Why Not Online House Closings?

I have been fairly absent from the blog for the past week because I attended two conferences and prepared to move from Boston to the Twin Cities. Fortunately, Tim and Derek have had a lot to say. The virtues of co-blogging!

The conferences were great. I already blogged about the University of Maryland symposium. Then earlier this week the Berkman Center hosted a really great gathering for the Identity Mashup conference. Until I have time to say more, podcasts of some of those sessions are available here.

Moving consumed the rest of the time, and then some (as anyone who has done it can attest). Earlier in this process, when my wife and I bought our house, I mused that the internet could never fully displace personal presence when it comes to inherently physical decisions like choosing a place to call home. True enough. The same reasoning certainly does not apply to signing the giant stack of closing documents that officially transfer title. Yet, it is a very strong norm for the buyer to inspect the premises and then sign in person.

That might be fine for people who live across town already, but it was quite a bother and expense for me. For scheduling reasons, I had to fly out one morning, sign in the afternoon, and return on another flight early the next morning. Devoting a day to that in the midst of conferences, packing, and saying good-bye to friends was difficult and seemed somewhat pointless. My wife assigned me power of attorney so that we did not both need to fly out and back, but doing so required notaries and other hassle, and the expense was about as much as her plane ticket would have cost anyhow.

Why not encourage remote house closings, where the buyer more or less clicks “I agree” via internet to buy the house? In addition to the obvious convenience, buyers might actually have a chance to review and even understand the documents to which they agree. Instead, those papers pass in a blur (including multiple “disclosures” supposedly intended to inform me of things I have already forgotten). There is something highly ceremonial about the experience, a little like the waiter giving the person who ordered the wine a chance to inspect a bottle and take a sip before serving it. That ritual makes some sense, however — you can’t taste remotely.

The most likely reasons I can think of for resistance to this innovation: (1) in-person closings help resolve last-minute glitches; (2) lawyers like to charge more; and (3) it has always been this way and lawyers resist change. The first makes a little sense in theory, but in our increasingly mobile and networked society it’s hard to see how that alone justifies the old practice.

9 Responses to “Why Not Online House Closings?”

  1. Lawyers? You buying in New York? That could be the reason for lack of change.

    All you need in CA is a notary, and I’m not even sure the notary has to be a CA notary, meaning you can FedEx the papers, sign, and FedEx back.

    However, the internet may not reign — ever — for home purchases. Most states require a written signature (though theoretically e-sign can take that over) and either the state or the lender (or both) require notarization in real property. I don’t see that going away until retina scans can confirm identity with 100% precision.

  2. Bill, we had precisely the same experience as you when closnig on our new home in Cincinnati — I flew out there solo, carrying a power of attorney from Eisha (notarized by JP!) so she and the little one didn’t have to fly, then spent most of the day hanging around the Cincinnati airport waiting for my return flight to Boston.

    The custom of having the buyer perform the final walkthrough is certainly well entrenched, but except for checking for lingering cosmetic problems, it’s hard to know exactly what function it is uspposed to serve, since I am not a home inspector. Is the walkthrough supposed to reassure me that (for example) the sellers corrected the defective wiring identified in our pre-closing inspection? To the extent that anything provided me reassurance about that, it was seeing the copy of the receipt from the electrician they hired to do the work; having a visual inspection during the final walk-through was pointless unless I was prepared to start ripping outlets off the wall to review the work, which I was neither inclined nor competent to do.

  3. I think it will be at least 5 to 10 years before notaries doing electronic notarizations will be common. Each state regulates the notaries public division, so widespread agreement on a standard will take alot of time.

  4. I read your “frustrations” with interest. As a home inspector and building consultant down in New Zealand I can (thankfully) say that in our country, the concept of a ‘final walk-through’ has been banished into the distant past.

    Typically, a home inspection is requested by the purchaser BEFORE the solicitor (lawyer) even gets involved. The sale and purchase agreement usually states the house inspection as a ‘condition of purchase’ (meaning that if the house in question is not up to standard, then the buyer can pull out of the deal at that point — or negotiate to buy the house at a discounted amount).

    Once the intended buyer feels comfortable, he or she then signs the sale and purchase agreement and a copy of that is faxed to the lawyer.

    In the week leading up to settlement (possession date) the buyer will meet with the lawyer, sign the contract (takes around 15 minutes all up!!!)… then get on with life while the lawyer follows through with the settlement on the nominated day.

    In fact, it’s so painless at times that “if you ask the lawyer nicely” (i.e. challenge him to a round of golf and let him win (*winks*) he’ll even mail out the contract to you (the buyer) to sign and post back to him — WITHOUT EVER HAVING TO MEET HIM IN PERSON!!!

    Have a great 2007, and enjoy your house to the fullest:):):)

    Steve S

  5. Certain states now allow online closings. I used to work for a timeshare website and we would frequently view the status of our closings online. I now work as a Realtor and have used a few other closing agencies that allow our clients to view/update closings online. However, they still require “in person” closings to receive the check. I don’t mind, I get free drinks and snacks. :)

  6. I think we will be seeing this fairly soon, although it could be a few years yet. I think there will come a day and age where you can do just about anything online and we’re close now…

  7. In response to Mr. Armstrong,
    I am a professional home inspector in Cincinnati Ohio and if you do not know already, it is not customary for a home inspector to accompany you during the final walk through unless specifically agreed upon prior to closing. Home inspectors will provide this service for an additional fee although, some may be hesitant. The problem with re-inspections (for home inspectors) is that the home inspector becomes liable for the work performed by contractors. Not only is he or she suppose to access if the repairs were performed but, also the quality of the repair. Since the contractor was more than likely working for the seller, this usually puts sole responsibility and liability on the home inspector generalist.
    For more info please visit our site at
    http://www.ohiocertifiedhomeinspections.us

  8. E documentation is coming, They even have e notary clases for e-docs. But With the recent loan scandals,a few concerns are the proof of who is signing when done in a Virtual invirement. 1 good way is still to have the notary go to the client with a laptop and sign docs online this way then send on. But it seems that is NOT the biggest concern. In Los Angeles, I was talking with a few of the Escrow Officers on their opinion of e-docs and was told that the county is not being cooperative in this endeavor. I do understand why, this E doc internet service will also eliminate a lot of county jobs at the recorders office. Why would they just sit idlely by and agree to have themselves replaced.

  9. I agree with Mobile Notary. I see new legislature and activity all the time regarding e-signatures and virtual signings. Although there seems to be a slow down in all things Real Estate now due to market conditions. The way I look at it is this is just the weeding out process, only the strong survive.