Today’s commercial real estate market is a trillion-dollar industry, and property prices are rising as investors move money away from the stock market and into more tangible investments. Since speed and accuracy are important when dealing with transactions (due to the large dollars that are at stake), the title industry should streamline the commercial real estate closing process through the use of technology.

With technology must come standardization. The residential real estate arena is much further down the road in this regard than the commercial arena, primarily because commercial transactions are far more complex and require more customization. The key to commercial real estate success on the Internet lies in finding a way for all parties involved — mortgage bankers/brokers, owners and investors, property brokers and settlement services providers — to maximize the power of the Web. This requires some level of data homogeneity: a universally used and understood method of communication.

The commercial real estate industry does have some standards to go by. The National Council of Real Estate Investment Fiduciaries, the Pension Real Estate Association and the National Association of Real Estate Investment Managers developed standards for real estate investment in 1993. However, almost everyone in the industry agrees that new or updated standards specific to the Internet are now needed.

The challenge is that there are so many different participants in every commercial real estate transaction, each with distinct needs and various language. The lack of standards impedes information sharing and information flow throughout the transaction. To bring together all parts of the commercial real estate industry, the standards that are adopted will have to be broad enough to apply to everyone, yet specific enough to provide the efficiency standards are designed to provide.

Several groups are working along these lines. The Real Estate Information Professionals Association has a transaction standards committee, the Alliance for Advanced Real Estate Transaction Technology (AARTT). AARTT’s mission is to create and facilitate open standards for data exchange among companies within the real estate technology industry. In addition, the Mortgage Industry Standards Maintenance Organization’s (MISMO’s) Commercial Working Group has been working to build a commercial mortgage origination data standard.

MISMO has developed a logical data dictionary of business data elements. Approved data standards exist for automated underwriting, credit request and response, flood request and response, mortgage/loan application, mortgage insurance request and response, servicing transfer, and title request and response. Additionally, new workgroups have been formed to address the issues, requirements and development standards for electronic mortgage transactions, SMARTDocs, e-signatures, and e-closings. The Property Records Industry Association (formerly the Property Records Industry Joint Task Force) is also working with MISMO and has approved an industry standard XML data protocol to facilitate electronic recording with county clerks and recorders’ offices.

It is one thing to create standards, but another thing entirely to get people to accept them. Certainly as technologies gain popularity, there is a degree of marketing pressure to make sure other systems are compatible.

The challenge within the title industry is determining how much of the process can be streamlined to move the transaction along faster. As managers of the information within a transaction, title companies are well positioned to work with the commercial real estate industry to look at the paper stream and identify points at which the process can be automated. Title companies can begin by looking inward, automating their own processing and record-keeping systems using the Internet and other computer technologies.

Title companies also are helping streamline the commercial closing process by making technology available for the various stakeholders in every transaction. As documentation is handed off through the transaction from the broker to the lender to the title company, various investors and other parties, there is a need to streamline the paper process as much as possible.

The benefits of doing transactions on the Internet are great because the Web provides a secure, central repository for documents and allows users 24/7 access to the information they need to keep the transaction moving. Technology, particularly Web-based and intranet tools, opens the door to a “paperless” society, lowers industry costs and the costs passed on to the consumer, and improves productivity, quality and workflow. Technology can increase the commercial real estate industry’s capacity to handle more transactions and decrease overall turnaround time for customers.

Certain types of information, such as property comparables and property tax information, can be accessed easily online to help move the process along. Some title companies are working with county recorders to move toward automation. Today, some county recorders keep public land records up-to-date by using Internet databases that include deeds, deeds of trust/mortgages, other land records, taxes, tax liens and environmental issues.

Using intranets, some commercial mortgage brokers and bankers, as well as some commercial real estate brokers, have created their own internal respositories to handle documentation for private clients. Typically, these databases can be accessed only by employees or by clients with passwords. For instance, some commercial real estate mortgage brokers now have software for packaging loan submissions for potential capital sources, or for the secondary market. However, without data standardization, these efforts are limited.

Darren Ross is director of electronic commerce for Stewart Information Services Corporation.


©2003 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.