“Disruptive technologies such as Blockchain and the Internet of Things, will have a profound impact in the way we live and work. They will require rapid adaptation in our workplaces”—Shree Narendra Modi, Indian Prime Minister
Real estate. Not a day goes by that you don’t hear something about mortgage rates, or how hot the real estate market is, or you listen to an infomercial on how you too, can make millions flipping property. Real estate is an industry that is as old as time itself. Moreover, so too is the technology to buy or sell property.
The business of real estate continues to be a paper based business with real estate agents carrying reams of paper to show their portfolio, or title companies insisting on getting wet signatures. Then there is the notary signing agent who comes to your home or office for you to sign “final docs” when you buy a home—where you may be there for hours reviewing and signing a pack of hundreds of pages or more.
CB Insights characterizes the industry as “historically a ‘pen and pencil’ business — often relying on inefficient and archaic methods for doing business and keeping records.”
Is blockchain technology ready to disrupt the industry? Blockchain has been applied to fiintech, insurance, and banking. In this article, I take a look at a number use case applications that can very well disrupt such an antiquated way of doing business. The inherent features of blockchain: distributed ledger technology, immutability, and secured database features all offer benefits that can help the real estate industry. It can help the industry move away from the reams of documents, time constraints of waiting for docs to be transferred, and checks written so that a deal can close on time.
Whether one is buying or leasing property—it involves contracts with terms for payments, the definition of the property itself, and contracts with all the intermediary service involved in the transaction.
Blockchain Use Case in Real Estate
— KABN (@KABNNETWORK) July 30, 2019
Blockchain technology can potentially address the many challenges of the real estate industry. CB Insights has offered an assessment of the key blockchain technology attributes that are examples of real estate blockchain use case. (CB Insights)
Improve trust and transparency: Blockchain provides a verifiable and immutable chain of data to sharing information. This can include comp or valuation information, due diligence details, property details and more.
With all the potential stakeholders who now have the same documents or bundle of information, the information is transparent to the user, and they can validate their data. All data in the ledger is timestamped and has a digital signature. This system ensures that stakeholders remain honest within the transparent ecosystem. (Cryptochain Sphere)
Reduce disparate databases: With the distributed ledger technology, uniform data is decentralized and can be available to the various stakeholders involved in the real estate transaction. These can include the title company, insurance companies, lenders, escrow, and other entities as needed by the particular transaction.
Cryptochain Sphere observed that “storing digital records on the blockchain can be the first step to having a robust land registration system.” By storing data on a blockchain system, it can remove the threat of lost, destroyed or damaged records. Decentralized systems has a built-in redundancy system. Any data lost on one server or node, can be easily restored from another server. (Cryptochain Sphere)
Improve transaction efficiency: As buyers and sellers engage in a transaction from one state to another, or in a local transaction—blockchain based transactions can improve payment efficiencies by removing delays in wire transfers, or verifying signed contracts. “Blockchain-based transactions could enable a streamlined process which delivers quickly and reduces costs.” (CB Insights)
Limit the middlemen: For every intermediary involved in a transaction, a payment will be demanded. Whether it’s $500 for a title fee, or 6% in broker fees, or another $5000 for the escrow company—it adds up. Blockchain may be able to render such intermediaries obsolete. Real estate records from the county recorder to title could be stored, verified, and transferred—within a blockchain ecosystem—thus removing the middlemen, reducing or removing costs altogether.
Perhaps one of the most promising features of blockchain is the smart contract. Real estate is inundated with a myriad of documents such as the due diligence reports, contracts, lawyers who verify agreements on both ends of the contract, and broker communiques and agreements—are among the many documents that need signatures. All of which requires validation and monitoring in order to make agreements work.
The blockchain smart contract has the promise to make the contracting and agreement process more efficient, and trustworthy. Smart contracts can provide a mechanism to ensure accurate agreements among the parties involved. The blockchain smart contract will have digital signatures of the parties to the contract and stored on the blockchain. (Cryptochain Sphere)
Blockchain distributed ledger technology, secured data, and smart contracts among other blockchain features are a terrific match for solving real estate issues. Real estate touches every adult, whether it’s buying and selling property, or leasing an apartment. Clearly, it is plagued with an antiquated system of disparate databases, records stored in many locations, and the various stakeholders maintaining their own systems.
From my perspective—the parties to a real estate contract sales will come out ahead with increased efficiencies and lower costs for the seller, and from savings passed on to the buyer.
CB Insights, “How Blockchain Technology Could Disrupt Real Estate”, https://www.cbinsights.com/research/blockchain-real-estate-disruption/, February 2019.
Cryptochain Sphere , “5 Blockchain Use Cases in Real Estate”, February 2019.