907: Instant Underwriting: The Future of Real Estate Transactions with Max Simkoff

June 1, 2020
The real estate industry still relies on decades-old processes to close property sales; that’s about to change. On today’s podcast with Max Simkoff of States Title, we discuss how machine intelligence and predictive analytics will transform the closing process. Listen and learn how Max’s company is able to offer clear-to-close commitments in minutes rather than weeks and what the biggest barriers are to a transformed title process nationwide. Plus, hear about other aspects of the closing process that are ripe for disruption and how coronavirus is forcing the industry to change for the better.
Max Simkoff Listen to today’s show and learn:
  • Why Max started States Title [6:46]
  • How States Title issues clear-to-close commitments in less than one minute [11:18]
  • New title products that will speed up the resale process [15:33]
  • Why real estate transactions are ripe for disruption [23:46]
  • How AI could decrease the time it takes to close real estate deals [25:00]
  • Factors that could lead to instant end-to-end real estate transactions [29:16]
  • The big barrier to changing the title process nationwide [33:36]
  • Max’s thoughts on blockchain and its place in real estate transactions [36:16]
  • Max’s plans for scaling States Title [39:23]
  • How coronavirus will change the real estate industry for the better [41:46]
  • How to break through your goals.
  • Plus so much more.
Max Simkoff Max Simkoff is currently the CEO of States Title, a mortgage analytics software company focused on reducing friction and expense for several of the largest pain points across the $1.5 Trillion annual mortgage origination market. Prior to States Title, Max was Founder and CEO of Evolv, Inc., an enterprise predictive analytics software company that he grew from zero to 100+ employees, an eight-figure annual revenue, and added over 20% of the Fortune 500 as customers. Max led Evolv through their acquisition by Cornerstone (NASDAQ: CSOD) in 2014 where he served for two years on the senior executive team post-acquisition as the Vce President of Strategic Initiatives. Max has a BA in History from Northwestern University. Related Links and Resources: Thanks for Rocking Out Thank you for tuning in to Pat Hiban Interviews Real Estate Rockstars, we appreciate you! To get more Rockstar content sent directly to your device as it becomes available, subscribe on iTunes or StitcherReviews on iTunes are extremely helpful and appreciated! We read each and every one of them, please feel free to leave your email so that we can personally reach out and say thanks! Have any questions? Tweet meFacebook me and ask Pat anything. Don’t forget to head on over to Bare Naked Agent for Pat’s answers, and advice. Thank you Rockstar Nation, and keep rockin!

Aaron Amuchastegui: Rockstar Nation, this is Aaron Amuchastegui coming back for another episode of Real Estate Rockstars. Now I need to tell you guys, I am super pumped about today’s interview. We have all been living in this COVID world for two and a half months now and we have seen the world innovate 10 years in two and half months, right? Everybody knows how to do Zoom now, there are so many changes happening. Like notaries in Mississippi now you can do through webcams instead, notaries in Texas you can do through webcam instead. The world is starting to innovate and the guy that I’ve got on here today Max Simkoff from States Title. He is totally revolutionizing the way that Title is done and he’s got some exciting things to share today. From my background and for buying for closure and things like that, Title has been such an interesting part of that so I can’t wait to hear how Max got here and what he’s doing out there? Max thanks for joining.

Max: Yes, thanks for having me.

Aaron: Max you are out in San Francisco- we got to talk a little bit before we came on but you’re living in the heart of the ghost town right now. Are people still doing business out there? Do you see people outside? In Texas, right now, there’s a lot more people starting to walk around on the streets. Have people started to walk around a bit more or is everybody pretty much staying inside?

Max: No, people are out. In fact, people are literally walking in the streets because there’s very little traffic. It’s funny San Francisco is an interesting town. The neighborhood I live in is called Noe Valley. It’s in the city, generally more families. During the week, in normal times, it’s more of a ghost town. Everyone’s at work. People work hard here and so what’s been odd actually in the last few weeks is you do see people out like they’re sitting on their steps talking to their neighbors, walking with their kids. It’s kind of eerie because ideally that’s what the rest of the country has looked like usually and in San Francisco it now means that people aren’t working all the time and they’re able to take a breath.

