Comparing the Traditional Real Estate Process with the Virtual Real Estate Process

If you are just starting out or already working in the real estate industry as an agent, administrator, or transaction coordinator, you may have a lot of inquiries. Just what does a real estate transaction entail, in its most basic form? Who does what when it comes to real estate transactions? What is the definition of a real estate deal done online?

This step can appear very different based on the real estate agency’s procedures, tools, and computerized systems.

If a real estate agent is more comfortable with the old ways, he or she can insist on conducting all of the steps in the transaction in person, including showing the house, receiving the earnest money, and signing any necessary paperwork using pen and paper rather than a digital signature pad (eSignatures). It is also called electronic document signing software.

On the contrary, a real estate agent employing digital transaction processes can offer 3D tours to showcase the house, transmit the earnest money electronically, and eSign all relevant paperwork with the buyer using a real estate transaction management system. These two methods, often combined, are used by most agents today.

To help you save time, eliminate friction, and work more efficiently, we’ve outlined the fundamental steps of a real estate transaction below, beginning with the initial inquiry.

10 Steps to a Smooth Real Estate Transaction Process

• Step 1: List a Home. Make an Offer.
• Step 2: Collect Signatures
• Step 3: Open Escrow & Pay Earnest Deposit
• Step 4: Get the Home Inspected
• Step 5: Perform the Title Search
• Step 6: Secure Insurance and Loan
• Step 7: Get the Home Appraised
• Step 8: Notarize Documents
• Step 9: Gain Compliance
• Step 10: Close

List a Home. Make an Offer

After negotiating a price with the seller, the agent will post the property on the MLS so that other brokers can find it. Open houses and showings are often arranged by the listing agent, who is also the transaction coordinator.

Traditionally, the buyer’s agent will show their client various properties, both online and in person. Because of their ease, consumer involvement, and time savings, virtual or digital showing methods like 3D tours, video tours, drone photography, and virtual reality (VR) have continued to rise in prominence since the epidemic shut down in-person showings in 2020.

Both have their merits: While a physical showing gives the buyer a chance to take in the sights, sounds, and smells of the property, a virtual one allows the buyer to click, “walk around,” and tour the house at their own pace whenever it is convenient for them.

The real estate transaction process formally begins when a buyer discovers the home of their dreams. Typically, a buyer will engage in an exclusive arrangement with a buyer’s agent who will then craft an offer to purchase on the buyer’s behalf and handle all related negotiations.

Collect eSignatures

Although some real estate brokers may still use wet (ink) signatures, the vast majority have switched to electronic signatures due to their convenience and speed. While not used during the closing process, eSignatures for real estate are a time-saving tool that helps real estate agents streamline the home-buying and selling process for both themselves and their clients.

Electronic signatures (eSignatures) have many benefits over traditional paper signatures. One benefit is that documents with the signature will be easier to recognize from one page to the next. Brokers and agents can also benefit from the space savings. When everything can be kept digitally in the cloud, filing cabinets are no longer necessary. Agents and transaction coordinators can use the encrypted messaging features of some real estate mobile apps to obtain electronic signatures on documents.

Electronic signatures used in the real estate industry are reliable and secure for all parties involved. By signing the E-SIGN Act (Electronic Signatures in Global and National Commerce) in 2000, the federal government recognized as legally binding electronic signatures for transactions affecting either domestic or international trade. In addition, a timestamp and other identifying information are typically included in real estate eSignatures for added protection.

Open Escrow & Pay Earnest Deposit

The listing agent will set up an escrow account with a neutral third party to hold all funds and contracts until closing. In certain areas, attorneys handle this, whereas in others, an escrow company is used. The escrow company handles all of the transaction’s monetary exchanges.

Once a seller accepts an offer, the buyer is expected to put down an earnest money deposit as evidence of their commitment to complete the transaction. The escrow officer at the title business is the one who receives and holds the earnest money until closing.

Buyers should exercise extreme caution during this phase of the deal because wire transfers and paper checks put real estate clients at high risk of fraud and other forms of cybercrime. In order to transfer earnest money via mail or wire cash, consumers and agents routinely email personal information such as banking accounts and social security numbers. This increases the risk of identity theft and financial loss.

For this reason, many transaction coordinators and agents are switching to digital earnest money processes, which use digital transfers encrypted at the bank level to convey the deposit straight to the escrow holder.

Get the Home Inspected

An inspection is performed on most houses to make sure they are in satisfactory condition and adhere to local and state building codes. Licensed home inspectors will spend a considerable amount of time performing a thorough examination of the home, including visually inspecting and performing manual tests on the home’s various systems (including the heating, ventilation, air conditioning, electrical, and structural ones).

Conventional mortgages may not necessitate a home inspection, but FHA and VA loans typically do. However, in “as is” sales or multiple bid situations, where an inspection may be seen as a barrier to a buyer’s offer, the inspection may be waived.

After the inspection is over, the inspector will give a list of potential items that need to be fixed or replaced before closing. Buyers and sellers frequently engage in a negotiating process to settle which repairs the seller will perform or, if not, how much of a credit the seller will give the buyer at closing. If a satisfactory answer to a repair issue can’t be discovered at this stage, the transaction can fall apart.

