What is a virtual data room for real estate?
A virtual data room (VDR) is an online repository for storing and sharing documents. VDRs range from simple, online storage rooms with few administrative control-access options to highly secure virtual environments with a broad range of access permissions.
Virtual data rooms for real estate help industry players with property management and processes, including due diligence and M&A. VDRs also make it easier for parties to share documents, give them greater control over private information, and eliminate the need to store physical documents.
Who uses VDRs in the real estate industry?
Various professionals in the real estate industry use VDRs, such as:
- real estate agents
- asset managers
- buyers and sellers of real estate
- transaction brokers
- real estate developers
How are VDRs used in the real estate industry?
How a VDR is used in the real estate industry depends on which party is using it. However, VDRs are primarily used for:
- storing documents
- sharing documents
- accessing documents
As an example, let’s suppose a real estate agent is selling a commercial building. They have multiple prospects, all of whom need to do their due diligence before bidding on the property. To do this, the prospects need to examine all documents about the building’s physical condition and its legal status.
Instead of emailing the documents separately to each prospect, the agent can upload them to a VDR, then allow the prospects to access those files. By choosing specific access settings, the agent can ensure each of the prospects is able to view the documents but without knowing who else is also viewing them.
Also, the agent can block access to any user at any time — for example, a prospect who is no longer interested in bidding.
This is just one example of how VDRs can be used in the real estate industry to share and access documents. Here are a few other examples:
- a transaction broker can help potential buyers decide if they want to visit the property by uploading a virtual video tour of the property to the VDR and sharing it with them
- an asset manager can upload and share digital versions of engineering and building plans to help an auditor assess the value of the building during an M&A process
- a real estate agent can manage all communications related to a specific property in the same platform by creating a Q&A section in their VDR
What are the benefits of using VDRs for real estate transactions?
There are three great advantages of using VDRs instead of sharing documents physically or by email:
- greater security
- time savings
- less storage space
VDRs enhance security
In real estate transactions, parties often share documents that contain private information. When sharing those documents by email, it’s hard to ensure that information won’t be leaked. It’s equally hard to make sure physical documents will be kept confidential.
However, when using high-quality VDR services, real estate professionals can use many different features to keep private information private. Among many options, VDR admins can:
- restrict users’ access to specific folders and files
- automatically watermark documents
- require multi-factor authentication for users
- customize user permissions
Regarding general security, a VDR’s files are encrypted to help prevent a data breach.
VDRs save time
When the parties involved in a real estate transaction use a VDR, they gain access to their files with only an internet connection — that’s a huge time saver. Additionally, VDRs are more efficient for real estate professionals by offering:
- bulk upload features which make it easier and faster to share a great number of documents with others
- free document checklists to expedite real estate due diligence process
- project management features allow agents, managers, and investors to manage multiple projects on the same platform, making it simpler for them to keep track of processes regarding each of their properties
VDRs are clutter-free
In many places, the law requires people to keep certain real estate documents for long periods of time. So, dedicating a physical storage space to dusty boxes filled with paperwork can take up space in an office or home needlessly.
Storing virtual documents in a VDR instead of in a physical location saves space. It also helps to keep documents safe, organized and makes them easier to locate.
Tips for choosing the best VDR provider
If you are considering using a virtual data room for real estate transactions, here are a few tips to help you choose a great provider:
- check the providers’ clients and their reviews to make sure the provider has experience in the real estate industry
- draw a list of what you need from a VDR, then compare the features each VDR service offers and find out which services match your needs
- if the virtual data room providers you are interested in offer free trials, take advantage of those — sign up for a few and compare their services