Aaron: Man that has to be bizarre. I’ve seen some friends of mine from Sacramento, and Denson like day trips just driving through the cities to take pictures because San Francisco is one of my favorite cities ever. Growing up in southern Oregon, that would be the big city we would go travel to. So pretty, so beautiful but last year I remember going to a big conference out in San Francisco and I missed my turn into the parking lot of the hotel and it took me an hour to make it around those four blocks just to make the right turn in. When traffic is crazy there, it is crazy. I have to imagine just as you see that you’re like, “Whoa, such a different world.”

Max: Yes, I have still been going into my office once a week for various reasons Title’s considered an essential service. That commute probably three miles total. In normal times in traffic it would take me between 40 and 50 minutes to drive there and yesterday, I think I hit every stoplight perfectly, there wasn’t a single car in the street, it took me like eight or nine minutes.

Aaron: So bizarre. That’ll be the one thing that people don’t miss when it comes back is the traffic.


Aaron: Plenty of people will just skate working from home or something but what a strange time. I try to tell people when we can get through the emotional up-and-downs of what’s going on and we just realize, “Hey we are–” I’m a history buff, I love history, right now we are living in a moment of history that books will be written about it, studies will be written about it. I try to look around and actually just appreciate all that for what it is. The good news, the bad news everything. Just be curious and pay attention and this will be one of those moments we’re like, “Wow, that was a strange moment.” or when we’re telling our grandkids about it.

Aaron: States Title. Curtis got you to talk a little bit in a pre-interview. He told a little bit about how you got into title and it wasn’t really a natural progression and he was kind of saying you had some experiences like, “I think I can do this better.” Tell us about that. How did you start States Title?

Max: I had no real estate background, I had no title and escrow background. I was running a software company and I went for mortgage closing for the first time and the whole experience was just perplexing to me. First of all, it was like a time warp. When it’s time to close and instead of buying a condo my real estate agent said, “Hey you’re going to have to go to this office of this title company and do your closing.” I was like, “What is that? What is title?” And that’s where we kind of went down this black hole of– She was like. “Well, you have to buy title insurance,” and I was like, “What’s that?” She said, “Well you have to make sure that you buy an insurance policy to protect you against–” I think what she called clear ownership She was like, “You need to make sure there’s no outstanding interest in the property.” And I said, “Okay. Well, did the person that I’m buying the property from buy that product too?” and she was like, “Yes of course they did. Everybody buys it.” I was like, “Okay, while I think I understand insurance, insurance is risk-based so if the person who I’m buying the property from bought it as well, technically I should only really be protecting the risk between their establishment of ownership and mine. She was like, “Yes–

Aaron: You did a really quick study because yes that’s exactly how it should’ve worked but most people wouldn’t have seen that in the first thing. [crosstalk]

Max: Most people are just like, “Okay, there’s the annoying cost of transacting and it’s bundled in a fees and I have to pay it,” but I was like I just want to make sure I understand because probably the reason I wanted to understand what I was paying for is the title insurance premium on the closing statement was the second or third highest cost of closing. Where the first highest cost is the origination fee for the loan and then there was title insurance premium and there was something called a settlement or closing fee. I was like, “This is just fascinating.” I was like, “Okay, so I’m pulling down risk from when the person who I bought the home from, bought their policy and now?” and she’s like, “Yes that’s right,” and I was like, “Okay, well they’ve owned this home for seven years so I’m pulling down seven years of the risk, yes that’s fine. Okay, but when they bought the home they bought it from someone who owned it for 30 years, right? So they pulled down 30 years worth of risk?” and she was like, “Yes, you’re following correctly,” and I was like, “I take it, that I should pay less because I’m pulling down less risk?” and I can’t remember whether it was my real estate agent or the title person was like, “No, no, that’s not the way this works. You’re going to pay more for it because the pricing is not connected to risk, it’s based on the value of the property.”

Aaron: We buy house on the courthouse steps in Texas and we don’t have any title insurance and then we try to get a hard money loan on it so we pay $4,000 for title policy and the same property and then we’re going to refinance to a longer-term and we’re going to pay $4,000-

Max: You pay again.

Aaron: For a $100,000 house. $8,000 of it was just to be able to refinance it and I’ve been in real estate a long time too and I’m like, “In California, there were times when there was actually some reason they could say you can almost get like these binders for like new homes where you’re only insuring that piece,” but I”m like, “Literally I had a title policy a month ago,” and they go, “Yes, but it’s different.”