A separate pest examination is necessary to protect against wood-destroying insects like termites for homebuyers. Numerous mortgage providers demand even small pest concerns be fixed prior to closing due to the potentially disastrous effects on a wood-framed home.

Although most home inspections still take place on-site, there are now businesses that do inspections remotely using user-generated films and geo- and time-stamped footage.

Perform the Title Search

After or alongside these procedures, a lawyer, title officer, or escrow agent will search public records for any claims to the property to verify a clean title may be transferred to the buyer. This procedure verifies that the seller is the rightful owner and may legally convey the property. When the title is free of any claims or liens, the title insurance provider can issue the policy as proof of a good title. Timeframes of two-to-four weeks are possible at this stage.

Some real estate brokers and title businesses prefer to use a digital title order service that electronically transmits title orders to their internal systems.

Secure Insurance and a Loan

In today’s low-supply real estate market, purchasers need to show that they can pay for a home by providing proof that they have been pre-approved for a mortgage in the amount necessary to make the purchase. In fact, many sellers and listing brokers will not even consider offers from potential purchasers who have not first obtained pre-qualification letters from a lender. It is important for a buyer to know the maximum price they can afford to pay for a property, and pre-approval letters serve to establish their financial stability and provide this information.

After the seller accepts the buyer’s offer, the lender will begin working directly with the buyer to provide the necessary documentation for the buyer to apply for and ultimately receive approval for a mortgage. Before the deal can close, the buyer must also obtain homeowners insurance.

Brokers can refer their clients to insurance and loan agents that they have worked with in the past through the third-party pages hosted by their preferred transaction management system. In turn, this can assist customers to save time and effort while searching for the right insurance plan and financing options.

Get the Home Appraised

A real estate appraisal, in addition to a home inspection, is necessary to assess a home’s fair market worth before it can be put up for sale.

Most financial institutions insist on an appraisal before they can loan money. The evaluation guarantees that the loan amount is reasonable in relation to the property’s worth, safeguarding their investment.

Even though virtual processes, such as virtual home evaluation, were already on the rise before the pandemic, they have since experienced a significant increase in popularity. Virtual home appraisers will conduct “curbside” or “drive-by” evaluations to determine a home’s value instead of physically visiting the property. They will physically inspect the exterior and virtually investigate the interior. Virtual home assessments are best for single-family homes and not so helpful for high-rise condos, where an outside analysis would be useless. You should verify your state’s laws and your lender’s policies before deciding to go with a virtual house appraisal.

Notarize Documents

Most deals don’t need a notary, although the seller’s side of a few pieces of paperwork might. Notaries are traditionally scheduled a week in advance by agents and transaction coordinators so that their clients can appear before them to sign documents. If the courier fails to deliver the closing documents on time, the agent may have to take time away from other tasks to track them down. This can be even more complicated if the vendor is out of town or out of state.

Thankfully, the epidemic has hastened the arrival of a more convenient option, with most states now permitting the use of online notarization services in some form. Real estate agents can save a lot of time and make their clients’ lives easier by using digital notarization services, as customers can read, sign, and have their documents notarized from any location using a mobile device. Commercial lease agreements, survey affidavits, parental guarantor, and power of attorney forms are just a few examples of documents that may need to be notarized.

Perform Compliance

An unexpected audit can cost a real estate brokerage hundreds of thousands of dollars or result in the loss of a multimillion-dollar listing, making compliance an essential part of the real estate transaction process. At the very least, the set of documents needed for closing will be determined by compliance with the regulations governing the purchase and sale of real estate in a given area.

Transaction coordinators require reliable workflows and technologies to guarantee all documents adhere to the regulatory and brokerage-mandated standards of compliance.

Agents and secretaries used to use paper folders to transport these documents from one location to another. The paper chase has been much-reduced thanks to modern electronic, automated processes, which also warn administrators at each stage of the process when an action is necessary, hence reducing the potential for multiple errors.

By way of illustration, a broker may be notified by an administrator to sign documents via stage notifications. Needs Review, Return to Agent, In Final Review, Approved, Closed, and Archived are some of the compliance review phrases that can be mapped to workflow steps.

Real estate agencies and teams can improve their compliance with the use of standardized transaction templates, which guarantee that all relevant paperwork is delivered to the right people at the right time. Listings, offers, onboarding new agents, and other common types of transactions can all be categorized into their own transaction templates.

Once the escrow company has confirmed that all parties are in agreement, the closure can proceed.

Close

Closing documentation for the transfer of legal title or deed to the buyer will be prepared by the title firm or attorney, as previously mentioned. When the mortgage lender gives the “clear to close,” the title business will file the transfer of funds with the county assessor or recorder’s office, making the seller the legal owner of the property.

The buyer should conduct a final walk-through of the property to verify that the seller has made all agreed-upon repairs, that the appliances and other things listed in the contract are still present, and that the home is still in satisfactory condition before the sale is finalized.

Due to the complexity and timeliness requirements of real estate transactions, transaction coordinators are often stressed beyond their limits. When a transaction coordinator is responsible for keeping track of the many moving parts of five or ten separate deals at once, it’s easy to see how they could become overwhelmed.

It is for this reason that any coordinator handling a real estate deal should employ the use of a real estate transaction checklist complete with delegated Tasks Lists. With the aid of these transaction management solutions, the entire process can be streamlined, and everyone involved can stay on target as the deal moves forward.