Smart Contracts: The First Step Towards Rebuilding The Real Estate Industry
Media talks about blockchain on a daily basis now, but there is one more innovation that knocks on our door. When we think of decentralization and more transparent ways to perform payments and execute contracts, we need to understand what is a smart contracts technology and how it can benefit our lives.
What’s a Smart Contract And How It Actually Works
There is a slight chance that you’ve heard about the smart contracts in case you are a crypto-enthusiast or simply reviewed the blockchain technology and real estate magazines and websites closely enough. However, there is a definite need for a clear explanation of how this technology works and what is it in general.
Make no mistake, smart contracts is not a recent development and there is one particular person to give a credit when you talk about it. His name is Nick Szabo and he described the main concept behind the smart contracts back in 1994. Just imagine, it was 14 years ago and only now we have enough skills and knowledge for this technology implementation.
There is a short essay by Nick Szabo that was released back then and you can review it in case you want to get a glimpse of this old-school smart contracts approach and revolutionizing concept. But let’s say we don’t want to read the full essay and dive too deep into this, what is the shortest way to describe the smart contracts?
Basically, smart contract is a pre-programmed condition that gets triggered and executes the contract clause when both sides fulfill their obligations according to the contract.
Let me make it simple for you and give you a real-life example. Imagine that you want to get a soda from the vending machine. That’s where you meet with a sort of an old-school smart contract in real life. You throw a coin into the machine, the primitive rule is triggered and the machine is obligated to fulfill the order. The contract is made between the purchaser and seller and it gets executed according to the pre-set rules without the third-party interference.
Now let’s grab the last sentence where I mentioned about the intermediary party. This is one of the key benefits of implementing the smart contracts into any industry now. All the transactions and obligations are made between two sides — the purchaser and the seller, you don’t need to rely on a bank or any other beneficiary.
“The general objectives of smart contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitration and enforcement costs, and other transaction costs.”
Nick Szabo, Smart Contract Inventor
There are lots of other smart contract examples and how humanity can benefit from using them in the everyday life. You can use this technology to ensure the delivery of the product without paying upfront. Executing the smart contract after the delivery company marks the product as ‘Delivered’ will make it possible for you to pay after the actual delivery, not right after the order process. This is a transparent, solid and modern way to run the business online.
Today we have a real decentralization tool in our hands and it’s up to us where and how to apply this tool. Let’s apply it to the real estate market… Why not?
How Smart Contracts Can Be Used In The Real Estate Market
Automating the transactions and making them more transparent — these are two goals that smart contracts users have in mind. Now let’s think of the main problems of the real estate market nowadays…. That’s right, it looks like we found a perfect match!
Renting should be done smart and the old approach that brought the market to stagnation should die in agony. I agree, it sounds a little harsh, but sometimes you need to perform a reality check and admit that the industry has a problem. As we all know, that’s the first step towards the healing.
Even bringing the real estate business online didn’t solve the main problem: we still need to interact with agents, inspectors other third-party services providers. What’s really needed now is the way to automate the rental agreements and contracts verification and execution without the need for actual human interaction.
Here are some basic tasks that can be automated with smart contract technology:
The rental agreements can be signed and verified directly between two parties: landlord and tenant. There is no additional bank fee, real estate agent fee or any other payments behind the scenes.
Rental payments can be triggered and delivered automatically according to the schedule. Complete transparency and safety, since every Smart Contract, performed on blockchain and cannot be removed or edited.
Security deposit can be adjusted for any damage repair charges and brought back to your account due to the triggered smart contract by the end of your lease. The actual security deposit terms and conditions are included in the smart contract in the first place.
Open houses can be arranged without any hassle of schedule synchronization due to the Smart Lock Technology that can grant access to the house according to the smart contract between a prospect and landlord.
This brings us to the Smart Property concept that Nick Szabo described in his essay as well, let me tell you a few words about it.
The Smart Property Concept
Smart Contracts can be applied to property in different ways. There is a so-called ‘Smart Property concept’ that was described many years ago and only now we have a chance to bring this functionality to the market.
This concept implies the embedding smart contracts in physical objects. In real estate business, we constantly bump into the Open Houses procedures and attend house tours to review the property prior to going ahead and renting it. Besides the fact that with Rentberry you can schedule a tour in a few clicks, there is something else we are working on.
The protocol of the smart contracts can grant prospects or agents the access to the property without the physical keys and the landlord being present at home. How is that? That’s where the Smart Lock Technology comes to the spotlight.
At the moment, our team is working on designing a Smart Lock Technology that will work based on smart contracts. We firmly believe that smart locks will find great use in the rental industry as they can make it much easier for landlords to hold open houses and for tenants to access their rentals after their move-in dates.
With smart locks, the landlord will not need to be present to let a potential tenant into the property as the potential tenant will just have to plug a smartphone into the lock in order to open the door. The potential tenant’s identification would be confirmed using an existing identity verification solutions (e.g., Civic Technologies). One of the major obstacles to using smart locks in the rental business was their battery life. We are developing next-generation smart locks that will not need to be charged at all; instead, they will gather power from the phone’s battery when plugged into the lock to open the door.
“Let’s say all the locks are Internet-enabled and they’ve all got network connections. When you make a bitcoin transaction for the rent, the smart contract you and I agreed to automatically unlock the house for you. You just go in using keys stored on your smartphone.”
A smart contract on blockchain can also include the information on when the digital key should be expired automatically, so once the prospect had a tour in your property, there is no need to worry for the security of your place.
Blockchain and Smart Contracts As Two Pillars of The Rental Market Revolution
This is the bottom line that we want to make here. The heading of this paragraph speaks for itself, but I’ll give you a brief understanding of the reasons why we believe in it.
Cryptocurrencies are truly reshaping our world in dozens of industries. As one of these industries, rental market cries for transparency, safety, and security. According to one of the surveys among tenants, it became clear that more than 55% of the renters do not know where they’ll live in 12 months once their current lease ends. Renting experience became unpredictable and painful due to the lack of transparency in the rental agreements procedure.
The technology we described an work this out and make it possible for everyone to create a smart contract, e-sign the agreements that will obligate both sides to follow the terms set in the contract in order for the contract to be executed.
On the other hand, Rentberry is using blockchain, the technology that makes it impossible for frauds to undermine the rental procedure on any level. The contract execution on a decentralized rental platform will create a set of complete and traceable records. It means that any transaction between the sides can be audited.
Originally published at rentberry.com on February 15, 2018.