Max: Yes, by the way, that became the premise for which the original business was refi. It was annoying to me when I bought the home where it became an idea, the concept for a States Title was I did a refi a couple of years later, the simple rate and terms refi with my existing lender, nothing complicated, no cash-out, it was just interest rates came down–

Aaron: A better rate

Max: When I did it, they said, “Hey, you need a new title policy.” What’s really fascinating and again most people don’t understand this, because it’s just not worth it to but when you do that, when you get a new title policy on a refi, it’s not for you. It doesn’t actually protect you as the consumer. You’re paying for a new lender’s title policy to protect the new lender, the new security interest in the property. That’s where I was like, “Why am I having to do this? I’m pretty sure what you’re asking me to do is to indemnify myself against myself. How about we get a notary in here. I’ll sign a certified affidavit, pay $100 and call it a day [crosstalk]

Aaron: Nothing has happened in the last year I swear.

Max: Exactly. I haven’t done any work. That was the original premise for the business was when I paid that fee the second time, I said, “I’ll bet we could develop an algorithm to instantly underwrite refinance title insurance, and we could do it cheaper, we could do that faster, it would be simpler.” That gave rise to the ultimate vision for the company, which is to do the entire process, not just title, but closing an escrow, everything. Our vision for the business and what we’ve started building so far is to be able to do the closing instantly. You click a button, the title insurance is underwritten, the earnest money is funded, the disbursements are made, the recording taxes are paid, you trace your signature with your finger, everything happens. Super simple and it’s better, cheaper, faster. That’s the general premise.

Aaron: That assumes that when they bought it, the person that gave the title insurance did it right. It’s saying, “Hey, they owned it, so we just need to quickly look at the last seven years and whatever happened, happened– [crosstalk]

Max: Here’s what’s interesting, the initial product we launched, the reason it was so innovative, and also controversial, was because we did not follow the traditional way of trying to automate underwriting, which would be to do what you just described is like, “Look, what if we could get access to the source of truth information faster? We could ping courthouse records, we could ping the assessor, we could pull the liens or whatever.” That’s not what we did. What we actually did was we developed a predictive model and the predictive model used other data that was instantaneously available to make a risk prediction and then underwrite based on risk.

Here’s the difference, we didn’t look for the liens. We weren’t actually going to the assessor and saying, “Are there liens?” We would look at other predictive data and say, “Based on this, what’s the likelihood that there would be a lien if we looked and without looking, we would underwrite.” Which means that what was so revolutionary about this, and this is why it caught on so quickly with large mortgage lenders is they were used to a process with the existing title vendors, they offer automated title search stuff, they’ll get a title report turned around in 24 hours at fastest. Sometimes it’ll take a day or two. We were issuing clear to close commitments on refis in less than a minute. We were like, “You click a button and it’s done.”

Aaron: I’ll say for likely to sell leads if somebody stopped mowing their lawn and they’re going to get a lien from the city and so then they’re probably going to be likely to sell you their house because they don’t care about it as much as you. What are some of those things you guys are looking at that’s like, “Hey, it’s not actually title or lien-based, it’s just this? What’s one of those other things?

Max: Here’s a couple of interesting ones that we found. Again, I think this stuff is fascinating. By the way, we patented this. We were granted a utility patent application on this predictive algorithm for instant underwriting title.

Aaron: That’s fucking crazy

Max: Here’s a couple of examples. One is, we found that the number of bedrooms and bathrooms in a home can be linearly predictive of title risk to a point, and then it inverts. For example, two-bedroom houses have more title risk than one, three-bedroom houses have more than two, four-bedroom houses have less than three, and five have less than four. You have this inverted risk curve that is not– Here’s the other fascinating thing is, I like to say we’re in the correlation business, we’re not in the causation business. Because people, they hear a stat like that, and they’re like, “Oh, let me think about why that is?” Three-bedroom house, that’s a median number of bedrooms. Maybe there’s more of those, the distribution of risk curve. The answer is, “I have no idea why four-bedroom homes have less title risks than three but when you find it’s statistically significant and you can underwrite risk more efficiently that way, we run our business that way.”

