Seemingly forever, the average time between reaching a sales agreement and closing on that property has hovered around 45 days — a month and a half.
It’s not something consumers think about much when they set out to buy a first home or plan to upsize to accommodate life changes. In fact, if you were to describe the home buying experience solely upon the things we see in advertisements, the process would end with the sales contract and all parties would merrily proceed directly to the handing over of the keys.
Unfortunately, those ads don’t talk much about the next month or six weeks, the period real estate professionals call the “settlement process.” More than a few real estate agents will roll their eyes and sigh when asked by a client, upon the signing of a sales contract, “What’s next?”
There’s an entire industry built upon the “What’s next?” in question. When asked why it takes an average of six to seven weeks to get to closing, there are a lot of complex (and honest) answers. But there’s also room for improvement.
The process of orchestrating the collaboration of lenders, appraisers, home inspectors, one or two real estate agents, a title insurance company and possibly others is complex. It doesn’t lend itself to a 24-hour cycle. And the complex legal and regulatory web that can vary from state to state and even city to city doesn’t invite a quick and smooth passage to the closing.
Yet more can be done to ease that 45-day average. There are many processes and chokepoints that could be better addressed. The industry is finally recognizing those stubborn, delay-causing entities and processes and starting to address them head-on, giving us all hope that the 45-day close will one day be a relic of the past.
The chokepoints that the digital transformation hasn’t eliminated …yet
While much is made of the digital transformation that’s swept the title and settlement services industry in recent years, a large portion of that has addressed the core processes of issuing a title insurance policy. Title production platforms are usually the backbone of a digital or partially digital title operation. One would be hard-pressed to find many title agencies that aren’t using some level of technology in that regard.
Other complex and time-consuming tasks addressed by improved technology include title searches, document preparation, lien releases and even the closing itself, as RON and digital closings gain adoption rapidly. The good news is that this trend towards a general adoption of technology seems to be accelerating.
However, the settlement process varies from client to client, location to location. A form may be required in one county that isn’t in most others. A document might be needed closer to the closing date or as soon as a few days after the start of the process.
With all these nuances, it’s unlikely that a centralized production system developed for nationwide usage can eliminate the need to manually enter, for example, borrower information into a proprietary municipal website. There are dozens, if not hundreds, of similar tasks that, to date, have defied complete automation.
Take the wide-ranging requirement for addressing clouds on the title. For numerous reasons, the curative department of a title firm likely doesn’t have the technology to procure things like a satisfaction of mortgage or release. Instead, it’s often some combination of specialized technology, an internet search, a few emails or voicemails, a document with manually entered data and the like.
One significant hurdle to a faster closing process is the complex communication between the various professionals involved. In a typical transaction, a title agency must coordinate with several other parties, often using a mix of emails, phone calls, texts, specialized apps and online portals. This patchwork of communication methods not only makes the process cumbersome but also increases the chances of mistakes and delays.
And then, there’s the process of dealing with the property’s Homeowners Association (HOA) or even simply determining whether one is involved at all.
Dealing with the HOA — a nightmare for all parties involved
The sheer number of HOAs in the United States and the lack of uniformity involved in almost any element of their role in a real estate transaction is another glaring reason for the 45-day closing.
Nearly half (53%) of the owner-occupied homes in America are represented by some form of HOA, yet there’s no single database or central repository that comprehensively indicates which homes are part of an HOA.
There’s no uniform method of determining if a property management firm represents an HOA and, if so, which firm. There’s no easy-to-access resource advising how to communicate with every HOA or property management firm. There’s no universal means of determining what HOA documents are required in different states or what fees you need to pay the HOA to release the documents.
In addition, it almost seems that each HOA takes pride in sorting and storing that data in a unique way. Of course, HOAs and property managers are busy and have other priorities as well. Requirement by requirement, form by form, it has long fallen to the title agency or escrow company to slog through a number of blind alleys to sort the HOA process.
Those realities don’t even contemplate the numerous headaches and delays that come with identifying and dealing with multiple HOAs or the project management skills required to coordinate the Realtor, buyer and seller alike.
This is when an otherwise on-track closing is suddenly and indefinitely delayed by the realization that there is an HOA and that it’s not necessarily playing by the timelines of the closing. Even something as simple as obtaining a PDF might take weeks.
Additionally, almost each HOA in the United States has (and occasionally uses) the ability to change its requirements and documentation with almost no obligation to report these changes to any centralized authority. It quickly becomes apparent that just the process of collecting and exchanging proper HOA documentation is a massive impediment to achieving a faster closing time.
There is growing hope, however. As more title businesses clamor for new technology or improved service offerings for addressing chokepoints like these, more solutions are coming online. More professionals and firms are offering outsourced services and technology that lead to a more streamlined approach. AI and LLMs (large language models) are increasingly being brought into the fray as well.
Now that the title industry has addressed and begun to adopt the automation of core processes (title production platforms, automated search products), it is collectively putting more resources into addressing some of the more granular but every bit as stubborn obstacles to a cleaner, faster closing.
New applications are coming to market faster than ever to help process handwritten documents or non-standard forms and input them into searchable PDFs or even directly into a title agent’s production system.
“Stare and compare” is increasingly replaced by more sophisticated OCR and AI applications. Status updates and other routine forms of basic but time-consuming communication or data collection are moving away from voicemail or email toward RPA and AI applications. The list of improvements is growing at an accelerating pace.
The title industry has finally put the foundation in place for a modernized workflow. Now, it is focusing on some of the ancillary processes that have historically clogged the production pipeline. Real estate will look different in 2030, perhaps even in 2024. I am convinced that our industry will finally put the 45 days to close to bed once and for all.
Anton Tonev is the cofounder of InspectHOA.
ENB
Sandstone Group
