Here at Patch of Land, we often hear a line of defensive questioning from offline, traditional real estate lenders:
“Will the crowdfunding platform CEO visit every property?”
“Does the crowdfunding platform conduct due diligence?”
“What will the crowdfunding platform do if there’s an issue with loan repayment?”
They smile, self-assured that real estate crowdfunding could never work. Yet, this line of questioning is eerily similar to that of brick-and-mortar bookstores prior to the rise of Amazon. Staunchly committed to doing business-as-usual, bookstore owners saw little danger. Instead, they challenged:
"Does Amazon provide service?"
“Does Amazon review the books?"
"Will Amazon be around to return a product?"
"Can you just stop by Amazon for a stroll?"
Consumer action answered these questions by flocking to Amazon. As the pace and method of our lives has sped up, so too has consumer demand for services providing speed, transparency, and ease. Bookstore owners who were unable or unwilling to adapt have now shuttered their doors. So too will real estate lenders if they fail to adapt with speed, transparency, and ease. As the book E-commerce Consumer has dictated: provide these, and we will never go back to the way things were.
In more ways than one, traditional hard money lenders are the equivalent of brick-and-mortar bookstore. Both conducted their business and sold their products in the same old-fashioned way for ages, without an eye towards changing consumer preferences. Real estate lenders, hard money lenders, and private lenders must evolve with the changing consumer landscape, or they will become the bookshop owners of yesteryear.
While conducting their core business of sourcing, originating, vetting, underwriting and pricing risk with diligence and care, the new generation of real estate financing portals holds specific advantages over more traditional players. E-commerce funnels money easily and quickly, with technology built to combine efficient use and an enjoyable experience. This technology eroded the need for inefficient, laborious practices and the justification of higher fees. Crowdfunding at Patch of Land has freed the information exchange highway for capital exchange.
E-commerce also places great importance on customer protection. The marketplace lending industry submits itself to a higher level of public scrutiny than previously possible, thereby providing more protection to consumers and lenders. Successful platform operators understand that their platform is subject to the scrutiny of several thousands of market participants, and thus must be careful in vetting their offerings. Powerful communication and information-sharing channels, as well as the collective strength of a community working towards the same goal, are a massive barrier against fraud. In essence, fraud prevention is now crowdsourced. This makes deviant practice easier to detect, and the consequences are swift—operators can restrict a fraudulent source from being able to conduct business on that platform – or online – again.
But the real key here is technology. The application of technology and data science to the real estate financing process allows for automation and streamlining of the loan process, from sourcing and due diligence to underwriting and servicing. Further, technology can enhance the process of identifying high quality loans. As technology makes these transactions more efficient, they will scale. As more transactions occur, more data is processed with greater efficiency. As a result, the data collected will help us understand which loans embody lower risk and are of higher quality. Borrowers, in turn, benefit from decreased risk and costs while enjoying a more expedient, standardized, and pleasant customer experience.
Amazon created the marketplace, which has reshaped the industry by directly connecting buyers and sellers to decrease transactional cost and increase speed and service. Patch of Land aims to be the Amazon of real estate lending by allowing both borrowers and investors to easily connect on real estate financing transactions, all lowering transactional costs between the two parties and providing unparalleled customer service.