Aaron: You supply that percentage. You started doing refis and you said, “Hey, this is a simple thing. We can see how long they owned it. What are these other factors? Let’s apply a rate.” Then you would just pull out like, “We think our risk is this much, so we’re just going to charge this much for the policy.”

Max: Yes. In a perfect world, you would be able to do risk-based pricing. Unfortunately, the way the title insurance works is, and a lot of this is wrapped up in regulation, but you have to charge a flat fee no matter what. What we did, we just picked a low flat fee, and then we have a bifurcated decision. We either instant underwrite and take all the risk on our balance sheet as an insurance carrier or if it trips the risk threshold high enough, we just send it down old school manual underwriting path.

Just to give you a sense, right now we’re working with some of the largest mortgage lenders in the country for this product, a lot of scale, multiple states, thousands of closings a month just on this product. I think we’re instant underwriting between 80% and 84% of the orders that we get. The vast majority of them get instant underwritten, they get an industry-beating low price, it’s a better experience all around.

Aaron: That is crazy. Agents as you’re listening to that, he’s doing 200,000 closings a year and there are times when we get a cash offer on something and we’re waiting a week or two for a title policy and he’s saying, no, for 80 something percent, they could do it right away and say, “Yes, we can do this thing and lower cost.”

Max: One caveat, the instant underwriting algorithm is live right now just for refi but it’s coming soon for resale. What that algorithm allowed us to do was it also opened our eyes to the rest of the process being broken like setting up the closing, figuring out how to get the doc signed, for example. Some of those features that we’re now also making instant, instant signature, for example, it’s a feature that we’re releasing next quarter, that will be available for resale. The ability to sign instantly from anywhere at any time using the benefits of what’s happening with remote online notarization and some of these other things that you mentioned earlier on like in Texas and in Mississippi. We will be releasing some other instant features more quickly for resale to make the rest of the process instant.

Aaron: When I try to see like what’s happening right now, people are starting to see we could actually do business different. For a gazillion years, everyone says, “No, we do it this way, because we’ve always done it this way. Why do we do a notary? Because we’ve always done it like this. Why don’t we do it like this, it makes a lot more sense? No, because we’ve always done it like this.” Then COVID says, all bets are off, everybody needs to change everything.

My favorite restaurant now that’s a sit-down restaurant now has their own drive-thru experience with cones outside and they’ve got a giant menu out front now. When cars are parked in the parking lot, again, they’re not going to be able to have that. Everybody’s innovating so now all bets are off. Now is the best time to get to innovate and renew new products. When you’re saying, “Hey, some states have been okay with this,” you’re saying as a title company you’re going to allow a different form of notarization, your instant signing thing. You have to convince the lender to do it, or the lender just says, “Hey, if you’re backing this thing, then you can go ahead and offer that signing.”

Max: It was and it’s crazy how fast it happened. Two months ago, you would have had to convince the lender to do it and now most lenders have found a way to enable us to effectively make that decision on their behalf.

Aaron: Now it’d be like that forever. They don’t have a reason to go back. They could always go back to it but now they’ll be like, “Well, it worked. It worked during that, why do we have to go back to that archaic system?”

Max: What’s fascinating is again, just a few months ago, the world was more like, “if you’re a really leading-edge lender or a real estate agent for that matter and you want to be using things like DocuSign for opening docs, and remote online notarization for closing, you were pushing the envelope, you’re rolling out proof of concept but it was like 2% of transactions and the perceived benefits were far outweighed by just waiting if you were a fast follower.”

What’s changed and I’ll just be this direct, it’s unfortunate but it’s correct, if you don’t roll these things out now, you’re not going to survive. You will not be a going concern as a mortgage lender in 12 months if you do not have a fully remote end-to-end digital closing option because borrowers are getting more and more– Look, here’s the reality that they’ve had to face. The same borrowers who want an instant end-to-end digital close are the same people who are used to getting any television show on-demand, at any point in time on any device, no matter when they want it.

They’re the same people who are used to getting food delivered to their house anytime they want it, they’re the same people who are signing up for Instacart or with Amazon, now they’re getting groceries delivered in two hours or less. These are the same people who when they’re feeling sick right now aren’t going into hospitals. They’re going through telehealth visits and seeing doctors, by scheduling an appointment, again, with the tap of a finger and seeing someone in five minutes. If you are a mortgage lender or a real estate agent and you think that these people who are having instant experiences across every other aspect of your life are going to want to continue closing their loans in person in 6 to 12 months you have your head under a rock.

