Blockchain Technology & Real Estate

This post is a continuation of the Mobile Age of Real Estate series. Click here to start reading from the beginning.

No technology has more potential to affect the real estate process, as it currently stands, more than blockchain. For those that don’t know, the blockchain is a digital ledger where transactions made using cryptocurrency are recorded chronologically and publicly. In other words, it stores digital information (i.e. “the block”) in a public database (i.e. “chain”). When you make a purchase on a platform using blockchain technology, instead of using your actual name, your purchase is recorded without any identifying information using a unique “digital signature,” sort of like a username. The technology offers a way to decentralize information, while making it public and keeping individuals’ personal information private. The blockchain is changing so much in the real estate industry, from access to deals, to the amount of time it takes to close, to property title mistakes, to the high fees and fraud that slow down the real estate process. I want to give you some understanding of how its application will affect how we, involved in the industry, do business.

It is becoming more and more difficult for anyone who does not currently own real estate to get access to affordable property. With home values increasing by more than 8.3% per year since 2014, many would be buyers don’t stand a chance acquiring a valuable capital asset like real estate. And over the next 3-5 years it will only become more challenging for anyone not already in the market. This makes investing in the sector very difficult for both buyers and sellers. A seller cannot liquidate their property if there are no buyers to afford the home. Blockchain offers us the introduction of two new concepts: tokenization and smart contracts.

A smart contract is a transaction completed entirely between the buyer and the seller (or renter and landlord) with little to no human interaction. The seller includes all the details of the property and the buyer puts all their necessary information on an encrypted and secure block. Computer protocols check the legitimacy of the transaction and no agreement can be completed until all terms are met. Tokenization uses cryptocurrency to split assets into tokens that are stored on the blockchain. So, a smart contract allows difficult to liquidate products (i.e. real estate) to be tokenized and owned by a multitude of investors, allowing the initial owner to not divest their entire stake but just a part of it. Let’s say you were a homeowner looking to sell off 50% interest of your downtown Toronto skyline home. Instead of seeking a buyer to purchase half of the interest in your home (would be very unlikely), or putting the entire property up for sale, that interest can be tokenized and sold to multiple investors; like a stock offering. This is a completely new environment for hard assets as it offers so many more liquidity options than what are currently available.

The blockchain can also help eliminate the need for things like title insurance. A November 2018 article written in Forbes details title insurance as a $15 Billion per year industry by ensuring buyers their newly bought property is clear of any outstanding liens and debts. This is a huge part of closing costs for real estate buyers. If all property title was decentralized on the blockchain, a large amount of time and money would be saved, and it could eliminate the need for title insurance altogether. “It could also be possible to add information about construction, damages and improvements to the title, almost like Carfax

for homes” citing the same article from Forbes. This will help make it so that people truly know what they are buying.

There are so many ways we can use blockchain technology to offer a more seamless real estate process. In fact, I recommend reading this article written by a software architect in Toronto name Michael Nolivos. In it he goes into detail regarding how we can use smart contracts and incentives to clean up real estate showings and offer a more satisfying experience not just for buyers but all involved parties.

There are some that view the Mobile Age of Real Estate as the death of the “middleman”. I believe that couldn’t be further from the truth. If anything, this is an opportunity for the middleman (i.e. realtor, banker, lawyer, etc.) to redefine ourselves and offer a different kind of value for our clients…