This white paper examines:
- Why the companies that led the initial effort to develop transaction management systems failed;
- The challenges the current systems face and the lessons we can learn from the mistakes of the past;
- The new efforts underway and the future promise of online real estate transaction management.
In 1996, when the World Wide Web was quite a new thing, Gilbert Barnes and John Man of Data Track Systems were developing an online real estate transaction management system.
In an article published on Inman News in October of 1996, it was stated that The remaining bottleneck to the completely online real estate transaction is the signature. Barnes sees a more efficient real estate transaction on the Internet of the future, where forms will be stored, records retrieved and progress on the paperwork can be tracked by the lender, home buyer, real estate agent and escrow officer. Best of all, he says, the technology should make the home buying transaction faster and cheaper for the consumer.” In 1996, Gilbert Barnes had found a company developing a solution for electronic signature, came to an agreement to integrate it into his software, and made the announcement on Inman News. The bottleneck challenge had been met and conquered.
If only it had been that easy.
By the following month, on November 5, 1996, Microsoft announced in a press release that “Microsoft Solution Providers Alltel, Data Track Create End-to-End Solution” and that “The time necessary to arrange a mortgage and sign closing papers for a home purchase will eventually shrink from a month to a few days. Their complete, end-to-end solution will use Microsoft technology to connect brokers, banks, appraisers and insurers in the first secure electronic data interchange (EDI) transaction network over both the Internet and online connections. The network will be operational in the first quarter of 1997.”
Data Tracks product was never widely adopted and the grand vision behind it has not yet become a reality, but that effort was the beginning of the quest for the holy grail of our industry, a quest we are still on today, seven years later.
Transaction Management 1.0 Why it didn’t work
After Data Track, there was a flurry of announcements, investments and activity in the space during the glory days of the Internet boom in 1999 and 2000. Just to jog your memory, the following is a partial list of some of the companies and products that competed for our time and money:
- BridgeSpan (a.k.a. EZClose.com)
- Realty Plus Online – CloseYourDeal
- DPN Inc.
- ERealty.com – TitleLink
- Escrow.com – TransactionPoint
- Expeditrix – SmartClose
- HomeAdvisor / Interealty Realty Desktop
- Homestore and NAR eRealtor
- Internet Strategy 1parkplace.com
- Micro General
- Ocwen Technology Xchange – RealTrans
- RealtyOnline.net – Realty Transaction
- RealCafe, Inc.
- Realty Assist
Clareity estimates that over $150 million dollars was invested in Transaction Management 1.0 and at least $100 million of it is gone. Many of the companies have closed, some sold their assets for pennies on the dollar, several of the technologies were killed off or shelved by the acquirer, and a few survived under new ownership. Only a few of the companies who pioneered online real estate transaction management were left standing by the end of the Internet gold rush.
What happened? Were all of these companies wrong in predicting demand for online Transaction Management? Here are a few observations:
- Consumer demand for a view into the transaction was over estimated and never properly cultivated.
- Key components of Transaction Management, like digital document management, were added as afterthoughts. Some companies focused more on a sexy user interface than a substantive back-end system that actually delivered value.
- Many of the platforms were not open to all vendors, and even the open platforms never assembled a large enough vendor network.
- Nobody cracked the code on who was willing to pay for the service and a viable, sustainable business model was never proven.
One of the most critical problems the 1.0 systems faced was that they were built as standalone systems, and not well integrated into the industrys workflow. Most of these systems didnt have MLS integration, so property information and status changes were entered into each system, and dual entry is often a tragic flaw for any automation process. Most systems were also not well integrated with public records, contact management, or broker office systems. In his original effort at Data Track, Gilbert Barnes wanted to tightly integrate his product with the more highly adopted agent productivity tools and other real estate software, but the deals needed for integration never came to pass. For other companies, the lack of integration sometimes resulted from a lack of vision or understanding. It was also the sluggish nature of standards development and adoption that is only now enabling integration through RETS, MISMO, Legal XML and ACORD. In any event, Realtors are motivated by money and timesavings, and these standalone systems seemed to cost more time and money than they saved.
Another key reason these systems failed on the whole is that there was a conflict between two paradigms evolution and revolution. On the one hand, this effort called for revolution the transaction is so complicated and involves so many participants that a partial solution or worse, several non-integrated partial solutions would be worse than nothing at all. Revolutionists believed It would be better to try to solve the problem in one elegant and all-encompassing step, and after all, anything was possible on the Internet in 1999. On the other hand, taking into account the human element of technology adoption and training especially given the demographic of the real estate professional population – slow change or evolution was perhaps the only way to go. In hindsight, we all know it takes years to change human behavior… As Homes.coms Alan Pyles said in an Inman News interview in November 2000, “Realtors will end up doing real estate transaction platforms, one way or another, but they’ve got to take it one bite at a time”. These conflicting paradigms made it almost impossible for the first round of transaction management programs to succeed.
