The way people buy and sell homes is changing. New venture-backed real estate businesses are forging the path toward dramatically new home purchase experiences.

At a recent Qualia-hosted event, real estate tech strategist, Mike DelPrete, joined Qualia CEO, Nate Baker, to discuss how these new business models are achieving success—not just from the perspective of customer acquisition—but from the lens of profitability and longevity. 

The path to profitability for real estate tech businesses is ancillary services 

DelPrete noted that a lot of venture-backed companies and iBuyers are not inherently profitable. Their path to profitability lies in their ability to attach adjacent services to their core value proposition. “In fact, it’s not just one path to profitability, it’s the path,” DelPrete said. 

As a result, the battleground for adjacent services like title & mortgage is heating up. iBuyers and real estate brokerages are acquiring title companies and mortgage companies left and right or launching them organically. “But this is really, really hard,” DelPrete cautioned. “The incumbents in this space are not just sitting around. They are not going to give up their business easily. And they are also evolving.” 

Businesses may see more success with attaching title rather than mortgage 

DelPrete noted that some adjacent services may be stickier to attach than others. He pointed to mortgage attach rates for iBuyers, including Opendoor and Zillow, which DelPrete said hover around 2%. These attach rates are notably quite low compared to those of brokerages which he said average between 10 and 20% and new home builders, which can be as high as 75%.

The outlook is better for tech businesses like Homie and Orchard which DelPrete said have mortgage attach rates of 80%+. He noted that these businesses see more success because they are 1) smaller in scale than national iBuyers 2) all of their agents are employees of the business 3) they have an integrated platform and ecosystem where all the services are bundled together, and 4) they go after sellers, not buyers.

DelPrete explained that title & escrow is all around easier to attach than mortgage because title is generally “written-in to the process,” meaning consumers don’t typically take an active role in selecting their title agency. While consumers do care about transparency and the speed of the closing, they are generally indifferent to which title company they work with. A recent study commissioned by Qualia found that only 1 in 4 homebuyers understood all of the closing documents. Respondents also indicated that a clear understanding of the process is something they would value in a future transaction.  

Why build your own title & escrow operations? Homeward weighs in

After DelPrete’s market analysis on the value of attaching ancillary services, Qualia’s Director of High Growth Accounts, Jamie Kump, continued the conversation with Daniel Dodell, Director of Business Operations at Homeward

Homeward’s platform helps customers buy their next home before they sell their current home. Homeward owns and operates its own mortgage company and recently started title operations with Qualia. Dodell highlighted the 3 core reasons Homeward opted to take title in-house.

  1. Transactions at Homeward can be complex. Having a title company that understands these transaction types is critical to Homeward’s success. By owning the title operation, the business has more control over these operations.
  2. Customer experience will make or break their business. Dodell noted that Homeward’s customer is not just the buyer and seller, but also the real estate agent. “If an agent is unhappy their entire brokerage could drop us,” Dodell said. Homeward needs control of the title experience to ensure that it matches the rest of the Homeward brand which is highly attuned to the agents’ needs.
  3. Economics. As DelPrete noted earlier, the economics of attaching title & escrow cannot be ignored. 

Technology considerations for businesses looking to attach title 

When Homeward Title initially launched, they were using another title software. The initial software was difficult to work with and caused quite a bit of stress for the operators, so Homeward made the switch to Qualia. Dodell noted the following advantages he saw with working with a software provider like Qualia. 

  1. The software is continually improving to meet the needs of innovative businesses. 
  2. The interface is intuitive for those who are new to the industry. 
  3. The system includes solid reporting capabilities.
  4. The customer success and support team is robust.

Dodell also highlighted the benefits of Qualia’s Partner API which enables businesses to build title & escrow processes into their own end-user experience. While Homeward has not yet implemented Qualia’s Partner API, they have plans to use it for both the consumer and agent-side user experience. When the API is implemented, homebuyers will be able to view the progress of the transaction in real-time on Homeward’s native application. Meanwhile, agents with multiple deals will be able track the progress of those transactions in one place on Homeward’s app. 

If you’re interested in learning more about why PropTech companies are attaching title services for a competitive advantage, you won’t want to miss our virtual Future of Real Estate Summit (FORES21) taking place on March 11, 2021. PropTech leaders will discuss how they worked with Qualia to build digital closing experiences for their clients.

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