A public ledger and more accessible data could transform property transfer.
Real estate trading is undoubtedly a stressful activity. It’s fragmented into a variety of monotonous tasks and diligent paperwork. Technology has already changed the real estate industry for the better by cutting down the time and money spent selling or buying a property but there are more exciting developments on the horizon.
Blockchain has been used in cryptocurrency and is rapidly being adopted in other industries, what may not be obvious to the casual observer is the multiple benefits blockchain has to offer the real estate field as well. The decentralized public ledger records data in a chronological order so it cannot be changed or controlled from the outside. Furthermore, it’s a very secure technology that can successfully protect against cyber attacks.
Problems faced by the real estate industry
More than 70 percent of Americans consider property-related transactions a complicated process and wish it were easier. Many other problems become obvious in that regard, including:
- Possibility of fraud. Agreements drawn up on paper can be manipulated and changed easily.
- Tedious paperwork. Paperwork often distracts from the main goal and takes unnecessary time.
- Large number of intermediaries. Paying fees to multiple parties can result in a build up of unnecessary costs.
- High entrance barriers. Real estate property trading typically demands significant amounts of cash money.
- Difficulty of obtaining the real property information. Real estate industry data is hard to access and it’s often outdated, and insufficient.
Advantages of blockchain in real estate
Mobile app development makes it easier for modern home buyers to purchase a property but blockchain technology can take this a step further. In fact, there are several aspects of the real estate industry that can be improved with blockchain:
Search for available property
Today, most real estate data is available through a Multiple Listing Service (MLS). The problem, however, is that every MLS is made to cater to a real estate broker. Therefore, most of the services are subscription-based or available only to a narrow circle of people. Additionally, the quality of data stored may be poor and lacking organization—making it extremely difficult to find desired information if you’re not a real estate professional.
With the help of blockchain, realty data can be democratized and available to all, not held in the hands of a few real estate brokers. Information on listings, agents, contracts, appraisals, and more can be updated in real time, organized chronologically, and readily available.
Before most consumers rent or buy a property, they spend considerable time and effort to check all the legal details including documents proving ownership, the list of renters, and more. All the data mentioned comes as paper documents that can be easily changed or even destroyed. Whether deliberate or not, paper documents are susceptible to misleading information. Not only that, the checking of these documents often demands several parties, sometimes specialists, making the process longer and more costly.
Blockchain, however, is able to digitize and keep this data from being manipulated or lost. This way, this data is easy to reach anytime, anywhere, and paperwork is minimized. Those looking for property can rest assured that any information gleaned from from the blockchain has not been tampered with or misrecorded.
Since blockchain is decentralized, it can provide stakeholders with a high level of transparency ensuring the data is available to all parties that need it 24/7, decreasing the probability of fraud.
Buyers have to pay anywhere from two percent to five percent for various real estate transaction fees (lawyers, real estate agents, assessment experts). And, more often than not, the time it takes to close the deal is lengthy, taking on average 45 to 50 days.
Blockchain can replace intermediaries, simplify payments, and become the ultimate real estate mediator. With the help of this technology, it’s possible to manage property records and even automatically pay for the property.
There are many parties involved in a real estate transactions: buyers and sellers, appraisers, brokers, agents, lawyers, insurers, underwriters, lenders, surveyors, and bankers, to name a few. As a result, a considerable amount of money is spent on accounting and trace management. Smart contracts are able to automate this process and make it more transparent.
In a smart contract, two parties enter into an agreement, the terms of which are entered into a public ledger. In the real estate industry, this would be a buyer and a seller. The two parties agree to a price and the conditions under which the property is bought. The terms and date of sale are entered into the public ledger and is unalterable.
An additional benefit is that those looking to list property for sale or rent can simply create a contract on the blockchain and wait for someone to browse it and simply pay in cryptocurrency. There is no need to pay to list a property or employ a property management company to make sure rent is collected.
Lower entrance costs
Whereas real estate investing has typically been the realm of the rich, cryptocurrency and the public ledger stand to change that, making investment available to the masses by purchasing “fractional ownership.”
The technology allows groups of people—who don’t necessarily know one another—to pool their resources on the public ledger and purchase valuable property. Individual investors can then sell off their portions as needed, with all of the movement tracked publicly.
Blockchain allows for one of the most sought-after, yet previously unachievable, qualities of real estate investing: liquidity.
Blockchain-based real estate startups
There are several new startups looking to to get a head start when it comes to incorporating blockchain into the real estate industry. Below are some examples:
Harbor is designed to convert the right on real property or any other asset (e.g. company equity, a piece of art) into a token on blockchain. These tokens are securities which are in safety due to the blockchain technology.
Smart Law uses smart contracts to deliver such features as:
- Money transfers. Users can buy or sell their real property instantly without the mess with documents and additional meetings.
- No insurance needed because all the data will be kept in blockchain.
- Multi-signature feature provides an additional safety layer.
BitRent contains properties which are at early stages of construction to help their developers achieve maximum profit. This platform is created to connect real property developers with investors. It’s worth mentioning that investors can invest a small sum of money and save their investments by entering them into the blockchain-based registry.
Ubitquity is U.S.-based startup that was founded in 2015 with the main goal of digitalizing real estate records and letting individuals, companies, and inspection bodies monitor them by using the blockchain ledger.
Clearly, blockchain in the real estate industry is no longer a dream, it is now a reality. In the coming years, more and more blockchain-based projects focused on the real estate industry will come along to make lives of everyone involved in the industry easier.
Nataliia Kharchenko is a Technical Writer at Cleveroad. It is web and mobile app development company in Ukraine. We are focused on helping startups, small, and medium businesses create competitive and winning software. I enjoy bringing a digital world closer to people and writing about technology, mobile apps, innovations, and progressive management models.