Previously I discussed why I think the real estate transactions are handled is headed for major change:
The market is craving disruption (Zillow was just the beginning). It is bloated with a surplus of homes and sellers everywhere are anxious…
…we’re talking about big money. The cost to sell/buy a house is outrageously expensive by almost any measure and I am (wildly) asserting that there’s a lot of margin in the transaction.
Head back there for a bit more explanation if you aren’t convinced the way we do this now is awful.
But how could this all be different? I think it’s a lot simpler than you might imagine. Let’s consider another process for buying really expensive things: cars.
(Or skip this part and jump straight to a story about how great house shopping could be.)
You can walk into a dealership and purchase a nice car or truck for $30,000-40,000. That’s a lot of money, and has a monthly payment1 comparable to a house2 worth about $140,000. And all it takes is a driver license and your afternoon (and probably good credit). Let’s examine how the car people do it.
Even though it’s masked in mountains of paperwork, you really only need two things to convince a bank to loan you money: collateral that they can go after if you can’t pay them back and some assurance that you will make your payments. The car people have streamlined everything around these two things to make the process quick.
The collateral part is easy: they just take the car. They know the value of what they’re selling because pricing cars is easy: they know what they paid for it, their values are documented in numerous publications, and there’s a healthy market for them.
The harder part is figuring out if you can afford the payment. But even that’s not too hard: they ask you all about your debts and your income, and they have your credit history. And even if they’re wrong and you don’t make your payments, they just take the car back and sell it to someone else, hedging the risk.
Then of course the trick to buying a car in a few hours is to put all the people needed to do it in the same building: sales, title, financing3, etc. There’s no reason that we couldn’t buy houses the same way. A home mortgage has the same requirements and the solutions to satisfy those requirements are similar.
I think the reason buying a house takes so long is that there are several parties involved, each with a thin slice of responsibility, and each with their own schedules. There are two ways to fix that for each milestone in the home buying process.
First, you could do lots of things in advance. For instance, if I’m buying a house, the bank typically orders an appraisal of the property you are interested in. This typically takes a few days or up to a week. But why not just let the seller order an appraisal? The mortgage people would have to adjust their policies slightly to accept existing appraisals but that’s achievable (for instance, a bank could accept appraisals done by those with certain certifications, and for certain periods of time, say 90-180 days of validity).
The same goes for the home inspection.
Similarly, buyers could do much of their share of the work in advance, too. This is probably what was envisioned when people started getting preapproved, but there could be a lot more of the process completed in advance, before the property is chosen.
The second way you could address some of the milestones is to provide those services on demand, rapidly. For instance, a “fast track” team could show up on demand with all the people, equipment, and documents needed to complete a transaction. They could charge a premium for the convenience, but as I discussed yesterday, there’s plenty of money to go around. This might be a successful approach, but I think the first strategy is better so I’ll describe a way it could play out.
OK ENOUGH ALREADY! HOW WOULD IT WORK?
Suspend your disbelief and imagine the following scenario. Suppose you are a “fast track” buyer looking to buy a “fast track” house. Further imagine that “fast track” is a thing that’s been around a while and is quite popular. In this fantasy, “fast track” means that a home or buyer has been certified by some group or company to carry the “fast track” logo, indicating that they’ve met some important criteria.
So there you are, driving to your future home. You already know the house you want because you found it online and went through the virtual tours 42 times and drive by it 42 times more. At the appointed time, you meet the owner (or his/her representative) to tour the property (perhaps for the second, third, or fourth time). The owner has already moved out. This is going to be cake.
Since it’s a certified “fast track” home, you’ve already reviewed the property/pest inspection and appraisal online.
Since you’re a certified buyer, you (and the “fast track” people) already know how much you can afford and under what terms.
You chit chat with the seller and make up your mind: you are buying this house. You haggle, and eventually settle on the price and shake hands (or maybe you slide napkins back and forth, looking totally B.A.). The hard part is over.
The two of you sit down around the kitchen table and pull out your phones or tablets. Your phones already know who you are where you are so all you have to do is enter a PIN. The phone accepts your PIN and all your info pops up. All the seller’s info pops up. All the home’s info pops up. You don’t even enter the address (GPS FTW!).
You both confirm the sale details (price, date, etc.) and the program verifies that everything’s legit (i.e. that the price and terms work for both of you).
The closing documents are generated and displayed in a friendly format. It’s a standard form that you’ve already reviewed so all you have to do is double check the numbers. Via video conference, a third-party independent witness appears to address any questions either of you have, and to notarize what’s about to happen.
You each sign a few things with a stylus or your fingers. The remote witness laughs at your jokes about how this is easier than agreeing to an iTunes EULA while he or she digitally notarizes the documents.
Since you and the seller already told the “fast track” app about your finances weeks ago, it transfers some money around and confirms you’re all good. The seller gives you the keys while the app takes care of recording the transaction electronically with the county.
The seller packs up their kitchen table and leaves. Congratulations on your new home!
And you’re done. (I wish buying a car was this easy!)
(Of course the above scenario could be modified to include common contingencies like date of possession, chattel, repairs, a cooling off period, etc.)
It will take a lot of baby steps to get there, but get there we will and it’ll happen sooner than you think. (And some organizations will make a killing while bringing down the transaction costs of real estate for everyone.)
1$667/month would pay for a 40,000 figuring a 60 month loan with 0% APR (a popular thing now), excl. insurance, taxes, maintenance, etc.
2$667/month would pay for a $140,000 house figuring a 30 year loan with 4% APR, excl. down payment, insurance, taxes, etc.
3or prearrange for financing with your bank.