Aaron: Yes, we just bought a house, a new personal residence for us, and yes, the stack of paper is like two inches thick. I buy and sell a lot of houses and we did this crazy refinance for 100 houses back in December, and the paperwork filled a table like stacks this high around the whole table. You’re like, yes an instant solution because of course, we’re not going through and reading every document. Well, I am excited about this fun new world. You started– The software company that you were working with before is an AI-based company, you were doing this stuff before so it was a natural fit?

Max: It was. Yes, it was. My first company was a predictive analytics business for– Basically, we created a software program for large, what we call hourly employers, companies who have lots of hourly employees doing entry-level customer service, retail sales, fast-casual dining. Companies will hire tens, in some cases, hundreds of thousands of people a year for these jobs. They use our software to predict which job applicants would perform a certain way and how long they’d stay before they were hired. They basically ran our algorithm on every job application and it was quite successful. We scaled the business nicely and I sold it to a publicly-traded company. What was fascinating with that experience is relevant to this one is we had far less data in that business to predict off of, and we were still able to predict logical outcomes.

Max: In a real estate market, there’s a massive amount of data, right? It was almost like my experience in building that business as I was going through mortgage closing, as I was saying, “Hey, this is broken.” and then as I looked at the data landscape for real estate, I was like, “Wow.” there’s like 100 times the data in real estate world. Here’s a broken process that nobody likes and if we could use the data that’s available to have something way more accurate, that would just be– It would be such a better solution.

Aaron: Yes. What a different time in the– You’re right, AI is a fascinating thing and there’s so much stuff that the data can generate but everybody says it’s based on what data can be put in there, right? I drive my Tesla, my Tesla drives itself. Every week, I’m like, “Hey, they need to unlock it some more because it is learning fast.” but that’s their concept, right? Every time like, “No, we have to roll out this feature.” so then we’re going to collect a lot more data, and every time they collect data– You’re right real estate, probably more than any other industry, there’s just more data out there then than anything else, even for comps and things like that. There’s companies out there that use AI like Zillow for their assessment and realtor.com. Do you guys have any interest in that space using your skills and trying to do pricing or is the title going to be your big focus?

Max: Yes. Well, look, we’re already using a lot of that for– I’ll give you an example, another feature that we’ve recently taken live is something called Automated Fee Reconciliation. Fees, calculating fees correctly for closing is a huge area of effort and friction so real estate agents, lenders typically rely on the title company to calculate to be the first calculation of fees. Everything from obviously the insurance and escrow fees but also the transfer taxes, prorated interest on paying off loans, and everything. The title company basically creates the good faith estimate.

Then what happens is there’s all this stuff activity that happens for 30 or 45 days as the closing is getting lined up and a bunch of fees change. The lender decides that they’re going to offer a better interest rate to the borrower. The buyer and seller decide on a new closing date. Real estate agent decides they want to split their commission in a different way. A bunch of things change and then there’s this mad dash at the closing where you finally get the final closing disclosure, and you’re trying to reconcile everything. The title company is frantically trying to get this what’s called the CD. It’s usually in a standardized format from the lender but they’re literally like looking at a PDF document and they’re trying to go and correct fees, do research, find out why the HOA hasn’t been paid

We developed, again, another algorithm and it starts to get into the realm of AI which is– What we do is we actually read, we’ve trained a machine to read that CD. This is back to this idea of what data is available. A lot of title companies I think missed the boat on saying, “We have all this structured data, right? How can I get the fees sent to me in a field?” What we do is we take that PDF, just like the lender sends it to us and we’ve trained a machine to read it through what’s called optical character recognition.

It scans the document, it pulls out all the characters. Then we’ve developed a language library for CDs for closing disclosures through something called natural language processing and it then understands the fees that are on there and it understands nuances by lender. One lender calls the homeowners insurance, homeowners fee. Another one calls it insurance premium. Another one calls it homeowners premium. Our natural language processor knows that all those things mean the same thing so it reads it scrapes and stuff out, understands the syntax, puts it into the system, reconciles the differences, sends a response back to the lender with the correct information. This all happens within a fraction of a second.

