IMAGINE A HIGHWAY WHERE SOME DRIVERS are traveling 30 mph, while others are speeding along at 70 mph. Motorists drive on the left side of the road and the right, while others simply stop without warning. It would be chaos.
That's exactly why there are rules of the road. Standards ensure everyone gets where they need to go safely.
However, when it comes to the information superhighway, the commercial real estate industry is much like the lawless scenario above. Everyone wants to use the Internet to automate transactions, yet no overarching agreement governs the process.
The key to commercial real estate's success on the Internet is data homogeneity, or a universally accepted and understood method of communication. The industry needs to adopt and enforce these standards in order to ensure a smooth ride on the real estate information highway.
Finding common ground
Standards — such as Hyper-Text Markup Language (HTML) developed by the World Wide Web Consortium (W3C) — already exist for the Internet at large. And the commercial real estate industry does have some standards to go by. For example, the Mortgage Bankers Association of America adopted a set of standards for the real estate finance industry through the Mortgage Industry Standards Maintenance Organization (MISMO) in July 2001. Fannie Mae and Freddie Mac also have worked with MISMO to adopt a common format for their automated underwriting systems. And in 1993, 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.
However, almost everyone in the industry agrees that updated standards are needed specific to the Internet.
The challenge is setting up standards for a vast number of participants, each with distinct needs. In order to bring together all sectors of the commercial real estate industry, the standards will have to be broad enough to apply to everyone, yet specific enough to encourage efficiency.
Several groups are working along these lines. The Real Estate Information Professionals Association has created a transaction standards committee, known as the Alliance for Advanced Real Estate Transaction Technology (AARTT). AARTT's mission is to create open standards for data exchange among companies within the real estate technology industry. In addition, MISMO's Commercial Working Group (C-MISMO) has been working to build a commercial mortgage origination data standard.
Speaking the same language
Once standards are determined, the next obstacle is deciding 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 biggest advantage to XML is that it's “extensible.” In less technical language, this means that unlike HTML and other languages that have pre-defined structure, XML provides the capability to create tags to describe specific data in a document.
MISMO has developed a logical data dictionary of business data elements for its XML transaction standards. New groups also have been formed to address the requirements for electronic mortgage transactions, e-signatures and e-closings. The Property Records Industry Joint Task Force is working with MISMO to develop industry-standard XML data protocols to facilitate electronic recording with county clerks.
Embracing the standard
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.
Systems also may 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. Our 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 the director of electronic commerce for Stewart Information Services Corp., the parent company of Stewart Title Insurance.