Virtual Data Rooms in the Real Estate World

The worldwide real estate market volume is estimated to reach $634.90 trillion USD this year, with the value split between commercial and residential sectors at 19% and 81%, respectively. To understand the magnitude of this figure, compare it to the Gross World Product (GWP) — the total monetary value of all finished goods and services produced globally — valued at US$105.44 trillion in 2023, according to official data from the World Bank. This means that the value of all real estate on Earth is approximately six times the size of the annual global economy. Such a tremendous market requires tools to handle specific needs, including transactions, valuations, monitoring, renting, managing, financing, legal compliance, asset and property management, and many more. One solution to address some of these needs is a Virtual Data Room.

Introduction to Virtual Data Rooms

Back in the day, before the software industry age, confidential document analysis including financial records during mergers and acquisition procedures happened in secured physical locations called data rooms, also as a part of a due diligence process. Organized usually in the seller’s office, delegated attorneys and others could access documents before closing the transaction. This involved meticulous control over who could access the room, rigorous monitoring of all activities within the space, and the logistics of managing physical documents. Nowadays such a procedure is possible with cloud solutions and their digital equivalent is called a Virtual Data Room. Due to its virtual nature, there are no physical restrictions, and a whole operation can be arranged with less time and effort, ultimately resulting in significantly lower costs.

The solution can be summarized as a secure repository of documents with advanced permissions and monitoring features. Any action done by a user, like viewing or downloading a document, may be later on available in the reporting. Accessing the platform can require two-factor authentication. A virtual Data Room typically includes collaboration tools, delivers reporting and analysis insights, complies with data regulations, and has file processing capabilities like dynamic watermarking. Documents can be versioned and organized within an index that facilitates access and referencing. An index point label document stores information about file locations and can also serve as a unique identifier. Different parties in the process may be invited to specific repository areas to work on particular tasks. These functionalities are generic and can be applied in many use cases.

Exploring possibilities for real estate – due diligence and beyond

Due diligence is a primary activity in Virtual Data Rooms and its typical challenges are directly addressed. If there are problems with modeling process requirements, Virtual Data Room platforms picture the procedure. With collaboration tools including the Q&A and ticket systems, communication between various groups is standardized, monitored, and secured. In terms of tooling, some providers build mobile applications to not limit access from a desktop environment. Moreover, there is no productivity loss due to poor document organization, as the platforms focus and specialize on functionalities that make document management efficient and intuitive, for instance, batch operations like copying, moving, deleting, and restoring multiple files at once. Also, full-text search is one of the key features, and documents must be converted and indexed to build an explorable lexicon. Interested parties and their specialists can access and study documents in a unified and controlled way with minimized data breach possibility.

Virtual Data Rooms are not limited to evaluations and transactions. Their use can be more long-term oriented. For example, there is a significant overlap between due diligence and asset management features. Management also requires centralized document storage, collaboration tools, and enhanced security. This holding period can last as long as necessary, and when a transaction is needed, pre-requirements are already met. Some Virtual Data Room providers specifically prepare for such scenarios.

Another use of the described platform is portfolio management. Real estate functions as both an asset (through value appreciation and income source) and liability (due to maintenance and property taxes) that can be analyzed and summarized as a part of an investment portfolio. Virtual Data Rooms integrated with reporting and dashboard systems assist in analyzing portfolio performance.

Selecting a provider

There are a few steps to consider when choosing a Virtual Data Room provider. The selection largely depends on your needs and desired features. Some providers emphasize document repository aspects, while others focus also on powerful collaboration tools with predefined workflows and control mechanisms, such as the four-eyes principle. Depending on the region, there may be different data privacy regulations like GDPR in Europe and CCPA in the United States. Another important aspect is onboarding external experts – so they can get familiar with a system so as to understand what next steps need to be taken, contribute to the process and work on delegated tasks. Documentation and customer support services may also be crucial, especially in the case of critical operations like transactions. Budget is an important factor, as prices can range from tens of dollars per month to thousands and more. Usually, there is a trial option to test a platform and see if it meets all requirements. Moreover, pricing is often publicly available. The entry barrier to start working with Virtual Data Room may be low and without requiring prior contact or special agreements. There are lots of providers and some websites aggregate them and provide comparison tables to help with making a choice.

At Software Mind, we do not own any Virtual Data Room platform but have experience in implementing them. There are lots of technical challenges to address, and there is no compromise in terms of security or performance. Developing such a platform requires specialties not only in backend aspects but also in user experience and design, as it’s a competitive niche with a very high bar for quality.

If you’re looking for a technical partner to help create and maintain solutions for property technology or the real estate industry in general, contact our experts using this form.