Always Be Closing: Digital Infrastructure Company Drags Real Estate Out Of Analog
Buying a house is so 1980s.
And that’s a problem.
Even though legal real estate transactions have been happening for centuries, the basic process itself is every bit as complex today as it has ever been, with very little of the digital disruption that’s transformed countless other industries.
“It’s shockingly difficult to buy a house, and it’s expensive as well,” Qualia CEO Nate Baker said in an interview with PYMNTS, noting typical fees that amount to 10 percent of transaction value on both sides. “That’s just a lot.”
What a lot of people have missed, he said, is that title companies have an opportunity to digitize the entire process. As such, the focus of Qualia’s business is to enable these critical middlemen to coordinate the various parties and allow such seemingly ordinary functions like remote signing via a phone or pulling people together on one common platform.
“I think the reason real estate has remained so complicated and difficult is, usually in a lot of these industries it requires one or two parties saying, ‘Yes, we’ll modernize,'” he said. But in real estate closings, he added, “there’s a dozen different people involved with complex interlocking interests, and so it’s been very hard to pull them forward.”
In December, Qualia announced that it raised $65 million in Series D financing, increasing its total funding to $160 million and valuing the 5-year-old company at over $1 billion. It also announced the acquisition of Adeptive, the developer of ResWare, a title and escrow production software well known within the real estate industry. Both moves come as the pandemic made the long-term value of a fully digital closing platform clear in a business that has historically depended on manual processes.
“The proceeds are, one, for the acquisition and then, two, to help us build a lot of our engineering and our newest products,” Baker said, calling the full digitization of the mortgage closing process a difficult and significant undertaking. “How we build all these adjacent products in a way that actually helps everyone streamline their work … I think that’s where a lot of the funds are going to be going.”
According to the company, in the last year, Qualia’s team has nearly doubled, and it has aggressively expanded its suite of products for an increasingly broad set of customers using the platform. It recently released a platform supporting technology-enabled real estate companies, such as Redfin, REX and Orchard, that digitizes their processes with title agents, and a native Remote Online Notarization platform to make it possible to close on a home fully remotely.
“Our primary customer is the title agent,” Baker said in describing the process in which these companies switch their entire business over to Qualia and run it as their core workflow software system, and then it scales from there.
“And then on every transaction that they do, they invite a lender, the real estate agents on both sides, the buyer and the seller, all onto this common platform where they can work together,” he said. “It all kind of ties together around the title company, and then everything else that we’re doing is built on top of that and in partnership with them.”
Although fully digital real estate closings still account for only a small fraction of overall closings, Baker is focused on enabling all existing participants to digitize — and eventually the entire industry. According to Baker, it’s the only way to get enough scale to actually move the process forward.
It’s not just the business side of the closing industry that Qualia focuses on, as Baker said 63 percent of future home buyers have said they want a fully digital closing but only 13 percent actually got one. Add in the fact that only one in four consumers “know what they’re singing” when faced with a stack of closing documents, and the use-case becomes clear.
“We enable a remote signing where the consumer can actually sit down, work through the documents on their own time, get an explanation if they need it,” he said, noting the appeal of the better consumer experience. At the same time, he said Qualia is “enabling that Amazon checkout experience” for home buyers.
Because title companies have such complex operations, helping them automate their internal infrastructure and also connect with lenders and real estate agents in order to bring everyone onto the same digital page offers a substantial increase in efficiency. Baker said it’s a huge innovation on the real estate side.
COVID Fears Became A Banner Year
Like so many businesses tied to banking, real estate and the economy, 2020 started off with deep fears, but ended with a sense of major accomplishment.
“I think the resilience of the real estate market was kind of an important lesson for me, just in how bad things need to be before transactions are going to actually stop,” Baker said.
While there was a point early on in the pandemic where a lot of counties were closing down, a reality that would have stopped a lot of real estate transactions all together, it never materialized. In fact, Baker said, the opposite ended up happening.
“So, it was a banner year for a lot of different companies in the real estate industry on both the purchase and refinance side,” he said.
As far as the outlook for the housing market, which is facing a number of headwinds from COVID to rising rates and record prices, Baker said he is confident.
“In residential real estate, it seems like rates are going to stay low and supplies are extremely constrained, so prices are going to stay elevated,” he said.
“Everyone’s been struggling to keep up with the business this year,” he added, “so I don’t know that we’ll be quite at that level in 2021, but I think it’ll be a solid year for real estate.”