Momentum toward the digital transformation of residential real estate transactions has been building for several years and has only accelerated amid the coronavirus pandemic, and now the foundations for a more digital commercial real estate transaction are emerging. The benefits of a more digital real estate transaction – an enhanced closing experience, greater efficiency and increased transparency – are similar for residential and commercial real estate transactions. A digital commercial real estate transaction may not be too far off – in fact, we may already be experiencing a more digital future, despite a few hurdles.
Digital transformation requires clearly defined pathways and processes. Defining these processes is difficult for the traditional home purchase, but even more challenging for commercial real estate transactions.
“Commercial real estate transactions often involve multiple participants, including buyers, sellers and their corresponding attorneys, lenders, brokers and settlement providers. Not only must each of the stakeholders in a commercial real estate transaction agree and align on deal terms and other concerns before a transaction can close, specific title policy coverages are unique to each transaction and negotiated to benefit and protect the parties involved. Connecting the stakeholders in a way that enhances efficiency and transparency for everyone – while maintaining the appropriate workflows and privacy – is an integral part of any digital commercial real estate transaction experience.”
Digitizing Commercial Complexity
For most consumers, purchasing a home is the most complex transaction they will directly experience, but generally speaking the asset being purchased is either a single-family home, condo or townhome, and the basic stakeholders in the transaction are often fairly consistent – buyer, seller, realtor, lender and settlement provider. Creating the documentation, workflow and technology needed to digitize the transaction for a home purchase has proven a challenge, yet now consider digitizing an exponentially more complex transaction.
Commercial real estate transactions can involve multiple properties across multiple states with varying regulations, vastly complicating the underwriting process, documentation and workflow involved in the transactions and complicating digital transformation.
Commercial real estate transactions often involve multiple participants, including buyers, sellers and their corresponding attorneys, lenders, brokers and settlement providers. Not only must each of the stakeholders in a commercial real estate transaction agree and align on deal terms and other concerns before a transaction can close, specific title policy coverages are unique to each transaction and negotiated to benefit and protect the parties involved. Connecting the stakeholders in a way that enhances efficiency and transparency for everyone – while maintaining the appropriate workflows and privacy – is an integral part of any digital commercial real estate transaction experience.
Unique Role of Title Policy Underwriting
Title policy underwriters are important in defining the details of a title insurance policy for a home purchase, but their role in commercial transactions takes on added significance, particularly due to disparate asset classes – think industrial, retail, office, multi-family, health care and more. Each asset class – and the jurisdictions in which the asset resides – may give rise to legal issues that can increase concern or risk for the buyers and lenders involved. Local underwriting experience and expertise is critical when identifying risk and finding satisfactory solutions during the underwriting and mitigation process. With the goal of moving the transaction forward while protecting the buyers and lenders involved, a successful digital commercial real estate transaction experience must embed the underwriter within the workflow in a seamless and efficient manner.
Security at a Premium
According to the FBI’s 2019 Internet Crime Report, the growth in real estate wire fraud continues to accelerate. Both the number of victims of real estate wire fraud and the value of the losses involved increased in 2019, reaching 11,677 victims with $221 million in losses. Unfortunately, that is likely just the tip of the iceberg, as only 15 percent of all wire fraud incidents are reported, according to the FBI.
Fraudsters continue to escalate the sophistication of their tactics, making security critical in all transactions, from a simple online clothing purchase to a multi-million-dollar home sale. Yet, the sheer scale of dollars involved in commercial real estate transactions add even more urgency and importance to security. All the parties involved in the transaction must have confidence that the details, documents and dollars involved will remain secure and protected.
Challenges are Real, but Clarity on the Horizon
The good news is there is real progress being made toward addressing these key hurdles to a more digital commercial real estate transaction. The coronavirus pandemic has had a tremendous impact on the economy and our daily lives, and it has also served as an accelerator for rapid innovation as businesses of all types and sizes work to successfully adapt. Earlier this year, Microsoft CEO Satya Nadella noted, “We’ve seen two years’ worth of digital transformation in two months.” This statement rings true for the real estate and mortgage finance industries as well.
Earlier this year, the National Commercial Services division of First American Title launched ClarityFirst™, a new modern technology designed and developed specifically for commercial real estate professionals. Simplifying and streamlining the transactional experience, ClarityFirst is a major step in the journey of digital transformation within the commercial real estate industry. Providing an easy and efficient way to view order status, share documents, verify wire instructions and access property data and resources, ClarityFirst increases the transparency, efficiency and security within commercial transactions. While challenges remain, technologies like ClarityFirst are the entre to the digital future of commercial real estate.
Jayson Murray is the senior vice president, information technology and operations support with First American Title Insurance Company’s National Commercial Services Division.