How Does REAL Really Operate?

 

Real Matters is a technology and network management solutions company that offers professional services to the mortgage and real estate industry. The company provides a platform where both lenders and professionals can connect and realize benefits from REAL’s large network. However, entities like Appraisal Management Companies (AMCs) already do the work of providing lenders with access to appraisers and tight relationships already exist between lenders and other independent real estate professionals (i.e. appraisers, home inspectors, notaries etc). So what makes REAL different? How does REAL provide value to the mortgage industry?

 

The problem

For many years, traditional AMCs focused on getting appraisals done at the lowest possible costs. This has resulted in low quality appraisals, many of which did not even meet lender or regulatory requirements. AMCs would then have to go through a lengthy and costly process of assuring quality and compliance which involves more labor, increased turnaround time on appraisals and ultimately hurting margins. Some of these costs are passed on to the appraisers themselves by giving them a smaller share of the fee, which in turn reinforces the low quality of appraisals. Appraisers who charged higher fees based on giving high-quality appraisals do not like the economics of working with AMC, so they tend to shift away and work independently, resulting in AMCs having a reputation of producing consistently low-quality appraisals.

 

Enter REAL

The founders of Real Matters came in as veterans of the mortgage industry and as technology entrepreneurs. Seeing the inefficiencies of the appraisals market and that AMCs took up a big share of appraisals, they saw an opportunity to disrupt the industry using technology. More importantly, they wanted to improve the standards in the industry so the company started by focusing on ‘high quality’ appraisers.

REAL’s main mission is to research and develop ways to apply technology to address pressure points in the mortgage industry related to speed, cost and efficiency of the underwriting process. The company has so far excelled in the appraisals space and is now focused on growing in the ‘Titles and Closing’ space (an industry with much bigger potential). REAL’s platform presents a much better alternative to traditional AMCs because REAL is essentially acting as an AMC which rewards and incentivizes high-quality service and also creates an opportunity for competitive pricing. High-quality appraisals and a drive for top customer service are also more likely to result in quicker turnaround times.

 

What is REAL’s Platform?

The platform is essentially a proprietary technology developed by Real Matters which helps connect lenders to a network of tens of thousands of real estate professionals. This platform allows field professionals (appraisers, real estate brokers, notaries, appraisers, abstractors and attorneys) to bid for REAL’s business with its lender clients. Agents/professionals are assigned based on merit/ranking and region.

The platform results in many synergies within the network, creating new dimensions of value that the mortgage industry has not really seen. REAL uniquely acts as a network and an AMC, which means its margins benefit greatly from scale and is less labor-intensive because it can leverage its network of professionals. The economic benefits for REAL are discussed more in our report on the company.

However, we would like to dive in a little more into the benefits experienced by both the lenders and field professionals, to get a better understanding of just how transformational REAL’s platform can be for the industry.

What’s in it for the lenders?

1) Quality control mechanisms

REAL’s platform (Solidifi) focuses on assigning professionals based on who the best performing in a lender's region is. The way Solidifi does this is by rating professionals in terms of timeliness, competency and quality. Part of the rating is derived from the lender’s feedback and this naturally means borrower feedback as well. Borrowers are more sensitive to time and more emotional when it comes to closing a mortgage transaction since buying a home is usually a significant life event, so a lender’s feedback to Solidifi is likely to be heavily influenced by a borrower’s satisfaction. Professionals are assigned to more jobs depending on their ratings.

This dual incentive to satisfy both lenders and borrowers is likely to result in a better client experience overall and an incentive for all other professionals in each region to compete for business by enhancing their quality. What is interesting is that REAL does not emphasize “competitive pricing” as a selling point to its platform, rather its marketing focuses on bringing quality, efficiency and top customer service to the table. REAL’s success so far indicates that lenders are not necessarily looking for the cheapest appraiser and would rather save time (in turn, save money) by paying for higher quality and satisfying their own clients (borrowers). REAL also has a vetting process for onboarding new professionals to its network and abides by rigorous standards for compliance which helps assure lenders of the work quality.

