One thing we can all be sure of is that very little stays the same forever. Change is always on the horizon, at some point.
The recent £2.2bn sale of the property search website, Zoopla to the technology experts Silver Lake signals the start of some serious change to the way we buy and sell property. The UK psyche has an obsession with home ownership and house prices. Information is freely available on the internet; we live in a time of immediate satisfaction on demand which is why it is of some wonder why the traditional ways of buying and selling property have survived for so long.
Zoopla offers a cheap and instant means for those looking for property to rent or buy and to find those looking to sell or lease. It is enormously cheaper than the traditional high street estate agent – operating on lower overheads (no offices, fewer headcount) and charging a fixed fee as opposed to taking a percentage of the final sale price. It is of no great surprise that their market share grew by 60% last year. Purplebricks (the most significant online agent) have a current market capitalisation of almost £1bn – JP Morgan predict that they could feasibly account for as much as 15% of the UK market by 2022.
Investing in property has changed too with prop-tech start-up Property Partner shaking up the way we have traditionally invested in property; a rapidly expanding property trading platform enabling investors to buy as much or as little as they want within residential, commercial or purpose built student accommodation. Property Partner currently manages over £100m worth of assets; it has shown that accessibility, convenience and liquidity can be revolutionised through technology.
The big question is are the regulators keeping up with these changes? Nobody wishes to see “mis-selling” again; the PPI debacle is still not resolved. These new businesses are blurring the lines between established business practice. They are delivering new and different services that clients want in new and different ways and causing legislators and regulators to have to re-assess what they do and how they do it.
For the client, the legal market will become more competitive and the traditional ways of doing things are inevitably going to change. For example, the emergence and growing use of title insurance in commercial real estate is, again, changing the way lawyers and clients have historically dealt with transactions, particularly the bulky and larger portfolio transactions where full title due diligence on a portfolio that is already owned or being acquired by the borrower often involves repetition and duplication of work already carried out. For the client, this can be expensive and impractical without providing any real value to the transaction.
Historically, title insurance was seen as a means to solve a defective title issue. Now, there appears to be an insurance solution for an ever increasing range of legal risks within a transaction. Sounds almost utopian but worth remembering that legal indemnity insurance will not remedy an underlying defect. The benefit of insurance is that it transfers the financial risk of loss away from the owner or the funder to a party better able to deal with and bear that financial risk (i.e. a well rated insurer).
Placing appropriate insurance can protect and preserve the value of the real estate assets while minimising transaction due diligence costs. As we know, every commercial real estate deal involves risk. The key is identifying the risks (insurable or otherwise) at the outset and so far as possible ensuring that any identified risks lie with or is transferred to the appropriate party best able to deal with the risk, should it materialise. Funders and borrowers have habitually insured against different risks through different means – from the traditional notion of insurance (building and construction risk) to taking collateral security and by using hedging and interest rate and currency swap instruments. Should indemnity insurance just be seen as another extension of managing risk? Could indemnity insurance be the means of allowing lawyers to focus on working in partnership with their clients, advising on those aspects of a transaction that are genuinely of commercial concern to their clients and getting the best commercial deal that they can before moving on quickly together to win the next? In these high risk tech times, surely that is the end game.
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