What Really Needs To Be “Disrupted” In Real Estate?

[Rick Howell]

Where is the biggest need for disruption in the real estate industry in 2016?

Dozens of real estate startups are still trying to innovate and ‘disrupt’ in the real estate industry. Most fail because the startup entrepreneurs come from outside of the industry, and really don’t get it. Many simply end up trying to reinvent the wheel, and end up creating a carbon copy of what is already there. Giant institutions keep gaining ground, even though they may not offer the best services. That hints at a larger problem: nobody is stepping in to challenge them. So where does the real estate business really need disrupting? Where are there real opportunities to improve the real estate scene?

The Biggest Issue in Real Estate

Not surprisingly, a lot of real estate investors are having problems working with reliable real estate agents. Of course there are great agents out there, but some are complaining that agents aren't cooperating. It's hard to argue with that. Not much else matters if eager buyers can't get through to listing agents. All the MLS mergers, online ad platforms, home search tools and apps in the world won't mean much if no one picks up the phone or answers email.

But once buyers and sellers get over this hurdle, there is a much bigger issue plaguing the industry: the real estate transaction process. Even though many are adopting digital signature tools, there is much that can be done streamline the transaction process.

The Flaws in the Real Estate Transaction Process

1. Too Many Steps: There are many, many steps and moving parts involved in purchasing and selling real estate. This creates numerous loopholes for parties to cancel contract and areas of stress and friction that can lead to transactions falling apart midway through. The outcome is making it tougher for others to buy and sell, and for realtors to survive, and provide a good service. Even after a contract is signed, there are loan applications to dealt with, loan conditions to be met, inspections to be done, and often condo or HOA approvals also needed.

2. Lack of Clarity: All the steps involved in selling and buying a property are only made more difficult by the lack of clarity and systems. Even many veteran companies and individuals who have been in the business for years appear to lack a set workflow and guidance for their clients. Maybe they haven’t nailed it either, or maybe they forget just how confusing and bewildering the process is. There are lots of home buying process articles online, but it appears that few professionals really lay out the steps and prepare their clients for what’s coming, and what they need to do to ensure a successful transaction.

3. Lack of Organization: There are many different parties and companies involved in most real estate transactions, and they all have their own agenda, style, and interests. There are inspectors, appraisers, underwriters, loan officers, processors, multiple realtors, brokers, neighbors, title company reps, underwriters, association boards and property managers. Getting this many companies and individuals to get along and work in synergy for one single experience and closing is no small feat. It takes a strong conductor to direct all of these players and instruments in harmony. Who is going to lead? Is it your realtor, the title company, you, or your loan officer?

4. Competition & Choice: We’ve been taught monopolies are bad for us. At the same time, the choices and competitiveness in this industry can add to the confusion, and often lead to more misleading information. It’s up to you to make the choices clear for buyers and sellers. Serve as their trusted, go-to source for deals, and remove any doubt from their minds. Never give anyone a reason to doubt working with you.

5. Mortgage Conditions: Mortgage underwriting conditions remain to be one of the most confusing parts of any transaction. Underwriters, and their lenders no doubt, have data based reasons for all that they request. Yet, borrowers are poorly prepared for the process, what they'll be asked for, why, and what they should turn in. What should be in a ‘CPA letter,' or how should gift funds be documented? How do you get a hold of your past tax returns when the IRS transcription service is down for two weeks, and local tax offices have stopped taking phone calls or providing copies? What if it is going to take three weeks to get a copy of your divorce decree, or a month to wait on HOA approval? This leaves much to be desired for streamlining the process and preparing buyers.

[Joe Villeneuve]

No offense Rick, but after I read this, I couldn't figure out what the point was for you writing it.  Also, not sure why you used the word "disrupt" in your short story.

As I've experienced, all of the above are true (OK, now what), but none of the above "issues" you raised are actual problems...just annoyances and avoidable/solvable at that. 

A) There are many REA that are not friendly to REI, but there are also many that are.
B)  Once you have a system in place, the transaction process is actually a boilerplate system.
C)  The "too many steps" don't apply to all deals, and when they do, they may be annoying, but are nothing more than that.  If you set up the deal properly from the start, it's just a bunch of steps...one by one.
D)  Not sure what "lacks clarity", so I won't address that one.
E)  The RE industry doesn't "lack organization", it just has a "large organization".  It may not be pretty, but it is pretty consistent.
F)  The lack of Competition & Choice you mention, comes from everyone trying to do the same thing, expecting different results.  Why does Einstein come to mind here?  So, don't do the same thing.
G)  Mortgage Conditions are confusing...kind of.  In fact, they have the money, so they make the rules (Remember that Golden Rule).  That you can't change, but you can choose other sources of funding.

I'm a huge fan of efficiency, and cost effectiveness. I'm also not disagreeing that what you said above is factual. All I'm saying, and disagreeing with, is the fact you assumed..."that you can't reinvent the wheel". Many have, many more will. It's what makes REI as much fun as it is.