How Blockchain can eliminate the need for Real Estate Agents, Brokers, Title & Escrow
In its “ Distributed Ledger Technology: Beyond Block Chain” report published in 2016, the U.K. Government Office for Science deemed the impact of blockchain and other distributed ledger technologies (DLTs) “probably as significant” as foundational events such as the creation of the Magna Carta and the steam engine
The popularity of Blockchain and Bitcoin has soared in recent years. Bitcoin is known as a means of making a payment via digital currency while blockchain for being the foundational technology that enables Bitcoin. There are other potentially great uses of both technologies, especially in areas where cost, trust, and efficiency can be greatly improved.
The real estate industry has a market cap exceeding $200 trillion, making it one of the most lucrative industries yet one of slowest to adopt the latest digital transformations. Consequently, technology experts have predicted that the industry is due for a radical transformation. Blockchain is the technology that has the potential to cause a massive disruption in this space; however; that will depend on how fast the technology is integrated into the buying and selling of the real estate industry.
What is blockchain, exactly?
The Blockchain is an immutable ledger system that holds a continually growing record of transactions, or blocks, where each block is associated with a previous block and cannot be modified or deleted once it has been added to the chain. Blockchain does not require a central authority to ensure that a transaction is executed accurately as the technology has an auto-executing feature that verified each transaction by involving the entire network to obtain “consensus” before the transaction is recorded on the ledger. Hence, the blockchain technology provides a technological solution to the problem of trust in a transaction or record by utilizing the network thereby eliminating the central authority.
Blockchain is the technology that powers Bitcoin and an array of cryptocurrencies. Much like a dollar bill, a bitcoin is transferable, and once it has been used, it permanently passes to the receiver and cannot be reused or unilaterally withdrawn. That is possible because the transaction is recorded onto the blockchain and cannot be changed.
Blockchain technology eliminates all possibilities of fraud such as receiving a dud check or paying a seller for a property he/she does not own. Since the transaction is secure and auto-executed, the cost of the transaction can be significantly lower compared to conventional payment methods such as remittances, card payments, or any transaction that has a third party guarantor.
The Real Estate Industry
“Forgery of documents showing someone is the owner of a property but really is not is one major problem,” Paul Barbagelata, owner of Barbagelata Real Estate in San Francisco told MarketWatch. “It’s been reinvented with technology as the duplicating of notary stamps and grant deeds is much easier with the use of the Internet.”
The real estate industry is just starting to learn about the possible disruptive benefits of the blockchain technology. Currently, the industry is largely dominated by large corporations and wealthy property owners. Blockchain technology is poised to disrupt the industry during the next few decades in areas such as efficiency, transaction speed and purchasing flexibility. Efficiency and speed considerations could benefit the industry in the short-term by eliminating middle men and massive amounts of paperwork. Fractional and incremental purchasing programs could increase ownership to new marketplaces. Over time, this technology will likely change the nature of the industry, though legislation and the industry itself must change before that becomes a genuine possibility.
The technology is already starting to cause a shift in the real estate industry as some real estate startups such as RealtyShares are accepting Bitcoin as a means of payments to reduce transaction fees and to make the investment vehicle accessible to international investors who are often faced with complex conventional business structures.
Buying With Bitcoin
Just consider the $24 million mansion that was recently put on sale in London. Unlike other real estate properties, this one has a pre-dealing condition attached to it, which states that anyone buying the house must make the payment in Bitcoin. The owner of the said property is Lev Loginov, the co-founder of London Wall, a London based property investment company. The London Wall published plans that they will soon be selling more properties to be purchased only in cryptocurrency.
Propy, a real estate startup based in the Ukraine - has created a platform to allow people to purchase real estate with Bitcoin, including properties in the US and California. They are currently in their alpha stage but have provided a convenient outlet for bitcoin millionaires to easily transfer their crypto currencies into a hard asset of real estate.
