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The Path for MLSs to Help Create More Successful Transactions

Marilyn Wilson Founding Partner February, 2014 www.wavgroup.com

Table of Contents
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Improving Relevance for Providing Solutions to Significant Business Challenges A New Role for the MLS
The home buying process and obtaining a mortgage are inextricably linked. The Mortgage industry has been pushed to the forefront by the recent mortgage crisis, marked by unprecedented rates of loan delinquencies, defaults and foreclosures. Recent studies on this topic cite various causes, including risky product offerings, economic conditions, a housing price bubble, adverse selection, and questionable marketing practices Today, MLS organizations are positioned to play a much broader role through their network of subscribers to leverage technology to make the process of buying and selling a home much more efficient and effective. Some of the most innovative MLS organizations provide their subscribers with a tool that educates homebuyers on home affordability working in conjunction with their members lender(s) of choice. MLSs need to continually reinvent themselves, serving the needs of large and small brokers, top Producers and part time REALTORS alike. They need to serve a spectrum of needs without demonstrating bias to any of their customer segments. MLSs can provide support to their subscribers beyond the property database. This piece outlines a new method to expand the value of the MLS WITHOUT leveling the playing field.

The Difficulty of Securing a Mortgage

In todays regulation-heavy marketplace it has become more and more difficult for consumers to secure a mortgage. According to

NARs 2013 Home Buyers and Sellers Survey, nearly 9 out of 10 homebuyers are financing their home with a mortgage. Nearly 100% of all first time homebuyers finance their home purchase with a mortgage.

The same NAR study also concludes that 40% of consumers believe that it was harder than they thought to qualify for a mortgage. Agents and Brokers can have the most amazing customer service ever, but if their client cant qualify for a loan, all of the REALTORS hard work will be wasted.

Help Create $3.8 billion in Commissions!

According to a study published by the Federal Savings Bank, more than 1 in 3 mortgage applicants were not successful in securing a loan. That translates to nearly 1.6 mm unsuccessful loan applications in 2012. If even 20% of those unsuccessful transactions

could have been saved, that would have translated to 320,000 more successful home purchases. Using NARs average home price of $197,100, 20% more successful home loan applications would translate to over $63 billion in transactions and nearly $3.8 billion in commission revenues for real estate agents. While REALTORS are clearly not responsible for securing mortgages for their clients, this deficit in mortgage application success certainly limits opportunity for MLS subscribers. There is a clear value to real estate agents if MLSs can support their subscribers in increasing the number of successful loan applications. There is additional support in simply helping the consumer work though the mortgage process more quickly, enabling them to transact faster.

Mortgage Qualification and Affordability

Transactions can go south when a consumer has a bigger appetite for a home than their financial situation will allow them to purchase. Without understanding what a potential buyer can truly afford, it is nearly impossible for an agent to serve them properly. It is also important to provide the true cost of buying a home, not just the mortgage itself. There are other fees that need to be provided to help consumers understand the true cost of home ownership. Factoring in all of the components of the Total Housing Payment is vital to the overall accuracy of affordability. Real Estate Taxes and Assessments will vary from one property to the next and can change the Total Housing payment by 10 40% depending on the details. With this type of potential variance from one property to the next, it is critical that Real Estate sales delivery systems offer real-time methods of integrating property data and lending data in order to assist Agents, Homebuyers & Lenders in understanding all of the variants that go into the total housing payment and how this affects loan qualification. Successful programs allow agents and brokers to designate which

Lenders information will be displayed. This is important since local agents and brokers know which Lenders are credible and which ones have the ability to complete the needed financing for their types of properties. The ideal system, in my view, sources specific loan products for each property and helps the buyer see what the principal and interest and real estate taxes and homeowners insurance, assessments and Private mortgage insurance (PITI) amounts are on a monthly basis for each home they view. The Lender will use this PITI to underwrite and assess if the buyer can afford that particular home. This process occurs at the beginning of the search process and helps establish an affordability range for an Agent and Buyer BEFORE spending time visiting homes. The system will also recognize if niche loan options exist for each property, such as first time homebuyer programs, government programs or special down payment options. One such program is called RatePlug. This example illustrates how MLS groups are providing custom reports with the RatePlug display that enables homebuyers to interact with the information in real-time. The property report will allow for multiple lenders to be displayed and multiple loan options per each lender. The buyer can click

through to get amortization schedules, loan breakdowns and connect with a Loan Officer via chat or other method. Closing.com also offers a free widget that first provides closing costs and then passes the client to local service providers.

Speeding up the Real Estate Transaction

Time is money in real estate. The faster a transaction can close, the faster an agent can collect a commission check and the more transactions they can focus on. It is important for MLSs to find the

most important tools and technologies that ideally help subscribers sell more real estate while speeding up the process. A recent study sponsored by RatePlug showed that localized closing calculators have a significant affect on the list to contract timeframe. The most recent study analyzed 177,393 real estate transactions from 2011, 2012 and YTD 2013, in 7 major marketplaces in the U.S. The data compares the total number of days between List date and Contract date for both agents that are active with RatePlug and agents who are not active with RatePlug. The data included Single Family homes, Townhomes and Condominiums. The result of the study showed a 15% reduction in timeframe, from List to Contract date, when an Agent involved was Active with RatePlug.
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*There are other factors that have not been measured that may have helped contribute to this difference (ie: Top Producers users programs of this sort more than others).

