For decades, the real estate industry has been highly fragmented. Transferring a single property requires multiple intermediaries. And each intermediary slows down the process, introduces the possibility of human error, and charges money for their services. They also make transfers possible given the current procedures for buying and selling real estate. But those procedures are outdated, and we have the technology to improve them.
Blockchain has introduced the possibility of faster, more transparent, more accurate, and less expensive real estate transfers, even if transactions aren’t conducted in cryptocurrency. It allows us to create an unchangeable, permanent record of real estate ownership and transfer. It could mitigate or even eliminate the ten biggest pain points in real estate identified by Ragnar Lifthrasir, founder of the International Blockchain Real Estate Association and velox.RE, a blockchain real estate company.
Real Estate Industry Challenges Blockchain Can Help Solve
- Titles are cumbersome to transfer
- Determining the right price for a property takes too long
- Performing due diligence on a property is expensive
- Property records are often incomplete or insecure
- Transaction costs are high, typically 5-6% of a property’s sales price
- Unnecessary third parties are often involved, and costly
- Each party may use different software that can’t communicate with each other
- Legal inconsistencies exist
- Fraud is too easy to commit and too hard to police
- Mortgage tracking is haphazard
All of these problems exist in the United States, where property rights are relatively secure and well defined. Moving real estate transactions and titles to a blockchain could have an even more dramatic effect in developing countries where property rights are insecure and poorly defined. For example, it could help fight land grabbing.
Blockchain can also reduce information asymmetry and level the playing field between buyers and sellers by making it harder to hide property defects. The ability to create immutable digital identities for properties allows us to create not only a historical record of ownership but also a record of permits, liens, encumbrances, upgrades, repairs, maintenance, and operating costs that would be “like Carfax for a house” as Denver-based Realtor® Jason Shepherd put it.
Here’s another exciting development: PayPal alum David Sacks thinks 2018 will be the year when people start turning properties into digital tokens and trading those tokens. He says one outcome will be greater liquidity. Tokenization of real estate could also lower the barriers to entry in property ownership and real estate investment. Existing methods of dividing property ownership among two or more individuals — through companies and real estate investment trusts (REITs) — make transfer of ownership difficult and introduce extra costs. Buying and selling real estate tokens would be like buying and selling shares of REITs but without the pricey New York Stock Exchange filing fees.
A complete overhaul of the real estate industry using blockchain will take years and will require governments and key industry players to get on board. But visionaries and innovators are taking steps in the right direction and showing how things could be so much better.
How Blockchain Can Disrupt the Real Estate Industry
With blockchain, we can:
- Securely and transparently track and transfer property ownership
- Facilitate ownership of a single property by multiple parties and increase real estate liquidity by replacing paper property deeds or complementing paper property deeds with asset tokens
- Modernize local governments’ clunky and slow property title systems
- Create and maintain more accurate property records and share transparent property information among agents and consumers
How It May Impact Consumers
Shifting real estate titles and transfers to a blockchain could:
- Eliminate the time and cost of third-party verification in real estate transactions
- Speed up title searches and lower title insurance costs
- Reduce fraud related to outdated titles, fake listings, forged titles, forged notary stamps, and wire transfers
- Lower real estate agents’ fees by reducing the work to close a transaction
- Facilitate international transactions because blockchain is a worldwide system
How It May Impact Employment in the Industry
The middlemen in the current system will probably see their job opportunities diminish, while those who understand, create, and improve upon blockchain technology will see their job opportunities increase. Blockchain in real estate may:
- Reduce employment of title and escrow officers
- Increase employment of developers and programmers
- Create growth opportunities for blockchain-savvy real estate agents and brokers
- Reduce commissions real estate agents receive for each transaction