Providing another perspective for this white paper, Gilbert Barnes said, “The number one lesson learned, that I missed early on, is the need for an easy to use, simple environment. These systems were too complex. They have to be easy to use or intuitive or they are going to have low adoption. Orbitz spent over $20 million the first year on usability research, studying consumer needs and wants and scoping that into the product. They evolved a product that’s intuitive and therefore got adoption.”
Some of the companies that made early attempts to create an online real estate transaction management platform have survived and are continuing to try to drive adoption. Some of the technology from the companies that didnt endure ended up in the hands of their competitors, or in some cases, in the hands of other companies who have entered the space. New companies have also recently emerged to seek what has been termed by some, “the holy grail of real estate transaction management.
Transaction Management 2.0 How it might work
Although $150 million dollars was spent on TMP development, and vast quantities of midnight oil were burned, only a few companies survived and are positioning to deliver the next generation of TMP. The short list of surviving companies actively marketing their TMP products to the industry and to Clareity’s clients in particular includes First American, FNIS, Realty Assist, and GuruNetwork. These companies have continued to test, refine, and reintroduce their platforms.
The most expensive lesson learned in the first round of TMPs was the realization that a mere 150 million dollars cannot change human behavior in an industry the size of real estate. Transaction Management 1.0 was primarily positioned in front of the real estate agent with little attention given to the role of a Transaction Coordinator. The assumption was that the real estate agent would become more involved in the transaction and move away from their traditional off-line environment to manage the process in a new online platform. In general, top producing real estate agents like to control each transaction. A TMP should provide efficiencies that make the best agents even better and give them greater visibility and control of multiple transactions. However, agents were unwilling to change their behavior, or didn’t see enough value in these systems, or both. Therefore, TMP’s need to evolve to be adopted, and brokers need to embrace Transaction Coordinators for mass adoption to occur.
As the evolution continues, additional enhancements are being made to the platforms. In the following sections, Clareity lists these potential enhancements and describes what features, modality, and methodologies should be introduced to drive adoption.
Keys to Success
In order for Transaction Management Platform 2.0 to be widely accepted, the following keys to success must be incorporated:
TMPs must be intuitive and easy to use. This may seem obvious, but weve seen some pretty ugly and impossible to use TMPs lately. Elegant simplicity takes time, and thankfully a few platforms are finally getting there after three to four years of pilot tests, user feedback, and refinement.
- Data integration and pre-population
The power of a TMP platform is only as strong as the information within it. Single data entry is key; and the sharing of single-source, accurate data among all parties is necessary. An administrative person or Transaction Coordinator will be able to drive the data entry that is required for 100+ open files. The local electronic forms and repository of TMP data must interact with the real-time (or close to real-time) MLS database and the three leading realty desktop/contact management systems for mass adoption.
A TMP must fit in with or mirror the real estate professionals current workflow and not create unnatural side steps.
The system must allow for the agent or Transaction Coordinator to push distribution of information to the appropriate parties, but has to be careful not to “spam” the participants with too much information.
- Tangible and well communicated value
The value proposition to the various constituents must be clear, relevant and tangible. The platform must save time, enhance productivity, produce new revenue, or enable greater margins and economies of scale through aggregated demand and more efficient communications.
- An open, vendor neutral system with a strong network of local, regional, and national service providers
Metcalfe’s law states that the value of a network increases exponentially by the square of the people interacting with the network. New technologies like the fax machine and email became exponentially more valuable as more people adopted them and joined the network of fax or email users. Therefore, a TMP system must allow for unlimited choices and welcome new participants to strengthen the value of the network. It must also strive not to hamper existing business relationships, but rather provide incentives to migrate those relationships to the TMP network.
There are only a few systems that are close to meeting the requirements above and likely to succeed. For these mature systems to become adopted, Clareity suggests several possible strategic launching points:
A strong argument can be made for the functionality of a transaction management platform being built into or seamlessly integrated within the MLS system. For the people that say TMP should not be a MLS function, consider the following points:
- The web-based MLS is a logical, central, and vendor neutral document repository.
- Agent, broker, appraiser, and office administrator traffic is already on the MLS.
- Integration with active and sold listing data, tax records, and new MLS based online contact management/CRM capabilities reduces or eliminates duplicate data entry.
