Is the Residential Real Estate Digital Revolution Starting?

The call came early in the morning. It was the CEO of one of Alohome's clients in Guadalajara. He wanted to let me know that they had just received an inspection from PROFECO. The inspector came and requested proof of compliance of the 43-plus items required by  NOM-247, item by item. It lasted for about 3 hours and there was talk of the severe penalties associated with noncompliance with the newly enacted regulation. Later, we found out that this had been triggered by an anonymous complaint regarding the new NOM-247-SE-2021. What was really surprising is that this happened in early October, less than three weeks after the NOM-247 was officially implemented on Sept. 19, 2022. Fortunately, this particular client had been diligent in its preparation to comply with the 43-plus items that the norm outlined, had already submitted its contracts for review with PROFECO, and through documents available in the showroom plus the use of alohome’s digital technology they were able to satisfy the requirements with a warning for a handful of items in process and no penalty. We were relieved. This happened just in time for our release of a new product that satisfies the long and inter-related list of requirements from NOM-247. 

Our developer in Guadalajara was fortunate to not have received a penalty. The spirit of NOM-247 is to create transparency between developer and homebuyer in the sale of new homes and residential urbanized lots in Mexico. At its core, it prompts a great leap forward for an industry that for too long has operated with suboptimal business practices. However, NOM-247 is also pretty expansive in its list of requirements, which range from publicly displaying, either online or physically, a PROFECO-approved contract, creating transparency in pricing, project features, closing costs, and interest rates in financed purchases, regulating false or exaggerated advertising, and normalizing reservations, payments, penalties and devolutions. Without a very dedicated effort from developers, marketing and sales teams, and brokers, NOM-247 is catching the industry off-guard. 

At alohome, since our foundation in early 2021, we have advocated for transparency in pricing and empowerment for the homebuyer. In a survey we ran at the beginning of 2022, we discovered that less than 1% of the industry provided pricing transparency in their online presence. Also, because of lag times in information and bad practices, it has been customary to advertise prices for apartments with the classic “prices starting at $X,” while not having any availability of the advertised units. As we have discussed previously in this space, being a homebuyer in 2022 is still frustrating, slow, and very different to being a buyer in most other industries. We are excited for the market to become more transparent, allowing buyers to operate under a level field, and to have the projects advertise their true merits. Homebuyers today demand pricing transparency, digital customer journeys, and a less intermediated access to information. This is where NOM-247 will greatly benefit the different players in the industry, through consistency, by empowering homebuyers who are motivated to purchase a new home, from a more professional pool of talent, and by weeding out fraudsters and embezzlers. On the other hand, the implementation of the new norm sets a difficult-to-reach (and somewhat bureaucratic) standard that today most players are not compliant with. 

While being positive at large, NOM-247 has a few elements that are triggering warning sides within the industry. This NOM is really important for developers, brokers, their investors, and lenders for four reasons: 

1. First, it is binding for developers and brokers, and the authority. In particular, there are  four  areas within PROFECO that are  given strong vigilance mandates. Inspections will not only come from complaints but the authority is already being proactive in conducting inspections. 

2. Second, complaints are now anonymous and can come from anyone, not only buyers with a legitimate business interest. We believe this may trigger a witch hunt among competitors, brokers, and misinformed parties, triggering frivolous complaints. 

3. Third, the norm indicates penalties for violation of its long list of elements that ascend to a maximum of close to MXN$11 million (US$550,000). This is a really serious amount for developers at a moment in which there is intense pressure from inflation on the cost of materials, rising interest rates, and decreased demand. For brokers, this is an atomic bomb that may jeopardize the viability of their livelihood. 

4. Fourth, the list of requirements is pretty extensive and requires changes in contracts, pricing models, quotes, advertising, brokerage relations, data storage, and commercial processes. 

To be protected, the industry needs to move fast, and technology can be a strong ally. 

In our day-to-day inside alohome, we get to work with a large number of the industry’s leading developers. The attitudes from the industry can be grouped in two camps: a wishful disregard of the new risks the regulation implies and a fast search for compliance. Our perception is that most of the industry is yet unaware of the high level of risk they are undertaking by choosing to ignore the new regulation, hoping the authority won’t really be strict and swift about compliance. In my view, this is a mistake because the industry has a poor reputation in the view of authorities, and there is the perception that the industry generates large amounts of profits, which now will be targeted through extensive inspections across areas, and the promise of high penalties. Something that has been really shocking to monitor is that at the time of writing this piece in late October, one month after the implementation of NOM-247, there have been more than  50 anonymous complaints and inspections reported already. We expect this to grow significantly as the information about the norm becomes more mainstream. 

While the new regulation may seem strict, scary, unfair, and annoying, there is also the view that this is a great opportunity for the industry. The implementation of more transparent commercial practices offers a great opportunity for real estate developers and brokers to be more proactive about the use of digital tools and the creation of more exciting purchasing experiences for customers. At alohome, we have developed the industry’s first tool that helps real estate companies to monitor their compliance of NOM-247 through self-assessment, uploading of documents, integrating real-time inventory and pricing across all distribution channels, tracking authorized brokers, better websites, models, and quoting tools. We are collaborating with industry leaders to improve their digital capabilities, using digital tools to create trust, empower the homebuyer, and increase their sales in the process. We are really excited that through the combination of regulation and demand, the digital revolution in residential real estate has begun. The opportunities are endless.