Buying a home is one of the most significant financial decisions of a person’s life. As such, policymakers have created many laws and regulations designed to protect consumers, such as the Fair Housing Act, the Truth in Lending Act and others. And while some policymakers are working to make housing more affordable, such as through targeted tax credits and lending programs, few have focused on how to use technology to drive down the transaction costs involved in buying and selling a home. Yet given that the fees involved in real-estate transactions can easily run into the tens of thousands, more should be done to create more efficiency through technology.
First, states should strive to make the legal process of buying and selling homes fully digital. One way to do this is to ensure states fully support e-closings, where buyers and sellers can complete a sale remotely using e-notary services. E-notary services not only provide an electronic notarization of digital documents, but they also allow individuals to complete transactions without being in the physical presence of a notary. Unfortunately this practice is not yet common. As of early 2017, only two states — Virginia and Montana — allowed remote electronic notarization, and Montana restricts signers to state residents.
Second, states should fully digitize government-maintained real-estate records, such as titles and liens, so that they can be searched electronically. Congress passed the ESIGN Act in 2000, a federal law that recognizes the legality of electronic signatures when all parties consent to using it. But this law does not require local government agencies, which must record real-estate transactions, to accept electronic documents or signatures. The Uniform Real Property Electronic Recording Act (URPERA), a state law that requires all local recording offices to accept and process electronic documents and signatures for real estate records, addresses this problem. As of early 2017, 30 states had adopted URPERA. Not only does processing these documents electronically increase the productivity of county clerk-recorder offices, but it also lets them make this information available to the public to streamline title searches used to identify issues that may affect potential buyers. If counties digitized all property records and made them available online via APIs, the cost of title searches and title insurance — an expense that ranges from $1,000 to $4,000 for many buyers — could fall dramatically.
Third, policymakers should eliminate nondisclosure rules that prevent the public from accessing sale prices for residential properties. There are some states, such as Texas, Missouri, Utah and Wyoming, that strictly limit access to real-estate property data, so that nobody other than the homeowner can see it. These restrictions make it difficult for sites like Zillow to estimate the value of a home, a tool many buyers and sellers rely on to make sound financial decisions. For example, Zillow notes that it can’t calculate accurate estimates in major metro areas like San Antonio and Houston because of its limited access to property value data in these cities.
Finally, state lawmakers should ensure consumers can use low-cost brokers who take advantage of technology to make the home-buying and selling process more efficient, such as by allowing buyers to spend more time looking at properties online, rather than in-person with an agent. But some states have erected barriers that limit consumers from realizing these benefits. For example, 10 states prohibit brokers from refunding a portion of their commission to consumers, which can save buyers thousands of dollars. And eight states have minimum-service laws that require brokers to provide certain services, even if consumers do not want them, which keeps limited-service brokers from providing lower-cost alternatives. Moreover, tech companies trying to bring innovative services to the real-estate sector often find that they cannot access property listings because brokers have limited their access to this data. To address this problem, policymakers should require licensed brokers to provide open access to their real-estate listings.
Compared to many other sectors, the real-estate industry has a long way to go to make better use of technology to reduce costs for consumers. However, by reforming laws, adopting new technology, and making more data publicly available, policymakers can improve the home-buying and -selling experience and make it more affordable for millions of Americans.