Independent Consultant Approach
Based on my personal industry experience (a licensed agent in the state of Delaware, finance manager for a residential developer, and industry consultant), I initially had some reservations about several of the assumptions regarding the choice of the real estate industry in the plan. To explore my concerns further, I discussed the www.justclose.com business concept in confidence with two professionals in the industry – a settlement attorney licensed in a tri-state area, and an executive of a real estate development firm. Together, they represent decades of experience in many aspects of the residential real estate business – existing and new home sales, buy and sell sides, primary and secondary homes, and every step of the transaction. After I explained the general concept of the website, I asked them to give me their first, unaided reactions and comments. After noting these, I began a more guided conversation, mentioning specific elements and concerns of the site. The following are conclusions are drawn from those conversations:
1. The variability of real estate transaction laws from state to state is overwhelming and may require significant effort and resources to incorporate into the site. For example:
| Independent Reviewer Findings | www.justclose.com Solutions |
| In some states, an attorney is required by law to conduct a settlement. | Attorney has his/her own mini-website in Realty4Hire.com with access to all Real Estate actors and documents. |
| In others, all money must flow through an attorney’s escrow account. | www.justclose.com supports this process in Pre-Closing process |
| The required disclosures and addendums to sales contracts vary considerably. | All varieties are supported |
| By offering to actively assist in the closing, the site may be seen as assuming the responsibility, and a legal liability, for understanding all these laws and keeping customers from making mistakes that might void a contract. | Both Seller and Buyer may allow their attorneys or other certified personnel (by State) a complete or partial access to their documents. |
2. State laws and practices may, in effect, prevent a virtual closing.
| Independent Reviewer Findings | www.justclose.com Solutions |
| In some states, a notary has to witness the signing of certain documents. This requires a physical presence and the attachment of a physical seal | www.justclose.com supports virtual (digital signature), conventional or mixed processes. |
| In some states, the transaction is not complete until the deed of sale is physically delivered to a government office | www.justclose.com supports use of courier. |
| A walk-through is an essential event on closing day. The purchaser typically does this and assumes responsibility for noting any defects or deviations from the agreement. While a real estate agent usually accompanies his client, agents do not and may not want to assume the sole liability for this determination. | www.justclose.com uses process called Pre-Closing where all documents are validated.
Virtual Closing provides technology where all parties are presented on one screen, everyone seeing he same documents and real or digital signature can be obtained in Pre-Closing or Virtual Closing stages. |
3. Federal law adds an additional level of scrutiny over the settlement process.
| Independent Reviewer Findings | www.justclose.com Solutions |
| The Real Estate Settlement Procedures Act (RESPA) mandates certain actions of most parties in a real estate transaction. As a facilitator on a large scale of that transaction, your activities might be subject to federal scrutiny | www.justclose.com provides access to assistants whose role is to advise in complex matters including federal inquiry. |
| One specific regulation of concern is Section 8(a) which provides that
“[n]o person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” |
www.justclose.com supports use of courier. |
| The revenue streams you expect from professional listings would have to be designed to avoid scrutiny under this statute. | We have the understanding and developed a strategy on how to work with USA government. |
4. Other procedures and processes might prove substantial hurdles to overcome.
| Independent Reviewer Findings | www.justclose.com Solutions |
| During the course of a settlement, a number of parties pay and are paid money. Guaranteeing the proper distribution of this money is an attorney, escrow agent or other reliable third party. It is not clear whether the site will require all settlements to employ such a person, or if the site will offer its own system of guaranteed virtual money transfers. | Seller or Buyer has a choice to offer attorney or other reliable party participate in their transaction. |
| In almost all states, commissions directly related to a real estate transaction can only be paid to a broker licensed in that state. This will have a substantial impact on the projected revenue stream. | www.justclose.com will provide opportunity to Buyer or Seller to choose a real estate agent or broker. In this case Realty4Hire.com will receive some portion of the proceeding (Realty4Hire.com has a real estate broker on staff). But most of the revenue will come from the subscriptions. |
5. The strength of the Artificial Intelligence Interview Engine (AIIE) makes up a small part of the overall value proposition of the website.
| Independent Reviewer Findings | www.justclose.com Solutions |
| The perception is that the strength of the AIIE would be its ability to assist a user to sift through a large database of home listings, but not as helpful sorting through much smaller lists of professional providers. Yet, the portion of the website after the home is selected seems to create the most of the start-up and operational challenges. | AIIE is build to help buyer find what they’re really want by aiding their decision process. AIIE also trains buyer to make a choice. So it doesn’t matter how big listing is. We’re also anticipated that property database will increase in size very rapidly via local assistants in each state. |
| Given the existence of several other FSBO websites, creating a database of home listings, especially with the additional “green” search criteria may take significant time; until then, the site’s unique feature is not being fully leveraged. | www.justclose.com is different then FSBO sites: it is much more user friendly. It has ability to introduce home owners to the value of using green artifacts. |
In general, real estate transactions are not simple. The laws governing these transactions are extremely fragmented and in a continual state of flux, and the practices are not always intuitive. This presents an opportunity in the marketplace – to provide a site with tools and guidance that can simplify a transaction. However, it presents a correspondingly difficult challenge to correctly implement and maintain these tools. The management team appears to have both the industry expertise and the programming abilities to assume this challenge; however, additional legal vetting of the sites functions within each state would be warranted.
There are some aspects of the virtual closing which we felt were real strengths. While there may be cost savings obtained by competitively bidding the closing process, a greater, potentially more valuable quality, is the convenience of not having to be present at a closing hundreds of miles away. This would make the process very attractive for corporate and other long distance relocations. Additionally, the streamlined process envisioned would be very appropriate for a home refinance which is less complicated and much more a formality than a settlement involving transfer of ownership. (We noted, however, that these types of transactions represent a small subset of total real estate settlements.) Finally, by offering access to industry professionals, the site expands the potential market for FSBOs to include buyers and sellers unwilling to attempt to buy or sell real estate without assistance.