Home Buying Process Is Broken; an 'Amazon of Real Estate' Could Fix It – Business Insider

Buying a home has never been simple. Sites like Zillow and Trulia can make it easier to search for houses online, but even if you find the right home, that’s just the start. To get an offer together, you’ll want to consult an agent, apply for a mortgage, and try to figure out how much you can reasonably stretch your budget. Even after making the financial pitch, you’ll find a crowd of middlemen waiting with outstretched hands: brokers, inspectors, appraisers, loan processors, credit companies, and surveyors. That all sound overwhelming? Well, you’re not done yet. Depending on where you live and who you work with, you may need a real-estate attorney, a title agent, an escrow agent, or some combination of the three. As one consumer advocate told me, “You almost have to get a license to understand the process.”

Decades of mounting regulations, an influx of new players in the industry, and the fallout from the housing market’s collapse in 2008 have made real-estate transactions increasingly bloated with paperwork and intermediaries. Companies have raised billions of dollars by promising to make the thornier parts of the homebuying process smoother. But after years of trying, the basic structure of buying and selling a home remains pretty much the same. In fact, with so many startups trying to update various parts of the transaction for the digital age, buying a home has actually gotten more complicated. Today’s house hunters don’t just face an inventory shortage and rising mortgage rates — they’re also up against information overload.

“I want to be able to tell you, ‘Yes, technology is really changing it, and it’s helped here, and it’s improved that,'” Mike DelPrete, a scholar-in-residence at the University of Colorado Boulder who studies the intersection of tech and real estate, told me. “It just has not at all.”

But a better way is possible. Companies are racing to develop platforms that guide users seamlessly from beginning to end of a home purchase. Other changes, like higher standards for real-estate agents and more transparent agent commissions, could make things simpler for homebuyers who are currently faced with a complex, overwhelming, and oftentimes frustrating process.

“As a general rule, the idea is, ‘If it ain’t broke, don’t fix it,'” Rob Hahn, an entrepreneur and longtime consultant to local Realtor associations, told me. “I’m like, ‘Well, I think it is kind of broken.’ And I think the pandemic really showed us how broken it is.”

Why buying a house is so complicated

At the most basic level, home sales are complicated because people are complicated. Buying a house is often the largest purchase someone will make in their lifetime. Each buyer comes to this monumental transaction with their own search criteria and financial history, making it hard to take a one-size-fits-all approach. 

“Buying and selling a home is fundamentally different than every other transaction,” DelPrete told me. “Full stop.”

The sheer financial scale of homebuying is a good reason to make it more complex than, say, buying a gallon of milk or a car. Even if you accept a bit of intricacy, real estate remains a stodgy industry — and regulation is at the core of that resistance to change. Property sales, especially after the global financial crisis, are enmeshed in a dense web of national and state laws. Many of these rules are necessary to protect consumers from getting ripped off, but in some cases they can also overcomplicate the process. It might seem more efficient if the company helping you find a home could also hook you up with a mortgage and home insurance and handle your appraisal and inspection. But that kind of setup could leave consumers vulnerable to being overcharged and underserved. There are strict rules to limit kickbacks between agents, mortgage lenders, and title companies, for example, so that buyers aren’t aggressively steered toward certain firms just because money is being exchanged behind their backs. But that doesn’t mean it doesn’t happen.

Or take the home-appraisal process. Mortgage lenders used to hire an appraiser directly to value the house and help determine how much money they’d be willing to loan for it. But lenders ended up abusing this power, putting pressure on appraisers to value properties higher to drive up prices. Regulations required a separation between the lenders and appraisers, giving rise to a new class of independent middlemen: appraisal-management companies. These firms are hired by a lender to find an appraiser to do the job, pocketing a cut of the money for their services. Does this ward off bad behavior? In some cases. But it also adds time and costs to the process, an extra step that most buyers probably don’t even know about. 

It’s clear that these rules are weighing on potential buyers. A 2022 survey of homebuyers conducted by the National Association of Realtors found that 30% of respondents between the ages 24 and 32 — the cohort most likely to include first-time buyers — said understanding the process was the most difficult part of the purchase. In another survey by Zillow, 24% of buyers said they didn’t completely understand everything they signed when buying a home. The various hoops buyers have to jump through also add to the cost of a purchase: Last year, the typical homebuyer with a mortgage spent a little over $4,000, or 1% of the average sale price, on closing costs like the appraisal, title insurance, and recording fees, said ClosingCorp, a provider of real-estate closing-cost data. Taxes, which are usually paid by the seller, added another $3,200.

Then there’s the challenge of digitizing an old-school process. People may like to rent a movie or buy a pizza with the click of a button, but that doesn’t mean they want the same experience for a home purchase, DelPrete told me. Sure, people can tour homes with a virtual-reality headset, but buyers still want to walk around in a house before they make an offer. And once they start to envision themselves welcoming guests into the living room or watching their kids play in the backyard, they’re practically guaranteed to act irrationally. That’s when it’s helpful to have a living, breathing person there to offer a levelheaded perspective. Despite the best efforts of would-be disruptors to cut out this middleman, 88% of buyers this year enlisted a real-estate agent, a Zillow survey found. That figure is even higher than it was prior to the pandemic, in 2019, when 82% of buyers used an agent. 

