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The last ten years have seen a massive change in how real estate transactions take place. Many of the things that previously required a lot of paperwork and coordination for several weeks can now be done electronically in a fraction of the time.
Thanks to technology, the speed at which transactions occur has been greatly increased, while at the same time adding transparency. However, technology has also introduced a number of new legal and regulatory questions that would not have been applicable in the past. It is more important than ever for anyone involved in buying and selling property to understand how innovation intersects with regulation in these areas.
Home buyers no longer begin their search for property by going through physical homes. Now, most start their search on the internet by looking at homes that were listed with high-quality photographs, virtual tours and aerial photography.
Because of this increased use of technology in the home buying process, buyers can quickly compare properties, and sellers can market their properties to a much larger, often international, audience.
Many transaction management platforms exist to provide real-time document transfer, timelines and communications for all parties involved. Offer letters, HUD-1 closing statements, and all other documents can now reside in one secure system for all parties involved in the transaction.
Electronic signatures are now considered the standard method of signing documents. They provide for quick transactions with fewer delays, allowing all parties involved to remain on track.
Modern society places a high premium on transaction efficiency. However, greater speed does not always create fewer risks and could provide less opportunity to identify problems.
Automation does not provide a mechanism for determining intent or resolving disputes. Automated systems also cannot provide for atypical deal structure modifications.
Therefore, legal review remains incredibly important, as experienced real estate attorneys bridge the gap between technology and regulatory requirements. They can ensure that contracts are enforceable, that all applicable disclosure requirements have been met, and that electronic transaction processes comply with existing law.
Artificial intelligence is increasingly used to help identify trends in the marketplace. Pricing tools can quickly assess recent comparable sales, collect neighborhood data, and ascertain demand patterns.
The overall efficiency of these tools is very impressive. However, they rely on algorithms which may overlook unique property features or local conditions. Automation is now being used for compliance checks as well. The software can identify documents that have not been submitted to the agency or discrepancies in any of the items before the closing of a deal.
Although the automated tools available today are beneficial, they still require human review to validate that what they are indicating is correct and accurate.
A lot of attention is shifting to blockchain technology and how it may improve the recording of properties. The use of a decentralized public ledger could provide for lower instances of fraud with regards to property ownership.
In theory, all transactions would be permanent records in the ledger system. This will allow anyone to trace the specific and general history of ownership on a specific piece of property.
However, this is just a theory because the legal acceptance of blockchain technology varies from one jurisdiction to the other.
Until such time as the legal recognition of blockchain-related documents becomes more synchronized, the traditional methods of transferring ownership will continue to dominate.
Digital closings have been expanding in popularity. Transactions can now be completed by buyers and sellers in different locations without meeting in person. Remote online notarization allows for more flexible methods of conducting business. However, it can create challenges when verifying identities and establishing proper protocols for their verification/authentication.
Since there are different laws governing electronic notarization across states and countries, a situation may occur where something is permissible in one jurisdiction, yet prohibited in another. This could lead to uncertainty when transacting across state lines.
Most of the regulations that govern the real estate industry were developed before the use of technology to transact was mainstream. Because digital processes weren't included in the original regulatory framework, many rules governing digital transactions are inconsistent with existing real estate laws.
As such, there exists a growing gap between regulations and developments in digital transactions. Therefore, parties involved will continue to face potential compliance risks.
Data privacy laws can also have substantial implications on parties engaged in real estate transactions because they typically include sensitive personal and financial data.
Therefore, organizations should ensure that their electronic closing and online notarization systems comply with current data privacy and data security regulations.
Technology will continue to influence the property transaction process in a way that will allow for faster, more data-driven transaction processing. As the overall rate of change in property transactions will increase, the frequency of government regulatory oversight will continue to increase in response to the increasing number of issues associated with data use, automation, and consumer protection.
Ultimately, the success of each transaction will hinge on the ability to achieve equilibrium between technology and legal boundaries. As with other elements of the real estate transaction process, speed is important. However, the degree to which each participant complies with relevant laws and understands the transaction will be more important.
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