The weakness in real estate closings and why we should all worry
The $162.8 billion real estate industry employs more than 2.2 million people. We are a cornerstone of the American economy, but our future is in danger because of a surprising weakness, inertia.
For decades, the real estate industry has been slow to adopt technology. We have relied on in-person services and mostly manual processes. The global pandemic exposed the limitations of our antiquated methods, as shutdowns forced us to adopt technology to continue doing business. The current crisis also illuminated that the real estate industry's practices do not align with modern consumers' expectations. Amber Naslund, a real estate consumer, recently lamented on Twitter that she was told her options were fax or mail when seeking past mortgage documents. Her response, "It is 2020, right?" Naslund's frustration is echoed by many consumers, especially as we are navigating the restrictions of COVID-19.
As the market rebounds from COVID-19 closures, one symptom of this inertia has emerged: lenders are being flooded with a rising volume of mortgage applications, and notary availability is at an all-time low. You wouldn't believe that notary availability would be a reason for alarm, but we're starting to see a concerning crack that suggests otherwise.
Notaries have always been crucial to real estate, and during the pandemic, deemed essential workers. In response to COVID-19, the industry moved toward a more electronic home buying process — including a patchwork of temporary and permanent legislation that has allowed remote online notary in most states. This was a salient move because, in most counties, a home closing transaction cannot be closed without a notary.
Notaries are in high demand but short supply. We received data from Signature Closers, a network of notary agents and attorneys, showing that in April 2020, notaries not accepting signings for 15 or more days increased 1,225% compared to April 2019. This problem became visible in March but continues as resales rebound, and refinancings cause loan volumes to skyrocket.
The decrease in notary availability is made worse when lenders do not offer RON. Many homeowners are not even provided the option and must rely on an in-person notary signing. In many cases, this means having a notary come to your home. Monica Pauli, founding member of Compass, says her clients are frustrated that they cannot close online. She shared a recent story, saying, "I was working with a client, and it was an all-cash deal. My client, the seller, needed to get a notary to come to his home to sign the closing documents, but all the notaries were booked. He could not understand why he could not just do it all online."
Pauli agrees with her clients, and says, "The biggest negative to our whole transaction is the most important piece of closing — getting the documents signed. We cannot do that online. You have to have a notary come to your home during COVID. I don't want anyone in my house, and neither does my client."
The unavailability of notaries is concerning but is symptomatic of a more significant problem, the failure to implement technology. The answer is not more notaries but technology adoption. We cannot afford to continue to cling to outdated processes. Doing so is a disservice to consumers and the health of our industry.