Imagine for a moment a highway where some drivers are going 30 miles per hour (mph) and others are going 70 mph; where some are driving on the left side of the road and others on the right; where some pass on the right and others simply stop with no warning in the middle of the road. It would be chaos. That’s exactly why, at least in the United States, there are rules of the road. Standards ensure that everyone gets where they need to go — safely.
When it comes to technology, the commercial real estate industry could be likened to the drivers in the above example. Everyone is moving toward automating various aspects of the transaction, especially using the Internet, yet there is no overarching agreement about how to get there.

The benefits of doing transactions on the Internet are immense because the Web provides a secure, central repository for documents and allows users 24/7 access to the information they need to keep the transaction moving. Technology opens the door to a “paperless” society; it lowers industry costs as well as the costs passed on to the consumer and also improves productivity, quality and workflow. Technology can increase the capacity to handle more transactions and decrease overall turnaround time for customers.

For example, programs like SureClose, Stewart Title’s Web-based transaction management system, give users access to transaction details and status. In addition, such programs enable users to view, organize and deliver documents online, eliminating the time it takes to print and deliver paper copies.

With technology must come standardization. The residential real estate arena is much further down the road in this regard than the commercial arena, primarily because commercial transactions are far more complex and require more customization. The key to commercial real estate success on the Internet lies in finding a way for all parties involved — mortgage bankers/brokers, owners and investors, property brokers, settlement services providers, etc. — to maximize the power of the Web. This requires some level of data homogeneity: a universally used and understood method of communication.

These “rules of the road” for the real estate information highway are data standards. Standards like Hyper-Text Markup Language (HTML) already exist for the Internet at large. In July 2001, the Mortgage Bankers Association adopted its own set of standards for the real estate finance industry through the Mortgage Industry Standards Maintenance Organization (MISMO). Fannie Mae and Freddie Mac worked with MISMO to adopt a common format for their automated underwriting systems.

The commercial real estate industry does have some standards to go by. The National Council of Real Estate Investment Fiduciaries, the Pension Real Estate Association and the National Association of Real Estate Investment Managers developed standards for real estate investment in 1993. However, almost everyone in the industry agrees that new or updated standards specific to the Internet are now needed.

The challenge is that there are so many different participants in every commercial real estate transaction, each with distinct needs and various language. To bring together all parts of the commercial real estate industry, the standards that are adopted will have to be broad enough to apply to everyone, yet specific enough to provide the efficiency that standards are designed to provide.

Several groups are working along these lines. The Real Estate Information Professionals Association has a transaction standards committee, the Alliance for Advanced Real Estate Transaction Technology (AARTT). AARTT’s mission is to create and facilitate open standards for data exchange among companies within the real estate technology industry. In addition, MISMO’s Commercial Working Group has been working to build a commercial mortgage origination data standard.

Once standards are determined, the next question is which programming language to use. Extensible Markup Language (XML) appears to be the frontrunner since it’s the easiest to use. In fact, the MISMO standards use XML. Certainly the best thing about XML is that it’s extensible. Simply put, this means that unlike HTML and other “closed” or “fixed-set” markup languages, XML provides the capability to define or create “tags” to qualify specific data in a document, such as <BorrowerFirstName>. This allows users to produce smart documents that contain both the presentation information (bold, italic, font, etc.) and processable data (such as BorrowerFirstName>Darren </BorrowerFirstName>). However, that’s also its biggest downfall. Without a common dictionary to define standard tag names, there is potential for too many variations, which defeats the purpose of a standard.

MISMO has developed a logical data dictionary of business data elements for all of its XML DTD (document type definition) transaction standards. Per MISMO version 2.1 specifications, approved data standards exist for automated underwriting, credit request and response, flood request and response, mortgage/loan application, mortgage insurance request and response, servicing transfer, and title request and response. Additionally, new work groups have been formed to address the issues, requirements and development standards for electronic mortgage transactions, SMARTDocs, e-signatures and e-closings. The Property Records Industry Association (formerly the Property Records Industry Joint Task Force) is also working with MISMO and has approved an industry standard XML data protocol to facilitate electronic recording with county clerks’ and recorders’ offices.

It’s one thing to create standards, but another thing entirely to get people to accept them. So when do standards become standard? One answer is when they are so thoroughly adopted by the marketplace that they become customary practice. This is what’s known as a de facto standard. Certainly as technologies gain popularity, there is a degree of marketing pressure to make sure other systems are compatible. Standards may also become standard when people are penalized for not using them. This is what’s known as a de jure standard — a formal set of rules put in place by some kind of authority. U.S. traffic laws are a good example: drivers who don’t follow the standards run the risk of being ticketed, fined or forced off the road altogether.

The adoption and enforcement issues need to be resolved soon. The real estate industry must make sure it is ready to go when the standards light turns green.

Darren Ross is director of electronic commerce with Stewart Information Services Corporation and Don Wade is senior vice president, senior underwriter and manager of national title services-Atlanta with Stewart Title Guaranty Company.


©2003 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.