People like to describe major advances in human civilization by codifying the different “ages” of history. Pre-biblical history can be described as the Stone Age, followed by the Bronze and Iron Ages. More recently, the Industrial Age saw tremendous change in the 18th through 20th centuries, and recent advances have already moved us past the Silicon Age and into the Information Age. The internet economy has made data ubiquitous, and data itself has become a currency — centralized giants like Google and Facebook have built some of the world’s largest businesses by leveraging information.
However, especially if you’ve read some of my previous posts, you won’t be surprised to hear that one area of our economy is still stubbornly rooted in the Stone Age. Considering that buying a home is generally the largest financial investment the average American will ever make, I am shocked at how bereft of reliable and accessible data the typical home transaction is. Data significantly benefits both home buyers and investors. For buyers, reliable and accessible data directly affects the range of loan options that are available — unfortunately today, this means 50-year lows in home-ownership rates. For investors, data mitigates investing risk by creating better underwriting guidelines and loan products.
What are residential real estate’s data challenges today?
In home lending, technology can vastly improve data across multiple areas. First, today’s market data is incredibly stale. Lenders and investors are working off information which doesn’t adequately track with the changing demographics and employment trends. This information drives the structure of their loan products; imperfect market data here is like trying to nail a weather forecast in the 1980s — and yes, today’s mortgage data infrastructure largely resembles that era. This void of data makes any good information incredibly expensive. Investors today shell out upwards of $50K for minimal record sets. For those that traditionally drive industry innovation — startups — this is a significant barrier to entry and crowds out important competitive forces.
Another area where data is far from ideal is home appraisals. Appraisers today have strong relationships with the big mortgage banks. So while an appraiser is meant to be a neutral 3rd party, the fact is that the mortgage bank still remains the hand that feeds its business.
In summary:
- Market data is stale — does not track to today’s changing demographics and employment trends
- The centralization of data sets by few companies makes information extremely expensive
- Moral hazard from data providers suffering from conflicts of interest
What a blockchain solution could look like
Last week, we talked at a high level about how blockchain technology can revolutionize the home lending market. The data issues described above are some of the specific areas where blockchain solutions fill key gaps and connect the supply and demand directly and without friction. Within a blockchain workflow, borrowers finally get paid for their data, which helps reduce their effective loan interest rates. In turn, investors experience nothing short of an information breakthrough — via blockchain, data is more accessible (no intermediaries), diverse, and affordable.
Additionally, appraisals can be taken out of the hands of agencies biased to do the bidding of the banks that employ them, as blockchain technology enables smarter appraisals using more comprehensive valuation approaches, based on fresher data.
These are just some of the areas where a blockchain solution can address critical data needs, and be a key tool to bring the real estate lending market from the Stone Age into the Information Age.
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I founded Reasi, a home lending startup that brings convenience and cost-efficiency to the home transaction process. If you are buying or selling a home, and want to save money while doing business outside the traditional financial system, Reasi is for you.
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