In today’s business environment, tech companies are all about offering consumers increasingly easy, fast, and convenient experiences. For many businesses that already dominate entertainment, travel, hospitality, and more, residential real estate is the next big target.
For many tech companies, real estate is a logical step in the value chain. But the playing field is hardly wide open. There are plenty of existing players new entrants have to compete with, and these are expanding their territory. For instance, in February 2021, the Zillow Group paid 500 million to acquire a Chicago-based real estate company that uses software for home showings. More broadly, $32 billion in enterprise value is connected to real estate M&A deals announced in 2020.
The growth in this sector is staggering. Zillow was an early leader and continues strong with a 169% year-over-year growth in its mortgage segment. Redfin had a 17% year-over-year gain, which, even if it isn’t triple digits, represents forecasting $2.53 trillion in home sales in 2021. Part of this gain came in 2020-2021 because of two factors: low mortgage rates and low supply.
The challenge of tech companies looking to get into the residential real estate game is the non-tech-friendly processes in the world of lending. It isn’t sufficient to build processes for marketing, showing, or even selling homes; without some way to streamline and speed up underwriting, the same problems remain.
Overcoming Challenges in Residential Real Estate
Patrick Buckner, the Chief Strategy Officer at Informative Research, explains it this way, “Everyone is making strides in helping the consumer have more access to financing for one of the biggest purchases they’ll ever make, but we have a long way to go to make the traditionally antiquated mortgage finance process more efficient.” He sees that there is only one way to look at it: through the lens of data.
Buckner goes on, “Larger platform strategies can allow people to aggregate massive amounts of data on end-users to create process flow automation from initial touchpoint to closing and post-closing. When you create a more efficient process, it makes the buying process easier and less expensive for the consumer, also protecting against economic volatility.”
Residential mortgages are a big part of the backbone of our economy. More mortgage companies than ever are going public, and non-bank lenders are taking market share from larger banks primarily because they are innovating faster. The traditional bank mindset isn’t agile enough to keep up with shifting consumer demands. A reframing is in order.
Reframing the Homeownership Journey
A white paper, commissioned by Blend and produced by the Aite Group, underscores the opportunity lenders have to reimagine the homeownership journey. This is immensely relevant to companies that want to take advantage of this growing sector and both contribute to and benefit from growth in residential real estate.
According to the study, 88% of prospective homebuyers look for a primary bank or financial service provider when they are deciding where to apply for a mortgage. 40% go with a bank, 27% with a mortgage lender, 22% with a mortgage broker, and 9% with a credit union. Analysts at Informative Research have found that the lenders that homeowners turn to are commonly pulling in data from up to 30 or even 40 different services and sources to support every stage of the lending process.
58% of prospective home buyers find a home on Zillow, Redfin, or Opendoor. The survey reported that 90% of consumers were interested in using a complete, end-to-end homeownership solution if it was available from their lender. Nearly half saw the value in centralizing information and coordinating all of the tasks around buying a home. A lack of knowledge related to the mortgage approval process is an identified source of stress, which could be alleviated with data-driven platform solutions.
Homebuyers generally reported that they do not understand down payments, homeowners insurance, the preapproval process, appraisals, closing costs, home warranties, or real estate commission and incentives. At every stage, hopeful homeowners are up against inefficient, paper-based processes that lack transparency.
A Middleware Platform for Verification and Process Automation
As with most tech innovations, there’s a middleware for that. An application infrastructure may be the key to driving the loan process forward. Connecting/integrating credit, verification of income, assets, employment, title, and all of the other relevant data sets, instead of the traditional point solution approach, could be the transformation moment for the real estate finance industry. Replacing very manual processes with advances in artificial intelligence, machine learning, and technology can make these connections and drive automation. The goal is to look at the entire process from end to end as soon and as cheaply as possible.
There is a lack of useful technology in mortgage banking. Companies that wish to push into this sector need to recognize the real challenges, then how to overcome those challenges. Informative Research and their Keystone Platform is on the cusp of change, reducing the amount of money a lender spends originating a loan and increasing the speed a borrower moves through the process. Taking a 45-day, labor-intensive process down to practically on-demand is a change long overdue, and one the real estate finance industry is ready for.
The real estate business has a great potential to have a very high percentage of investors. Therefore, it has imperatively caught the eyes of major tech companies to find a way in which they can develop various tech software to help give a seamless approach to various aspects of real estate. Also, AI, ML, VR, and AR companies will create various technologies to the benefit of real estate companies.