Helping Clients Get approved for a mortgage BEFORE Finding a Property

The tradition of the real estate process currently in place does not require a buyer to be pre-approved before making an offer on a home. While it can significantly increase the

chances of an agent have a successful transaction, many buyers agents do not require it before working with a client. According to a study completed at the Keller Center for Research at Baylor University, we set consumers up to make emotional and illinformed decisions about mortgage products. In a nutshell, the study says that consumers cannot make sound, logical mortgage decisions once they have actively engaged in purchasing a home. The study concludes that the buyer is overwhelmed with the house selection process, which leads to less attention to details after a contract is signed causing a higher probability of making an ill-fated mortgage decision. The study, authored by Vanessa Perry, has been shown to create something she has termed as cognitive resource depletion. In essence, it shows that buyers make bad decisions regarding the mortgage that best suits their financial situation and needs.1 According to the National Association of Realtors, a homebuyer will search for a property for an average of 12 weeks before writing a contract.2 The recommendation, from the George Washington study is that homebuyers get a formal mortgage pre-approval before starting the search process. This further supports the movement to integrate real time loan payment data into MLS Search systems in order to assess affordability at the front end of the process. MLSs can encourage the pre-approval process by offering products like RatePlug or Closing.com which includes a short form and long form and an automated pre-approval process.

Provide The Most Valuable Tool Based on True Adoption Rates

Too often MLSs select solutions because their neighboring MLSs have chosen it and they want to stay competitive. MLSs sometimes
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choose technologies that are not as relevant as they need to be to help their subscribers sell real estate more successfully MLSs may be better served to find programs that are appropriately priced and yet still very meaningful to subscribers. Get away from the one size fits all mentality and focus on products that help the most active subscribers trying to complete transactions as quickly and professionally as possible, helping their clients to avoid disappointment and missteps in the process of buying a home. WAV Group conducted a MLS Technology Adoption Study in 2012 that highlighted the most used technologies according to practicing agents and brokers. Mortgage Payment / Closing Calculators, Showing Appointment Software and Transaction Processing tools like Document Management and Electronic Signatures headed the adoption curve according to respondents from 27 MLSs across the country. If MLSs are looking to offer meaningful solutions that are not perceived as playing field levelers, these three categories are probably the best ones to pursue.

MLSs representing more than ! of the REALTORS in America, have contracted with a technology provider that provides closing calculators since these technologies are relevant to every transaction completed by an MLS subscriber and especially valuable for the most productive agents. Many MLSs have partnered with companies like Closing.com or RatePlug that provide real-time lending payment information from local and national lenders that helps a homebuyer understand the Total Housing Payment for each listing that they are viewing.

Support Ancillary Businesses of Brokers

While many brokers today offer mortgage, title, home warranty, insurance and other services, MLSs historically have only served the needs of the home buying and selling process. What if MLSs could help brokers promote their ancillary businesses the portion of their business that generate higher profit margins for them. MLSs that are adopting and offering mortgage payment/closing calculator services, enabling their Brokers to promote their own companys mortgage provider and realize additional profitability through their mortgage ventures.

Summary
MLSs have a great opportunity to continue to expand their relevance by listening closely to the challenges of their subscribers. By staying close to market trends and identifying hurdles to successful transactions, MLSs can continue to evolve their service offerings to strengthen the entire real estate marketplace without leveling the playing field for larger brokers. Playing a more active role in helping agents to pre-qualify their clients and increase the likelihood of a successful mortgage application can significantly increase the revenue potential of MLS subscribers. While many MLSs are careful not to level the playing field, this is an area where everyone wins and, in fact, larger brokers with mortgage companies can benefit even more than average.

If you have any suggestions about other ways for MLSs to improve their relevance or programs you believe are worth consideration by MLSs, please contact me at Marilyn@wavgroup.com and well be happy to entertain the topic!

To Learn More:
If you would like to learn more about the solutions referenced in this paper click the links below:

RatePlug Closing.com

About WAV Group

WAV Group is the leader in providing research and thought leadership to the MLS industry seeking to create a wave of positive change with every subject that it tackles. The firm is comprised of corporate executives with a depth of expertise in the real estate industry proven to catalyze new approaches leading to more customer-centricity and business success. WAV Group supports of many of the nations largest real estate Multiple Listing Services, REALTOR Associations, technology vendors, brokerages and franchises, in the US, Canada and Europe. WAV Group has expertise in the areas of strategic planning, technology evaluation, product development, market research, recruiting, sales & marketing plan development, technology selection and implementation. For more information or to register to receive report releases and newsletters please contact Marilyn Wilson at 805-473-9119 or Marilyn@wavgroup.com