You know you could theoretically sell your house in 60 seconds?
No, I’m not kidding.
If you own (or have owned) a house in the United States, you should be skeptical about that statement. Or, if I tell you that this involves “something” related to Bitcoin or Blockchain, I bet you would immediately think: here comes another “crypto” enthusiast who knows nothing about the process of buying or selling a house, and thinks that the Blockchain can solve everything!
No, I’m not like that :)
Keep reading. In a few minutes, I promise I will change your perspective forever.
Selling a house is two distinct sets of items
Let’s divide the “selling a house” into two different buckets of items to prepare or complete (note: these might vary accordingly to geography/situation):
Bucket A: all the preliminary steps (on both the seller side and the buyer side), including collecting documents or engaging with the potential buyer:
- home and pest inspection;
- Vendor’s statement (section 32);
- Homeowners’ Insurance Policy;
- Title Insurance Policy and Certificate of Title;
- Property Tax Bill;
- Water and Sewer Bills and utilities records;
- Warranties; Service Records and Referrals;
- Surveys and Plot Plans… You get the idea.
Bucket B: changing ownership from person or entity S (Seller), to person or entity B (Buyer), and in the process also moving the money from B to S. In other words, the *actual* action of giving your house to someone in exchange for money.
Both Buckets involve a set of items, but also a set of steps in chronological order, through the usual “two month” timeline which is the average time required to sell a house (at least in the US).
The Blockchain, or whatever technological innovation you can name or imagine, cannot affect Bucket A too much right now, especially when a physical activity, or some back and forth between two or three parties is involved.
However, Bucket B is another story.
Today, what happens inside Bucket B is still complicated and expensive, despite it shouldn’t be. As an example, title insurance costs are on average ~0.4% to 0.6% of the home value. On a house worth $500,000, it means ~$2,000 are being spent on title insurance alone.
Bucket B is also very fragmented, sometimes one US county vastly differs from another, e.g. in who pays the property transfer costs (there are ~3,150 of them, and we’re still just talking about the US, not the entire world).
But Bucket B can be vastly optimized and improved, thanks to the Blockchain, yes, but also thanks to the combination of a few elements together.
Speed and cost savings
What we’re looking for here is opportunities to reduce the time and cost associated with transacting on a property.
For Bucket B alone, these costs (title insurance, etc), plus the uncertainty of the transaction, plus the time required to complete it, provide plenty of opportunity for optimization and efficiency.
The problem is: how can I introduce new processes, or new technologies, in a market where everything moves so slowly, and adoption of new practices has to go through the approval and nodding of several large, powerful incumbents?
Let’s get there soon, but first, a little lesson in IT history. Bear with me please.
A little, short history of computer technology
In the IT industry (where I come from), in the late 1990s everybody was still running Operating Systems on “physical” machines. Then, in February 1999, a young startup called VMware created a “virtualized” operating system. It changed IT forever.
In March 2006, Amazon.com launched Amazon S3, an on-demand, pay-as-you-go object storage service. Most people thought that Jeff Bezos was crazy (Amazon’s “risky bet”), but today, Amazon Web Services generates revenues in excess of $20B, with very high operating margins. And it also changed IT forever!
I (remotely) witnessed both events. I understood the implications of what was going to happen next, and coincidentally I ended up working at both VMware and Amazon in recent years (from 2008 to 2016).
What’s special about virtualization and web services?
Virtualization “frees” you from physical constraints. The one or more “virtual machines” which run on top of a physical server have much more flexibility and elasticity. You can resize the virtual machine; freeze it; move it to another physical machine, all without being constrained by the limitations of being “bounded” to the lower level.
Web Services are the quintessential implementation of an API infrastructure: APIs. If you don’t know what an API is, imagine it’s simply a language with which computers can talk — and offer services and functions — to each other.
Not only: they don’t have to worry about HOW a specific service is provided. Each service is a “black box”. Someone will take care of making it work.
End of boring history lesson! Back to real estate…
So, how can a house be sold in 60 seconds?
Let’s think of something that could work even today.
When we buy a house to live in, that purchase is very emotional, and you want to use an established, mature system for that.
But what if someone simply wants to buy a house, to invest some money in a real estate property? Maybe even without seeing it? Or, in other words, what if we take “non-emotional” type of real estate investments, to start with?
Today, you can do that using “digital real estate services”, like the property marketplace Roofstock:
Roofstock goes through all the heavy lifting of house inspection, appraisal, and so on, and then presents you with an opportunity to buy a property.
You wire the money, and 3 to 4 weeks later the house is yours. This, if you recall, sounds very much like the “Bucket A” part is being done by Roofstock, and “Bucket B”, well, is still being done by Roofstock, but in a very traditional way.
This is where you could theoretically sell a house (or buy a house) in 60 seconds.
Several companies and startups, including our very own Fabrica (which I co-founded with two amazing Italian entrepreneurs), are working precisely on this: tokenizing the real estate asset, so that we can “trade” it very quickly, as quickly as we can exchange a token on a Blockchain.
As a concept, it works wonderfully: Bucket B can be completed near instantly, because you simply need to move a piece of digital information. Everything else is supposed to… Adjust to this new paradigm. Seems easy, right?
A company like Roofstock, then, could take advantage of this innovation to complete the “Bucket B” part in less than 60 seconds. How? By using the Blockchain to “confirm” the transfer of ownership from the previous owner to the new one.
However, there are many implications and obstacles to consider, such as:
- Is it legal? Will it work if challenged in court?
- Is there any tax issue, or loss of tax benefit?
- Can I take advantage of the same tax benefits?
- How do I put a lien on a property (e.g. when I want to take a mortgage on it) if the token could theoretically allow me to “sell” the property anyway? Put it in another way: how can the “token” part be compatible with liens and mortgages?
- Does this apply not just to general cases, but to special cases?
- Can it retrofit the existing mechanism? Or can it only be applied to “green field” situations?
Theoretically, it can be done. And in practice?
Tokenizing the property directly (like many are doing) poses several legal and fiscal challenges. In a way, you need the equivalent of virtualization.
Also, you want a way to quickly interact with a computer system to manage these transactions and interactions. In a way, you need the equivalent of… Yes, that’s right: APIs.
At Fabrica we have created a combination of virtualization + APIs for real estate properties. And yes, with our solution you will be able to sell/buy a house in 60 seconds. And yes, it’s legal. We leverage NFT (Non Fungible Tokens) and the transparency of a public (permissionless) Blockchain to enable a global land registry which everyone can use.
In the coming weeks, we’ll share much more about how we accomplish this. Stay tuned.
In the meantime, if you are involved in the real estate industry, and you think you’d benefit from using our system, please reach out to us to find out more.
I’ll leave you with a final open question: if you agree that innovation is coming to the real estate world, what’s your take on the “tokenization” of real estate?