- The MLS training infrastructure is already in place nationwide. Transaction management training can be coupled on the local level with MLS classes, Association education, and new agent training.
- The promise of centralized, aggregated demand that a web based MLS system can deliver will motivate service providers to join the network. One MLS interface means electronic order capabilities and communications from all of the brokers and agents in a marketplace.
The notion of an integrated MLS / TMP dates back to 1998 or even earlier. Companies like iProperty started the discussion and introduced pilot systems. However, in 2002, a company named dynaConnections claimed to have a patent pending on the integrated MLS / TMP concept or certain related processes. Clareity has not performed the legal research to determine how broad this potential patent is, or whether the patent is likely to be approved, but it may warrant investigation.
Large Broker Intranet Systems
Another probable means for improving adoption would be to privately brand the integrated MLS / TMP platform inside of a broker intranet system. Many of the same advantages of MLS integration could exist, and additionally:
- The possibilities for strategic vendor placement may enable brokers to improve capture rates of revenue producing affiliated businesses arrangements (ABAs) or select service providers (SSPs).
- Efficient vendor and order management coupled with onboard micro-billing capabilities may deliver new revenue opportunities for brokers. According to Ed Krafchow, President of Prudential California Realty, “A Vendor Management Network will appear to the customer that the agent is providing great value by creating an open market in which the customer has the ability to select various products and services that fit their needs. This network will also provide some profitability to the Broker while crafting a new experience for the consumer.”
- Office managers and Transaction Coordinators can participate in the platform and help drive agent adoption.
- TMP can be made a part of new agent training This is how transactions are done here at ABC Realty which should further improve operational efficiency, margins, and future profits for the broker.
Clareity predicts that a few brokers will attempt to implement private, closed TMPs that restrict choices to company owned or affiliated service providers. These systems are unlikely to be widely adopted or successful, and in fact, could drive some top agents to leave the company. A system that is open to any service providers and allows any cooperating agent to participate is considerably more valuable and therefore has a much greater chance of long-term success.
Digital Document Management
It is worth considering that Digital Document Management (DDM) might have been, or still may be, a logical stepping-stone to successful online transaction management. To the best of our knowledge, none of the well funded, “party like it’s 1999”, dot-coms focused on DDM for the real estate vertical. If one company had focused solely on DDM vs. the grander vision of a full scale TMP, might they have been successful? A detailed case study may one day reveal that the TMP “dot com revolutionaries” failed because they rushed to create the grand solution without taking the evolutionary path through DDM.
Anthony Azar of Realty Executives of Southern Arizona is currently working with Imagetag.com for DDM solutions and had the following comments, We are now able to manage our documents in ways that we were never able to before. The various benefits provided by utilizing DDM are rather deep in scope ranging from timesavings to enabling a virtual process of document review from the Broker level. This technology solution also allows for agents to be disconnected from the office by leveraging electronic distribution capabilities of documents without loosing the original quality which was a problem with multiple fax copies.
The following is an example of a simple DDM platform:
Diagram courtesy of ImageTag.com
There are tangible and quantifiable benefits that can be ascribed to DDM, including the low cost of file storage, the speed and ease of document retrieval, and the reduced liability of keeping complete transaction files for many years as required by state law. Calendaring, notifications, and other transaction management capabilities can also be added.
Part of the difficulty that transaction management has had is the complexity of training on a system that does everything. By implementing one portion of the system – digital document management a company may be able to reap the benefits of the conservative, evolutionary approach to deploying technology. If the DDM was designed with integration in mind, a successful DDM project could subsequently be integrated into the TMP. Clareity believes that DDM is an integral component of transaction management and a critical part of the technology infrastructure that the real estate industry simply missed. DDM for real estate wasnt grand enough or sexy enough for anyone to focus on, and now its a challenge for the industry to skip this step.
CDs, DVDs, and The Customer for Life Web Site
A side benefit of DDM is that it can improve the relationship of the real estate professional and the consumer. One of the end products of DDM can be a closing gift CD or DVD for the buyer that contains all of the documents that were amassed during the transaction relating to the property and the closing. This gift could be branded so that when the buyer considers selling their property and goes to the CD/DVD for their property information, they are reminded of their relationship with the broker and/or agent. This item also provides a tangible product for all of the document fees that are charged during closing.