In the old world, we got the CD, the title person looked at it, they researched the discrepancies, it would take hours, right? This idea of the machine getting smarter– By the way, the first time we released this algorithm, it was correct about 30% of the time. Correct meaning it got the fees read correctly and understood what they meant, put them in, reconcile. Now, it’s correct 98% of the time. It’s getting smarter and smarter. It’s learning on the documents. This area, AI, I think it’s very very important to us and we’ve already started to incorporate it into several aspects of our solution.

Aaron: Yes, you can even see and all that change. What do you think are some of the other innovations people are going to see in real estate? I was going to ask you about notaries but you guys are already step ahead on that. You started with just refis but now in 40 states, we’ve got so many real estate agents that listen here they can go find a States Title for retail in how many states?

Max: Yes, our retail brand is called North American Title Company. We’re active in 17 states and including most of the major met– California is a big market for us, all the major metros. Texas is a big market, most major metros, Illinois, Florida, New Jersey, Indiana, Nevada. We’re pretty heavy resale in our retail business unit. Other areas that we think you’re going to see a lot of really interesting movement quickly. Application of predictive analytics and artificial intelligence.

One of the biggest ones is appraisal, sorely overdue for innovation here. Certainly, it’s helped the last few years with these things called Appraisal Waivers, the GSEs Fannie and Freddie have allowed for certain loans that meet certain parameters to qualify for a waiver of an appraisal but I think what you’re going to see happening, just by virtue of the fact that the licensed appraiser population is aging out, you’re not seeing enough people replacing them.

It’s a hard profession to get new people to enter for a number of reasons. Those folks are aging out, it’s an in-person interaction that’s become much more precarious in the COVID-19 world and so I think what you’re going to see is a lot more loosening of regulation and a lot more innovation around using data and much the same we are way that we’re doing for title and escrow to do appraisals, completely automated, and make that completely instant. That’s a big one, I’m trying to think what else other than. Honestly, if you can see title and closing be instant and appraisal be instant, it gets us a lot of the way towards a fully instant end-to-end transaction.

Aaron: That it changes so many different things and you’re right, so much of appraisal is it’s scraping data and looking and those appraisers are going out in and seeing houses and grabbing pictures and doing different things. It does feel like 90% of that could be processed in a moment and you’re talking about being able to build AI, maybe it’s asking people, “Hey, I need you to take pictures of these 28 things in your house.” and if you do that, it’s an automated appraisal. I could see that really, changing and getting that buy-in because they follow those same systems. You say your policy costs are so much cheaper than other places. What’s the comparison? You’ve got two houses in San Francisco, what’s your fee compared to theirs?

Max: On our instant underwritten refi product right now, generally, what we’re seeing across all of the customers that we’re in, is that we’re typically between 15% and 20% lower cost than the lowest cost competitor in the account? Typically, lenders are using a couple of different title companies and they’re routing business based on service and speed. It’s like, “Can you get the thing done quickly? Can you close, and have a good customer experience?” On the service and speed stuff, we just blow them out of the water. It’s like they’re used to monitoring title company X by payday, maybe they can get it down to 7 days to 10 days total for the whole end-to-end work, the title search, the report, the curative process, getting the closing line-up, whatever.

The way it shows up, by the way, is they’ll measure their total end-to-end close timeframe from the time that they have a qualified borrower to closed funded loan, all the fees distributed and everything. Best-in-class lenders, generally run, call it, 20 days to 22 days fully loaded after a close timeframe, which is pretty fast for refi, especially in this environment. Our lenders, on average, are running more like 15 days to 17 days. We’re shaving multiple days off the closing process and then we delivered at 15% to 20% cheaper than whoever’s our lowest-cost competitor. This is the Amazon effect. We found that when your message is really simple, people just get it. It’s like, “It’s better, cheaper, faster. Why wouldn’t I use that?”

Aaron: Right. Better, cheaper, faster. That’s the headline and that’s the headline that everyone is looking for in life right now. Like you said, everybody is looking at their phone and going, “What’s better cheaper, faster?” What’s funny is sometimes people would pay more for faster. If you said, “Hey, we’re 10 days faster but 500 bucks more.” Some people will say, “Hey, we’re going to use you because we want to close those 10 days faster.” Now, you can say we’re 10 days faster and we’re cheaper in what could be thousands of dollars. If you’re talking 15% below the lowest, especially with some of those bigger houses, there’s a huge fee, like you said, it was the third-highest fee that you see on the CDs and you guys are that big cost-saving so should be a no-brainer to be able to market that out there and people especially– How do you get the word out though, to end-users? Especially, if it’s a refinance, are you going through the mortgage lenders first, and then once they believe it they present that back?