2) Scalable Platform

The scalability of the REAL’s platform helps meet the high volume needs of top tier lenders and even accommodate seasonal spikes with little compromise to quality. The scale also provides the manpower needed for a mortgage transaction to get the job done at a faster speed.

3) Capacity/Logistics planning

Since Solidifi has such a broad network of professionals, it is able to coordinate multiple professionals to make sure regional demand needs are met. Regional managers are assigned to manage this. On the logistics side, they are also able to better coordinate when one job requires more than one professional. For example, if both an appraiser and notary are required for a mortgage closing, having both on the Solidifi platform means a lender only has to make one request and both agents can easily communicate with each other and work together to make the client experience smooth and in turn maintaining/improving their rating.

4) End-to-end transaction management

REAL offers transaction management that allows the tracking of workflow, messaging, transaction data, and provides a billing/auditing trail to meet lender and GSE (Fannie Mai and Freddie Mac) compliance and regulatory standards.

5) End-consumer focus

Overall, the focus on delivering quality to the end-consumer is important for lenders, especially since the financial services industry has somewhat of a commoditized nature (people usually go with the lender that provides the lowest borrowing rates). Quality of service is the main differentiator for lenders which ultimately reflects in their bottom line profits.

 

What’s in it for the professionals?

1) Direct feedback

Professionals benefit from a transparent ranking system that allows them to get direct feedback, meaning they know what they need to do to improve quicker. Since professionals have an incentive to be highly ranked, direct feedback is very important for increasing their chances of earning new business.

2) More income

Since the network is in a way ‘self-vetting’ for high quality, agents can charge the prices they see fit. This often results in agents being able to charge slightly higher fees (justified by higher quality) and keeping more of the fee themselves. Professionals can also benefit from scheduling and logistics capabilities to handle a larger volume of clients more efficiently, resulting in higher income and in turn stronger loyalty to the platform (a benefit for REAL).

3) Logistics management

Not only can more jobs be done, but coordination with other professionals within the network facilitates jobs not previously possible if the agent were to work alone.

4) Network benefits

Field professionals in the real estate/mortgage industry rely heavily on relationships and making connections. The platform expands a professional’s reach to a wider client base than one could achieve on their own and also allows them to connect with different professionals in different disciplines for future partnerships/projects. REAL also hosts annual events and conferences allowing professionals to meet and also recognizes top performing agents with awards and recognitions.

 

REAL Trends

REAL’s operating framework is a good example of how we think the fintech industry is developing and it is refreshing to see companies like REAL be leaders in this change. REAL’s model has a natural compatibility with the trend of increased focus by mortgage lenders to adopt technology as part of their day-to-day operations. Being able to respond to lender needs at a fast-pace will provide a crucial advantage for REAL, especially as financial institutions are finally beginning to catch-up on technological trends. Banks for example, are usually slow to integrate third-party technology as they prefer to develop IT in-house, but this trend is changing. With the increased adoption of outside technology, a financial institution will be able to increase the efficiency at which it is able to cater to the end consumer.

There is also a trend of increased regulation and a more volatile mortgage market which results in increased costs of doing business for lenders, so lenders are likely to focus on lowering costs of core operations. As we discussed, the vicious cycle of traditional AMCs paying appraisers low fees results in low quality and non-compliance, resulting in re-assessments that end up costing lenders more with slower turnaround times. Faster turnaround times through REAL’s platform actually result in lower and more predictable costs for lenders when all is said and done.

A REAL disruptor 

REAL has tackled a key problem in the mortgage services industry and has emerged as a leader in the space using technology. Due to inefficient economics that results in low quality work and longer turnaround times, REAL is able to capitalize on these weak points and bring a high-value proposition to the industry. By connecting real estate professionals and lenders and managing this network, REAL is able to incentivize high-quality work while creating benefits for both parties, and this ultimately trickles down to a more positive experience for the end-consumer (i.e. home buyers). For us, one of the tell-tale signs of a company with lots of organic growth potential is one that is both a value creator on all sides as well as an industry disruptor and we think REAL has the potential to be just that.

 

Disclosure: The author of this post does not own any shares of Real Matters (REAL). 

 

 

 

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