The archive could include information and documents such as:
- Property information
- Public records data
- Street map
- Aerial map
- Comparable sales / Automated valuation model estimates
- Crime data
- School Information
- Closing documents
- Agency disclosure and election
- Limited dual representation agreement
- Buyer inspection notice and sellers response
- Explanation of estimated costs
- Final walk through checklist
- Home warranty
- Counter offer forms
- Loan applications
Another possibility is that this archive would remain online, on a broker-branded, password-protected web site. The consumer would have membership to this site, providing a relationship on which future communications are based. Those communications would inform the consumer of site updates, new services, community-related content, changes in home valuation and other information designed to improve the relationship of the broker and agent with the consumer.
Evolution 2003: The Dallas Project
North Texas Real Estate Information Systems, Inc. (NTREIS), one of the nations largest MLSs, made a decision in late 2002 that is likely to change the way real estate is practiced in the greater Dallas/Fort Worth area, and perhaps nationwide.
The following pages explain the path that NTREIS traveled in search of a fully embedded, fully functional, Transaction Management Platform (TMP) and the decision process the MLS and its large brokers went through.
NTREIS is a real estate information and technology provider serving 20,000 square miles in North Texas, including the greater Dallas Fort Worth Metropolitan Area. NTREIS provides information management services to over 16,000 MLS subscribers from 18 shareholder Realtor Associations and over 3,000 real estate offices.
NTREIS formed a Future Systems Task Force to explore Transaction Management, web based MLS systems, and ASP Public record solutions. NTREIS engaged Clareity Consulting of Scottsdale, Arizona to analyze each of these three areas and recommend viable technologies and solution providers. Clareitys assessment was presented to the Task Force, and the decision was made to issue a RFP to credible vendors in each of the three categories, and select the best-of-breed solution in each category.
As noted earlier in this document, over 20 TMPs have come and gone over the past 7 years, leaving only a handful handful of legitimate contenders. The TMP selection process began with a detailed, written analysis of the six leading TMP’s currently in the marketplace. Clareity created a series of criteria against which each system was benchmarked.
Considering the size of NTREIS and its functional requirements, the list of six providers was narrowed to four companies for the RFP process. They companies and platforms were:
- First Americans Close Your Deal
- FNIS TransactionPoint
- Realty Assists Realty Assist
- GuruNetworks G3
The four competing proposals were analyzed and benchmarked based upon a series of criteria inclusive of the following scoring elements: customer references, RFP compliance, price to value ratio, product presentation, business model strength, and company future. Upon completion of the analysis, three vendors were then invited to present a live demonstration of their platform to the NTREIS Task Force. The demonstrations, which were held on site at NTREIS, lasted two days.
On the second day, Clareity compiled evaluation-ranking forms that 20 Task Force members filled out during each vendors presentation. Individual evaluations were compiled and analyzed. By using this process, each task force member fully participated in the decision making process and had a chance to contribute his or her opinions unbiased by group dynamics.
The ranking allowed the list of TMP vendors to be narrowed down to two finalists. The Task Force members then spent significant time over the period of several weeks evaluating the two finalists by attending training classes provided by the vendors and using the systems hands-on from their homes and offices.
On January 16, 2003, the NTREIS Task Force met to make a triple play of vendor recommendations to its Board of Directors the TMP vendor, MLS vendor and public records provider that would form the basis of an integrated system. The NTREIS Board unanimously approved the recommendations on January 23rd. Contract negotiations are currently underway with the three selected providers and announcements will be made shortly when the contracts are signed.
This vision of implementing a TMP for North Texas began with Jim Harrison, the CEO of NTREIS. Jim envisioned a robust, fully featured TMP that could be seamlessly embedded into his companys next web based MLS. His vision for TMP included features such as:
- Virtual conference rooms for Realtors to meet and exchange documents and information with clients.
- Co-browsing and other collaborative work tools such as shared calendars and ASP contact management.
- Open accessibility to the participants choice for contact management, document integration and form fills.
- Integrated ASP solutions for property record and public record information.
- Public portals with lead generation tools to draw home shoppers into the Realtors online business center.
- Online meetings, chat, and instant messaging to facilitate communications.
- The platform would also enable ancillary service providers, such as property inspectors, to fully participate in the system online, via wireless, or by using traditional technology such as a fax machine or touch tone phone.
The NTREIS system architecture will include a data repository of information that will facilitate the exchange of data between various platforms, increase the plug and play capability of various vendors, and decrease the dependency on any one vendor.
The NTREIS system will include a repository that utilizes Zonar Corporations Intelligent Information Interchange to provide NTREIS a long-term, historical repository of information from a variety of sources.
Will the TMP model that emerges from the Dallas Project solve the shortcomings that hampered Transaction Management in the past and set a new standard for what TMPs will offer in the future? Stay tuned Clareity will provide periodic updates and insights to what we believe is the first large-scale implementation of Transaction Management by a major regional MLS.
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