a closing agent are reflected in final loan documents, and Click-to-Accept, which provides for paperless delivery of initial disclosures to applicants.
For lender-centric paperless products, Ward said the cost savings and time savings will likely drive the adoption curve. “There are benefits to the consumer in terms of faster, more reliable processes, but acceptance will be primarily driven in the short-term by perceived savings of time and money and avoidance of risks by lenders,” he said.
Acceptance by county recorders’ offices, and inadequate quality-control systems are among the barriers to more widespread adoption of paperless lending solutions, he also said.
“We are still a long way from universal adoption. In the interim, players are developing, evolving and linking up to provide cost-effective pieces of paperless technology that make immediate sense. These will eventually link up into more comprehensive processes, but today they are standalone (like a cafeteria plan).”
David Whatley, chief operating officer for AutoRealty Products, said the mortgage industry will be the driving force in the paperless push. They’re the ones that benefit the greatest and carry the biggest stick. It will trickle down to the real estate agents after they see it work at closing,” Whatley said. The company provides electronic forms, transaction management and electronic signature tools for real estate agents.
AutoRealty’s most popular product allows agents to grab data from a multiple listing service and import it directly into a real estate contract. Some agents are still using pen and ink to complete real estate contracts, Whatley said, though electronic processes will undoubtedly catch on as computer-literate agents join the profession.
AutoRealty has typically been ahead of the demand for paperless transaction tools, Whatley added. “We have a bad habit of introducing technology before the customer is ready.” The company introduced a technology in 2003, for example, that can attach digital signatures to real estate documents via a Palm PDA stylus.
While various companies have made claims about fully digitizing the real estate transaction, Whatley said aspects of the process may be paperless but not the entire process. “No one has done it yet – no one has done an electronic transaction, start to finish,” he said. But it may just be a matter of bringing the right players to the table to finally realize a fully paperless transaction, he said.
And he is optimistic about achieving this goal. “There is a lot of progress. There are a lot of major players that have hooked up together, and you will definitely see a lot of that happening by Jan. 1.
“Real estate agents are typically not the first to embrace technology and they’ve made great strides in 10 years” since the launch of the Web, he said. “In the next five (years) it’ll be real interesting.”
Ike Broaddus, CEO of GURUnet, agreed that real estate agents are typically slow to accept new technology, and “the paperless transaction has been no exception.” The company launched its fourth-generation platform last year, which features transaction management, lead management, back-office and online listings tools.
“The technology is all there. It is simply a matter of implementation, and there is a lot to digest. Brokers have to keep running their businesses while they move to Web-based services, so it may take years for some brokers to complete the transition (to paperless transaction products),” he said. “Those who wait will be playing catch-up just to stay in business.”
Marc Diaz, a real estate brokerage owner who launched a transaction management platform in 2000, said it has been tough to sell the technology to real estate agents in Tennessee, though he expects it to catch on as agents begin to accept the future of paperless transactions. “It’s going to take a fairly large marketing and education effort,” said Diaz. The platform, called CloseTrak, allows for the electronic signing and storage of transaction documents. A brokerage is testing out the technology and Diaz said he hopes to launch the product citywide in Memphis before the end of the year.
Meanwhile, WWNotary LLC, a company based in Vernon, Texas, has developed a product called DigaSign that allows electronic notary services for the mortgage, real estate and other industries. The company announced its first electronic real estate notarization in November 2004.
Send tips or a Letter to the Editor to firstname.lastname@example.org or call (510) 658-9252, ext. 137.