Selling real estate with the Property DNA® [Case Study]
While it may be clear to us what the advantages are of having a PROPERTY DNA® — that might not be true for everyone.
For this reason, we present the first in our series of PROPERTY DNA® Case Studies — “The PROPERTY DNA® in Action” to illustrate how we believe it will fundamentally transform the real estate industry.
So, let’s imagine Amy is trying to sell the apartment building she owns, which includes 10 apartments and a small restaurant on the ground floor. Let’s take a look at what exactly she has to do.
Of course the first challenge that Amy faces is valuing the building she wants to sell.
Amy is confident that she can sell it for € 9.2 Million, but in order to actually sell the property, she needs to have it valued by a third party.
She hires two of the big five valuation companies in her country.
Company A offers to carry out the valuation for € 3.500.– and the other for € 2.800. — .
Company A estimates the value of the house to be € 7.6 Million and company B at € 8.5 Million. Since the range is so high, Amy decided to get a third opinion (costing her an additional € 3.200.–) which yielded a valuation of € 8.2 Million. Now this means that Amy has spent a total of € 9.500.– (and five months of time) in order to get a valuation to sell the property.
2. Due diligence
To be able to sell her apartment building, Amy must also invest a chunk of change into doing a red flag due diligence followed by a technical, legal and commercial due diligence.
This costs her € 86’000.– (1%) and takes between 6 to 9 months of time and effort.
3. Brokerage fees
Amy’s broker Tim is certain that he can sell the house for € 9 Million — a number which makes Amy happy.
Amy and Tim agreed to a success fee of 2.5% (a very conservative number if you consider an average of 6–7% for the USA and some European countries). Since Tim was able to sell the house for € 8.6 Million, Amy pays him a success fee of € 215.000. — .
All together transaction cost summed up to € 310’500.– (or 3.6%, excl. notary and many other costs).
A dangerous range
One special point to take note of here — Amy got three different valuations from three different agents. This range, and the time and money it cost her to get them, is a serious road-block in the process of selling her house.
Now it should be noted — before we explore the efficiencies that the PROPERTY DNA® brings — that these numbers are not just our opinion.
After an extensive field research, a well-known and independently-acting consumer protection company was able to prove that professional valuations in Switzerland differ by around 20%.
That means it will likely be that you will end up selling your house at a price between € 800'000 and € 1’200'000/.
Why is valuing a property so difficult?
In general because there is a lot of manual and multilateral work involved in delivering benchmarking and valuations. This is due to different factors:
- data models that are based on hedonic calculation
- missing or complex access to high-quality data sets
- often excel-based and therefore corrupt data
- lack of standardized accounting tables
- conflicts of interest → sellers tends to get higher valuations than buyers
A Better Way with PROPERTY DNA®
Obviously, there has to be a better way.
If we agree that inconsistent valuations and a lengthy, cumbersome due diligence process are key stumbling blocks in the path towards a successful sale — then let’s consider what the PROPERTY DNA® can do to fix this.
Because the PROPERTY DNA® provides an “at-a-glance” picture of the property, all the data which Amy needs for the due-diligence process is held in one place. This data has already verified with numerous 3rd-party service providers (e.g. notaries, service providers etc.) with all the necessary documentation.
Also — because Amy has completed the DNA and “minted” it (tying the relevant data to a secure, immutable record on the blockchain) — this data can be trusted and is tamper-proof.
In essence, Amy has completed the due-diligence process (or a large part of it) already.
Now she won’t have to wait 6 to 9 months for all the necessary information to be checked and verified.
As mentioned above, the main problem with the process of valuing a building to sell, is the wide range of estimates that are returned. Obviously, when third-parties are involved, opinions — and more importantly, data — can vary widely.
But what if higher-quality data were available to all? And what if it wasn’t just contained in the proprietary servers of some third-party service provider (making it hard to verify and totally untransparent)?
The PROPERTY DNA® solves this problem in two ways:
- Users of the Pro version of the DNA can access reliable benchmarking data (provided by our partner ImmoCompass) which allows them to quickly get a view of the market and make educated decisions.
- On a wider scale, the verified data contained in the complete, “minted” DNA can be exchanged (anonymously) among peers for independent verification of market valuations — without the need for third-party validators.
Tokenized property sales
The scenario outlined above clearly shows how the PROPERTY DNA® can be of benefit when dealing with the pain points in the traditional process of selling a property.
This in addition to the fact that both buyer and seller (in particular the seller) benefit from greater transparency and reduced risk thanks to more accurate valuations.
Just imagine if Amy had only been able to get € 7.6 million for the property — a price much lower than expected and one which she was unprepared for because the valuations she received were wildly inaccurate.
Most importantly, however, the PROPERTY DNA® also lays the foundation for NEW POSSIBILITIES for the sale of real estate.
In the not-so-distant future, we may very well see the market altered by the opportunity for fractionalized ownership — shared profits among multiple owners and much more.
In this case, the slow, outdated processes of valuation and due-diligence will become even more cumbersome.
But using the PROPERTY DNA® to create a basis of trust — a “digital ID” for property — there will less of a need for intermediaries to take care of things — causing property owners weeks and months of waiting.
That’s why we believe the PROPERTY DNA® can enable dramatic innovation in real estate.