People are talking about launching manned missions to Mars, but we’re actually still in the Stone Ages here

Even some of the more minor attempts to update the process have been met with much hand-wringing. Take, for instance, the various laws around electronic signatures. The COVID-19 pandemic hastened the adoption of remote online notarization, which allows buyers and sellers to close a deal without having to go to an office and sign paperwork. But Washington, DC, and seven states, including California and Georgia, still don’t allow fully remote closings because of legal hiccups or fraud concerns — an indication of just how fragmented the industry is and how slowly it can move when it comes to adopting new technology. 

“People are talking about launching manned missions to Mars, but we’re actually still in the Stone Ages here,” DelPrete told me. “We’re in the caves, trying to create fire and get everybody to do electronic signatures.”

In many ways, tech has made the process of buying a home in 2023 harder than it was in 2003, “despite a lot of smart people with a lot of money spending two decades trying to make it easier,” John Berkowitz, the CEO of Ojo, which owns the home-search and guidance site Movoto, told me. Consumers today are flooded with options thanks to the many startups that have jumped in to help buyers do things like get a mortgage online or buy a home with a cash-backed offer. In theory, more options should be a good thing, but that hasn’t been the case in real estate.

“If you have no idea what you’re doing, and you don’t know who to trust, more choice is just overwhelming,” Berkowitz said. And because all these companies are spending on marketing and referral fees to acquire customers, those costs end up being funneled down to buyers and sellers. “They’re actually — not because of bad intentions — making it harder,” he added.

How things change

Industry players have tried plenty of strategies to bring homebuying out of the dark ages, but any changes that occur won’t involve cutting corners. All the paperwork, while a headache, is designed to make sure inexperienced buyers and sellers are aware of the costs involved and aren’t being screwed over by much more sophisticated, nefarious players. Twenty years after the advent of online home searches, the next step in innovation, Berkowitz told me, will be focused on assembling all the pieces of the real-estate transaction in one place — a one-stop shop where customers can enter their information and then find the best providers to work with at each step in the journey. The secret sauce that companies are chasing would involve matching someone with the right agent, the right lender, and then all the other parties along the way. 

Bobby Bryant, the founder and CEO of the real-estate tech firm Doss Group Inc., envisions an app in which everything — search, mortgage, insurance — is available as a seamless experience for consumers. He compared it to calling an Uber: It may feel quick and easy for a consumer, but the company controlling the app still has to deal with the old-school components of a physical driver getting from point A to point B while obeying traffic rules along the way. 

“How does one create the Amazon of real estate?” Bryant said. “You have to almost do it by way of creating a super app that brings it together, streamline the process, and make it more economical, easier for everybody involved.”

Zillow, which has already helped make the initial search for a home easier, is trying to make this dream a reality. The company has spent the past couple of years teasing what it calls a “housing super app,” but so far, we don’t have many details on what it would actually look like. In a recent earnings call with analysts, Zillow CEO Rich Barton described it as a way to provide customers with “a much more digital, convenient, and integrated housing transaction.” 

The idea sounds enticing, but a real-estate super app is still a long way from going mainstream. And not everyone is convinced that such a development would be a boon for regular homebuyers. Wendy Gilch, a consumer advocate, podcast host, and the founder of Selling Later Search, said she worried that a streamlined process could mean less choice for consumers. The idea of capturing all parts of the transaction might make for a great pitch to investors, but consumers could be wary of handing all that power to one company. 

“If you’re going to one place for everything, are you going to be getting the best?” Gilch said. 

Short of a tech-enabled homebuying nirvana, there are some other changes that could make the process easier for consumers. Universal adoption of e-signatures, for instance, could cut down on the hassle at closing. And title insurance, while necessary, is an oligopoly that could be made much cheaper and more transparent for consumers.

The technology is there to make it easier, less expensive, faster

On a larger scale, state regulators could raise the barriers to entry for real-estate agents to reflect the seriousness of their role in one of life’s biggest decisions. Today, state requirements to get a real-estate license can be as little as two weeks’ worth of online classes and a passing grade on a multiple-choice test. Raising the bar to make sure agents know their stuff would help ensure buyers understand the process from beginning to end. And, as I’ve written about before, two ongoing class-action lawsuits against the National Association of Realtors and several of the country’s largest brokerages could radically alter the way agents are paid, potentially making transactions simpler and more transparent. 

Saul Klein, an early internet evangelist in the real-estate industry, told me he sees an approaching “paradigm shift.” Between the litigation over agent commissions and the ongoing quest to streamline homebuying, there are “major, major changes” on the horizon, Klein said. 

“The technology is there to make it easier, less expensive, faster,” Klein told me. “It just hasn’t all been integrated from start to finish.”

James Rodriguez is a senior reporter on Insider’s Discourse team.