When Customer Experience Eats the Software and Real Estate World
Reinventing the home buying experience is quite possibly the greatest untapped opportunity in the American economy.
We can all agree that it shouldn’t take 46 days to get a mortgage. Houses sit on the market for too long, buying agents are compensated more if you spend more, and fees and commissions are too high -- the list goes on.
Alex Rampell of Andreessen Horowitz recently wrote a post about this very topic that’s getting much attention. He states that to shorten this process, “you will buy your house from, or sell your house to, a company.” And he’s put his money where his mouth is by backing Point, Flyhomes, Opendoor, Divvy, and others.
These companies all offer a different solution to the same problems: we need a faster, easier, cheaper real estate transaction and more liquidity in the market.
But is the only solution for companies to start buying and selling homes? Or can the industry at large actually achieve the instant mortgage that creates real liquidity for everyone?
Alex’s post really only scratches the surface.
The real estate market is an interconnected ecosystem. At the end of the day, every transaction is filed with a county recorder, insured, often funded by someone other than the lender, and the mortgage is typically sold into the secondary market and securitized. Virtually every company is built on top of this infrastructure and is required to comply with it.
Take Quicken Loans’ Rocket Mortgage. Everyone assumes its a digital mortgage, but it’s really only a digital mortgage application. They’re still printing 280 pages and driving to your house for the closing, then mailing the documents across the country numerous times. Their entire operation grinds to a halt as a result.
The same is true for the new class of home-buying companies that Alex Rampell describes. They use technology to make a faster buying decision and provide incredible customer experience, but they still close in paper at a snail's pace. This keeps them from having truly disruptive cost or time efficiencies.
Alex talks at length about the end-to-end digital mortgage experience, but you can’t get there without going through the closing. The closing is the main event; everything else is just setup.
Given how much you can do with a phone these days, people often assume you can close digitally, but it’s been impossible. According to 2017 data, 95% of home buyers searched for a home online and 43% applied for mortgages online, but effectively no one closed online.
This changed in 2018, and the ability to close online won’t just be expected: it will be demanded.
95% of people search for a home online
43% now apply for a mortgage online
We’re only a year or two away from an instant mortgage and closing.
Parts of it are already here.
Blend Labs, Roostify, and others have made it possible to apply for a mortgage online. Fannie Mae, Freddie Mac, and others now perform automated underwriting during the application process with a purchase guarantee - for the mortgage, not the property. Blend and others tie into these systems, so someone can apply for a mortgage online and the lender can instantly check that it will be accepted when sold into the secondary market.
Notarize then eliminates as many as 45 days from the closing process by integrating directly with the lender and title company’s systems. We pull documents instantly and empower the borrower to click to close at their convenience, 24x7.
What people don’t appreciate is that this changes everything about how the mortgage is funded and then sold. As soon as the borrower clicks complete on Notarize, the documents are delivered into the secondary market within milliseconds. This dramatically changes the cost of capital a lender pays to fund their customer’s mortgage.
Right now, Notarize enables the instant real estate transaction and instant mortgage. And our partners are starting to adapt their policies and business practices to our technology.
Why Real Estate Companies Dominate Today
Alex suggests that real estate companies can charge high fees because of regulation. That’s overly simplistic. They charge high fees because they're central to the entire transaction today.
The truth is that the best realtors make their living off seller leads. These are won on reputation. Top performing realtors help people sell homes sooner and at higher prices, so they are referred more homes to sell.
These leads put them in a position of power. They can dole out early access to great properties to other brokers in their own firm first, or trade that knowledge for future access. What top performing realtor would ever leave that model and switch to a full-time position at a digital player for less money?
What’s more, a buyer working with a digital provider may have actually been at a disadvantage for the past decade.
Imagine two people wanting a house and presenting an offer to the seller and her agent, Tim. One prospective buyer comes from the internet with a broker no one knows. The other comes with Nancy, the local realtor who has negotiated across from Tim numerous times.
Nancy tells Tim they’re working with Bob, the local mortgage lender, and the buyer is good for the money. She’s already called Mark, the home appraiser, who is booked three months out but is willing to do a favor.
Which offer do you think the seller will take?
In the digital world, the buyer is alone and has to do it all independently. That’s a worse experience, not a better one. So in that environment, how does a digital player compete?
By building an end-to-end mortgage experience that’s better than the analog equivalent. The strengths of digital are choice, speed, and convenience. The race is to be the first to marry these.
Whoever Owns the Buyer Experience Wins
Everyone is verticalizing, not just the startups Alex noted.
Redfin launched a mortgage lender and title company. Zillow just purchased a mortgage lender. These companies have the buyer leads the financial players want so desperately.
Everyone assumes their aim is simply increasing revenue captured per user, but the larger goal is actually to connect the dots with systems they control to deliver that seamless end-to-end experience. Most nonbank lenders are already here as well. Quicken owns Amrock. Loan Depot owns Closing USA. Guaranteed Rate owns Ravenswood.
Making things even more interesting, Quicken just moved up the stack and bought forsalebyowner.com.
The end-to-end experience will unleash extraordinary cost savings for the providers and for buyers and sellers.
The average cost to originate a mortgage has gone up 400% in 10 years, to $8,900. Today, Fannie Mae estimates that the digital execution of a mortgage will save an originator $1,100. There are similar costs for title companies that average more than $5,000 in processing costs.
We think there’s potential for even greater savings.
Any cost savings can go right back into customer acquisition to gain share. And data shows 74% of customers will actually switch brands for improved customer experience, which they’ll finally have by going digital all the way.
What’s to Come of the Companies Buying and Selling Homes?
The capital markets have seen algorithmic traders dominate by volume. If true liquidity is created in the real estate market, there’s no reason to assume the same won’t occur with companies like Opendoor buying and selling homes as the market oscillates.
You will see Notarize’s existing mortgage lenders offer something akin to an “Instant Mortgage” within the next two years, meaning application through closing will happen within 48 hours. More companies than you can imagine will adopt these capabilities. Notarize’s platform will do all the work; they simply need to onboard.
Our vision is that someone should be able to walk into a home, fall in love, and buy the home online, same day. We are well on our way to doing just that.