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The Use of Virtual Data Rooms for Real Estate Transactions

real estate transactions

Real estate transactions are highly detailed in how they are constructed and documented. When a property is in the process of being financed or sold, it is important that all necessary documentation be presented to the parties of interest in an organized format that is also marketable. The use of a virtual data room, also known as virtual deal room, provides the upfront due diligence that is necessary to ensure that sales or financing processes run smoothly when managed by the provider.

What Is a Virtual Data Room?

At the core, virtual data rooms (VDR) are online repositories of a wide range of information that is stored and used to prepare and distribute specific documents. When it comes to real estate transactions, virtual data rooms are used to ensure that documents that are being prepared for a specific transaction, which includes, financing, sales contracts or closing documents are prepared accurately, and in compliance with all laws and associated regulatory policies.

Traditionally, the due diligence process has been handled in a physical setting in order to effectively facilitate the disclosure of all necessary documents. With increasing concerns surrounding security, costs and efficiency, virtual rooms have replaced the traditional physical data rooms.

How Virtual Data Rooms Operate

When functioning as an alternative to physical data spaces, virtual data rooms providers are set up via an extranet infrastructure, though which all relevant parties can gain access to the data via the internet. To be more clear, and extranet should be viewed as a website that has a more controlled access point — in other words, without the right authentication and password, it is impossible for a person or entity to gain access to the data room. The service provider will provide the users with a secure log-in, which the provider has the capacity to disable at any time.

Because protecting the privacy and identity of the consumer is an increasing concern, a great deal of caution is taken to ensure that access to the data is highly restricted. Because the vast majority of the information flowing through these data rooms is confidential, access is not only restricted, but the ability to share this information with third parties is also highly restricted. The primary way that this is effectively managed is through the use of digital rights management software.

Enhanced Accuracy

When it comes to expediting real estate transactions, it is important that all documentation is accurate. One of the top causes for delays in closing real estate transactions is the mistakes that are made when preparing documents — creating a situation in which documents have to be redrafted, which can push the transaction back by hours or even days.

The software that is used for document preparation in virtual data rooms is designed to reduce the possibility of document errors, meaning that the chance of having to redraft documents is extremely low. Not only does this enhance accuracy and shorten the closing time frame, but it is more cost efficient because of the reduced need to spend time redrafting documents. The repository that is used to facilitate the virtual data rooms is continuously updated to ensure that all compliance requirements are met, and it also ensures that all of the latest data on the customer is updated as it changes.

These data rooms allow bankers, real estate professionals, restructuring experts, accountants and more to safely communicate and collaborate with a global reach.

The service provider has complete control over who will be able to view, print and save information on the platform. The ability to watermark each page of a set of documents with the time, date and identity of the person who is drafting the document is another powerful authentication tool.

Compiling Data

The repository that is used for storing all of the necessary data to complete the transaction allows designated parties to enter all of the information as it is collected — compiling all of the information in a centralized location. The centralized storage model means that all designated parties are able to access, with speed and accuracy all of the information necessary to propagate each document that must be prepared in order to complete the transaction.

The days of operating from a physical data room to prepare documents for real estate transactions have passed, and virtual data rooms are the next level is secure document preparation and distribution. Because all pertinent parties will be logged into the virtual system, when the time has come to distribute the documents, it will be easy to ensure that the documents are being distributed to the right party.

With an increase in reports of major security breaches on massive scales, bankers, lenders, real estate agents and title companies are looking for a more secure method for handling all of the documentation that is necessary to finalize any real estate transaction, including financing, selling and closing. The centralized functionality goes a long way in simplifying the entire process, while the restricted access will protect the privacy of the parties involved. Some reports have suggested that the bidding process can be reduced by as much as 30 days when compared to physical data rooms. Virtual Data Rooms are the future of real estate transaction management.