Companies like London Wall and Propy are taking the lead in using the purchasing power of cryptocurrencies to transfer ownership of properties. The use of cryptocurrencies will be continued in the future will depend on its adoption by large corporations involved in the industry.
Eliminating The Middlemen
You can cut out a number of middlemen when you purchase or sell real estate on the blockchain. Brokerages, lawyers, and bankers can all be bypassed by using a currency like Bitcoin to buy or sell real estate. Using blockchain will also eradicate the fees and repayments that typically go to intermediaries like escrow companies. Cutting out an extra two or three percent on the price of the property when selling or buying can result in significant savings. For example, a person buying a property worth $600,000 will be able to save up to three percent ($18,000) on the total cost of the home due to the elimination of middlemen.
Smart Contracts
Smart contracts are one of the main advantages provided by blockchain technology. Smart contracts are applications programmed to run without interference once the conditions and programming been set. They are visible on the blockchain; therefore, the conditions of a contract remain 100% transparent. With smart contracts, parties about to perform a business transaction can mutually write the conditions into the blockchain. After the conditions of the deal are executed, they will remain enforced at all times.
Normally, real estate transactions are slow; they require a lot of paperwork, meetings, signature signing before a property is purchased and transferred to the new owner. Blockchain cannot remove local housing regulations housing, but it can speed up the process of ownership transfer and confirmation by using smart contracts.
Even the search for residential property will be simplified. Imagine if the home had an electronic identification that contained information about the previous owners, repairs, additions, and the cost of running the home in a year? If homes or apartments obtained digital identities on the blockchain, all this data would be available at our fingertips. It would be easy to narrow down your search by looking through the history of a home.
Fraud Protection
Hyderabad city is “notorious for land grabbing cases”; “there are thousands of cases pending in local courts where genuine owners are fighting against land mafias,” says Anand Kumar, a leading real estate developer with over 20 years of experience in real estate sector.
Smart contracts can also help eliminate fraud in the real estate industry. False entries, forged documents, and local rental scams will all be practically impossible when digital ownership is linked to a property listed on the blockchain. In the U.S. there have been many well-organized frauds and scams involving listings, whereby, false information had been published to increase the value of a house or sell a property that was owned by someone else. Some fraudsters simply hack into a database and change records. They could then take possession of another person’s property by changing the name. Blockchain makes it practically impossible to tamper with anything that was recorded on it.
Affordable Investing
The investing sector is one of the areas of the real estate industry that is in dire need of a shakeup. Fortunately, blockchain has the potential to provide the much-needed change in this sector. Real estate investment is a business almost exclusive for wealthy investors because the business requires bottomless or large pockets. It is beyond most people, however; with Bitcoin and other valuable cryptocurrencies, people can buy fractional ownership. Therefore, investors from every income range can invest and participate in real estate deals.
Owners of high-value commercial property won’t have to sit on their hands while they await another multi-millionaire to buy their property from them. Instead, a large group of smaller shareholders could syndicate their financial power to each buy a fractional share of the property.
The real estate industry today is know for being inefficient with a lot of room for technological improvement. Investing in a house usually requires the time spent searching, going to the bank, long discussions with real estate agents, and other little nuisances that cost time! Blockchain can minimize the long process involved in the house buying process with its efficient and secure payment, property transfer and validation features.
Voting
Owners of flats in apartment buildings often must vote to make decisions that affect the shared infrastructure, such as major maintenance or works on common areas. Distributed ledger technologies guarantee reliable remote voting and ensure that the votes have been registered correctly. The blockchain can also be useful in other situations, such as when real estate decisions are created by voting, for example, in unit-holder or stockholder voting.
The ways by which the blockchain technology could disrupt the real estate industry are numerous. The international real estate market is valued at over $200 trillion. With that kind of money up for grabs, it is simply a matter of time before blockchain starts to change how the industry operates. For the time being, blockchain technology remains a thrilling and promising chance for the industry to finally be transformed.
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