Max: On refis, lenders generally refer the placement because they’re acting in the fiduciary interest of their customer. It’s technically the customer’s decision. Again, for those of you who’ve bought a home or refinance and actually paid attention to the fine print, on the good big estimate, it says there are services you can shop for and services you can’t, title and closing is a service you can shop for, but what the lender does is they say, “Look, we’ve pulled fees from this vendor. We’d prefer to use them because they’re the fastest because they’re the lowest cost.”

Resale is trickier. We were selling to real estate agents because they are the intermediary, again, who’s acting in the fiduciary interest of their client. That’s where our retail presence is really important. We have over 100 salespeople in our retail division spread all over the country and we’re still trying to figure out how is best to communicate with realtors. What we found is that realtors share an interest in making sure the deal gets closed quickly. They certainly, most of them, want to do it at the lowest cost for their customer. They want to be able to provide the benefit of lower fees on closing but it’s been a trickier conversation just to make sure that– Again, partly because they’re so used to– It’s like you said earlier in the conversation, where it’s like this industry has been used to doing things a certain way for so long where when you’re talking to a realtor and you say, “Hey, look, this is a better product. It’s faster and it’s lower cost.”

Typically, what you’ll come up against as the number one objection is they’ll say, “Yes, but I work with Mary Sue at ACME Title Company, and I’ve worked with her for 20 years. I don’t know, do I really want to try something new? I’m trying to get the deal closed. I don’t want to put it at risk.” That’s what we’re really making sure that we prove like, “No, actually we’ll help you have higher certainty of the deal closing.” If the timeline goes down and it’s a lower cost, that actually means that your customer is more likely to close and so we’re seeing some benefit there.

Aaron: The big barrier is almost like too good to be true. They’re like, “Okay, you’re saying it’s better. You’re saying it’s faster. You’re saying it’s cheaper, but I just don’t want to risk it because I know this is going to work. I don’t really think you’re going to get off of it. I think you’re going to have to change your pitch just to be one of those things.” And say, “We’re faster. Is that good enough?” Later, they’ll find out it’s all three but if you say all three of them they’re going to get pretty skeptical. Sounds like you’re pretty excited about title and everything else that’s out there. A couple of years ago, people started talking about blockchain and saying, “Blockchain is going to completely change the way people do title because maybe transactions are going to happen that way.” But that’s really the same process you have. Do you think that has any place in the world or is what you guys are doing with AI and other people, is it the same thing?

Max: No, it’s different. I agree that blockchain is likely the ultimate destination for title and closing. There’s a couple of things to consider. One is even if you put title on the blockchain, the existing industry, except for us, is constructed around the idea that you need to check everything, and when you find issues, you need to fix them. When you move to the blockchain, all you do is you allow instantaneous access to the information that title companies insure on but they’ll still go through the same process. They just get it immediately and then they’ll say, “Oh, here’s an outstanding mortgage lien. Is that real or not?” They have to go and do the research.

Aaron: It is kind of archaic though because the stuff is in so many different places. When we were doing the purchase on our house, they were like, “Hey, but tell us about this personal mortgage that you did last year in July, in San Antonio.” I was like, “I didn’t.” We also buy and sell a lot of rentals. We’ve got hundreds with our company but I go to research it and it was somebody with the same last name but completely unrelated to me. No same initials, same last name only but the title company was flagging that like, “There’s this other house that you have that we think you’re lying about so will you tell us about that?” It is strange. There should be one place that says, “Hey, there’s for this house. Here’s the thing,” like some sort of a form but that’s what you guys are going to, although that transition to get everybody on board, part of that hinges on the trust that the last time title company did their job, right?

