Article from Nasdaq August 23, 2018.
Money, including how we use and borrow it, has changed dramatically in just the past decade. Traditional payment methods are now peer-to-peer, contactless, and mobile versus cash, check, or plastic. We have primarily the internet and technology to thank for the new ways we conduct transactions. Now, imagine what will happen with money in the next decade.
The same potential impact can occur in places we use or put our money, such as real estate . Already, we are seeing new ways to pay for real estate that move beyond the traditional agent and financing model. Today’s trends point to what might change in the near future for real estate finance .
Greater Control for Homebuyers and Sellers
The biggest transaction trend has centered on the shift in power handing more control to the customer. It started with sites like LendingTree , which opened up more options in home lending. Instead of buyers being left to hope that a lender selected them, financial institutions started competing for their business. Since then, more businesses have adopted this model.
For example, online brokerages Redfin, Opendoor , and Purplebricks are offering a hybrid real estate transaction model that allows homeowners and homebuyers to become more involved while retaining the expertise of a real estate agent. One of the prime money trends illustrated here is the migration to a digital transaction process, with digital forms and signatures nearly eliminating the need for paper. Some online real estate transaction companies, including Beycome , even forgo the traditional commission fees, offering more money for the seller and fewer upfront costs for the buyer.
The future promises even more opportunity for customers to gain control of real estate transactions, for escrow periods to shorten, and for transaction costs to decline. These changes could also open the door to real estate matching services, similar to online dating models, that would use specific metrics and factors to help buyers locate the ideal properties and to help sellers offload their properties at a faster rate.
Technology Revamps Mortgage Lending
Paper processes have slowly been disappearing from the mortgage lending process, and the future may bring a move to completely digital home loan transactions. This may depend on how quickly the regulatory environment allows it and how effectively cybersecurity technology advances. But the adoption of data analytics and identity verification processes in mortgage lending could improve decision-making on loan approvals, leading to fewer late payments and foreclosures, and could expedite closures on loans.
Auto clearing of loan conditions allows lenders to use data directly from source, — “for example, checking the borrower’s bank balance (with the borrower’s permission) to ensure that there is adequate balance to cover closing requirements,” an Oliver Wyman report on mortgage lending technology noted . “This reduces borrower effort while accelerating time to close.”
Increasing Home Ownership
The use of artificial intelligence during loan approval and closing may also create a more personalized home lending process. Previously, some unforgiving parameters, especially those skewed against the self-employed , meant that some well-deserving potential homebuyers did not qualify. However, with big data analytics incorporated into the approval process, the future could accommodate sharing economy-related real estate purchases, wherein multiple people buy a home together. U.K. companies like Share a Mortgage are offering unique ways for homebuyers to join the real estate market by allowing people to share the cost of a mortgage with trusted like-minded individuals.
For example, the U.K. government lets homebuyers buy a share of their home and pay rent on the remaining share, opening the door to homeownership for people in areas where homes are less affordable. These types of transactions may become more widespread in the near future.
A Unique Purchase Model for New Real Estate
You can trade in your car, but what about your home? Real estate has traditionally been an illiquid asset, but a new business model is changing that. A prime example is Marketplace Homes ‘ nontraditional real estate model designed to reduce the inconvenience and costs related to selling a home in order to purchase a new-construction home.
If a customer agrees to buy a new-construction home through the company, Marketplace Homes buys the customer’s home for about what he would get through a traditional agent. With this model, gone are the hassles of home showings, negotiations about repairs, or finding a place to stay should the home sell faster than expected. It also eliminates the worry that the seller might lose the new home because the existing property hasn’t sold. Think of this house buyout program as an on-demand real estate model. Through this model, the company aims to become the largest solution provider for builders in the United States.
Blockchain’s Impact on the Future of Real Estate
Blockchain, the digitized public ledger for tracking encrypted transactions, is now being applied to more aspects of real estate transactions . In fact, this technology could eventually replace real estate transaction gatekeepers such as notaries. Blockchain digitizes agreement forms and secures contracts. The result, when this technology is applied to real estate, will be faster transactions at much lower costs and at little to no risk of fraud.
Additionally, this technology could propel the aforementioned idea of fractional ownership among friends and family and stimulate interest in the real estate investment market . Blockchain platform companies like ATLANT , for example, are exploring ways to tokenize real estate assets in order to facilitate group real estate purchases, allowing buyers to select the agreed-upon division of property ownership.
The Future of Money in Real Estate
New technology and processes offer a bright future for real estate, making homeownership and wealth possible for more people. The advent of new models means greater speed, convenience, and security along with lower costs for everyone involved in real estate transactions.
President, Marketplace Homes