Buying a home is perhaps one of the most significant purchases one will make in their lifetime. For the typical consumer, next to buying a car, there is no transaction that involves as much paperwork, research, agencies, and people involved than in real estate. Not only will you need a real estate agent, but you will need an escrow company, a title company, financing and insurance, and inspectors. The list goes on.
This industry is laden with “paper documents” that for the buyer can grow to over 100 pages to sign the final agreement. Will blockchain be a winning solution for this paper based industry? If the industry were to adopt blockchain technology, they could see an increase in efficiencies and cost savings for all the document processing, payments, escrow, recording—all integral to the transaction.
Current Problems of the Real Estate Industry
Real estate agents, sellers, and buyers are faced with fraud on a daily basis. The promise of blockchain technology may address this issues, and the many issues involved in real estate. The question for the industry is whether the “implementation of this technology can reduce fraud, increase financial privacy, speed up transactions, and internationalize markets”? (Blockchain)
Fraud. “Everyone is out for themselves,” says Watson Gan, a Los Angeles area realtor. “This can create dishonesty and fraud in our business.” Indeed, fraud can occur from renter fraud to high-level wire fraud. Current electronic fund transferring is not secure. Moreover, property records may have been altered, creating problems with title.
Inaccurate market data. Buying a house isn’t quite like buying a car where you select a year, make, and model, with a limited number of optional features. Houses vary in size, configuration, or remodeling. Thus pricing is subject to a myriad of variables.
Data rich online platforms such as Zillow or Trulia often “fail to provide real-time data to investors and renters”. Delays exist in real time sales data. A home can be on the market for up to 90 days at one price—and the final sales price won’t available for another 30 days after the sale is completed and recorded.
"Investment in #realestate, combined with the leverage of #blockchain technology gives us the opportunity to radically improve communities around the world." –@AndyStrott CEO of @resolutefund https://t.co/QqvLrBFXLf
— SWARM (@SWARM) October 9, 2019
The result is that “there is no reliable hub with consistently updated listings for real estate professionals and buyers to rely on.”
Time intensive processes. There are many moving pieces that rely on paper processes. These include inspections, repairs, contingencies, loan approval, escrow, title search, completing cash transactions required at closing, and the signing of documents. If you’ve ever bought or sold a home—then you understand the “bureaucratic nightmare and complex event to orchestrate,” adds Blockchain.
Financing difficulties. To finance a home loan is incredibly involved. If you have low credit scores—the level of difficulty rises. The loan and financial services system is extremely bureaucratic. This is where the most amount of time is involved. And, in some cases after waiting for up to 30 days for loan approval, the lender may deny the loan.
Opportunities for Blockchain
With the foregoing issues identified—can blockchain truly disrupt the way real estate is managed? CB Insights reviewed the state of real estate issues. The authors provided insight into how blockchain can address many of the issues inherent in real estate transactions.
Property Search Process. Currently, the most common method that brokers, owners, buyers, and tenants use to store and access property listings are through third-party platforms such as Zillow or Trulia.
The Multiple Listing Service (MLS) is the source of the listing. Once a home is listed in MLS—the data is fed to third party platforms. The problem, is the delay in final sales prices from the closing of a listed deal, to an update on third party platforms.
Blockchain technology may be able to address these issues by “allowing a property listing to exist on a single decentralized database.” With distributed ledger technology data can be accessed in a peer-to-peer network. Brokers and agents will be able to have greater and more reliable control over their listings. Subsequently—buyers and sellers will be able to have access to more accurate and timely data.
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Blockchain technology can play a huge role in transforming the real estate sector. An integrated approach with blockchain can help in removing the outdated methods of the industry. There are 5 integral sectors that can be revolutionized with blockchain in real estate 1) Decentralized Digital Records 2) Identical Records Across Multiple Stakeholders 3) Standardized Multiple Listings of Property 4) Property Tokens 5) Smart Contracts Catch this article on the blog for a more detailed explaination Follow @cryptochainsphere #blockchainrealestate #realestate #blockchainusecase #blockchainapplications #cryptoindia #cryptopreneur #cryptoexplorer #bitcoin #mining #investment #crypto #iot #cryptocurrencies #technology #blockchainrevolution #proofofwork #cryptoguide #infographics #learnblockchain #ethereum #landmanagement
Title Management. Land records in the US are typically managed by county records. This is particularly true in large metropolitan cities like Los Angeles. Property ownership is recorded and stored in public records, available for anyone to search.
Currently, property title is often paper-based, creating an opportunity for errors and fraud. According the American Land Title Association, CB Insights writes, title companies find that upwards of 25% of all titles have some defect—making it “illegal to transfer a property title to a buyer until it is rectified.”
According to CB Insights, it’s been estimated that the cost of title fraud in the US “averaged around $103,000 per case in 2015.” With this level of error, buyers are required to buy title insurance. Thus, blockchain technology can potentially mitigate the problems when land records and title are added to the blockchain in an effort to “to build immutable digital records of land titles.”
With blockchain, records will be transparent. It has the promise of being able to reduce the risk of title fraud and may reduce the cost of title insurance.
Financing and Interoperability. When it comes to financing property, the amount of documentation seems endless. A number of agencies will need access to the same data, or to parts of the transaction record.
Financing requires many players, terms and conditions. These involve the need for title insurance, escrow companies, home owners insurance, points on the loan, and real estate agent commission. As a result, loan approval can average 50 days, according to Realtor.com.
With blockchain distributed ledger technology, the process can be transparent, simplified, and it has the promise to improve accuracy of documentation. When property records are digitized, and with blockchain enabled records—title search may be reduced. Escrow companies can access data in real time, and lenders will be able to verify that all the requirements have been met in real time. Blockchain will give therm access to the same immutable data. In the end, speeding up loan processing time and mortgage approval process.
Moreover, with the current system, there is no standardization on how each entity, such as county records, title, or insurance—manages their records. This lack of standardization, or interoperability in many industries–has proved to be a challenge for the blockchain community.
CB Insights notes there is an effort to solve this challenge. As an example, Interledger aims to develop a protocol to enable payments from one blockchain network to another. It’s clear that a need to fully address the interoperability for real estate is a critical one. In particular, the industry must address disparate databases with which the industry so interdependent.
With the cost of homes in the US and the amount of documentation needed, it is clear that the real estate industry is long overdue to be disrupted. There are many real estate use case applications in need of development. Indeed, while I’ve covered a basic home transaction—the industry covers so much more. Can
Blockchain can be used for rental property, commercial properties, farm and ranch lands, and indeed, international transactions.
Blockchain technology may have the potential to address all the issues of fraud, inaccurate market data, time intensive processes, or financing difficulties—thereby simplifying the buying and selling of home–making it so much easier and accessible to anyone with the means to own a home.