Max: Yes, and the challenge also that ultimately, most of the system of record that’s being accessed, it needs to be documented because blockchain is read-write, you got to pull from blockchain and then you got to put it back in and where the read-write, single system of record sits today is at county recorder’s officese last I checked, I think there’s 2200 counties that have a county recorder’s office recording mortgages. You’ll have to convince an added like–

Aaron: 250 something in Texas

Max: Exactly. You got to convince every one of them to move the blockchain. Look, I don’t even know. I think it’s going to happen. When it happens, I think by the time it happens, our method of underwriting and using predictive analytics as the layer on top, will be the accepted standard and we will be thrilled.

Aaron: You’re going to get to the point where you’ve got a lender partnership, where they say, “The slowest part of that process is going to be somebody’s credit report coming back. The credit report is going to come back in two days.

Max: You got it.

Aaron: All right, “We got our credit report back. This is what we know.” You guys are going to be able to click the button and go, “Here’s the value. Here’s the title, let’s get that refi done.” Then as that comes to retail, that gets even more exciting. I could see, I think, a little bit risk here than refis, of course, but you get to go at that. As you’re super pumped up about growing this thing, what is the next level for your title companies? You did 200,000 last year. Just more states, more products, easy click everywhere?

Max: Yes. Honestly, our big focus this year is we’re putting a massive investment into the next set of features on our technology platform that will make the rest of the escrow and closing instant. Just to put it in perspective, like a year ago, we probably had 15 engineers and data scientists in the company. Today, we have probably close to 100, and we’ve been on a hiring spree for some of the best technical talent in the world, PhDs in astrophysics, like some of the leading data scientists and engineers to build out the rest of that technology. This is going to be an investment year for us.

We’re very fortunate in that the company is very well capitalized going into the current market situation. We have Lennar who’s the largest home-builder in the country, is one of our largest investors and we have some other big-name investors behind us too. I think what I’m really excited about and what’s coming next is that, well, I think you’re going to see a lot of these other title companies who have never really invested that much in technology before, they’re definitely not investing any right now. We’re going to quadruple the size of our R&D spend this year to pass on the benefits to our customers.

Aaron: Real Estate Rockstar listeners, you guys know that we almost exclusively only interview real estate agents. It takes something big to have somebody come on here that isn’t a real estate agent but when I saw some of the stuff that Max was doing, I thought for sure, you guys needed to get to hear it because right now we’re in this time of innovation and when he says that part, they’ve got 100 programmers and software guys trying to build out, that is not a title company style. I’ve got a lot of great title companies, I’ve worked with a lot of great things and I haven’t done any deals with Max’s company and I do love so many of those experiences I have but I love the technology aspect and what you guys are trying to do. Our listeners out there, if there are agents that want to come find you, I think you already said the way they find you is through North American title, right?

Max: Yes, for real estate agents, it’s North American Title Company and for mortgage lenders, it’s States Title and our website’s Statestitle.com.

Aaron: That is awesome. Both places for people to come find you, Max. Any last things that you were hoping we were going to get to tell everybody out there. At the beginning, I think we said that your big mission was for people to know that there is other ways out there, you don’t have to do it the way you’ve always done it. There are some other options. You might save time and money. Anything else?

Max: No. Maybe the last thing I would say is just in a time of obviously tremendous adversity and uncertainty, there’s reason to be very excited about the future. Necessity is the mother of invention and the inertia that you mentioned earlier in our discussion that this industry has always faced because that’s the way things have always been done, now they’re being forced to change and almost all those things that are being forced to change around are for the better. This is going to be for the better of customers and for everyone in the real estate market. It’s going to be painful to get there but there’s a lot of optimism for where this is going to end up. I’m super excited about the future.

Aaron: That’s a great point with the optimism everybody should be listening to out there is, when forced change happens, it is to benefit the consumer. It’s to benefit the person staying at home so they don’t have to go do these other things. Even when we’re allowed to go back out and do other stuff, that means you could stay at the park longer instead of doing it this way, it means you can stay at your appointment longer, the birthday party, or the dinner, and it’s going to benefit the consumer as we push through. Real Estate Rockstars, we have told you guys, continue to educate yourself, have a great attitude through all this and figure out what’s out there. I hope you guys enjoyed this. Max, I can talk to you for hours about the different technology and the software stuff that we built inside ours and what you’re doing but for now, that’ll be it. Hopefully, we’ll have you on again soon, and thanks for joining me.

Max: Thank you.

Aaron: All right, bye now.

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