Three ways how blockchain could transform the real estate industry.
According to the 2014 Trends Report by the National Association of Realtors, 43% of buyers have found on the Internet and later bought one or more of the properties. 33% learned about the properties of a real estate agent and only 9% bought a property after seeing a physical “for sale” sign at the location of the property.
Also, 64% of all buyers used a real estate agent to obtain service that they can get on the Internet completely free. While price negotiations may still stay as a service that buyers and sellers need real estate agents for, most of the other steps of buying and selling real estate can be completed with the help of the Internet.
As the technology developers and becomes more user-friendly, it is easy to see how within the next several decades more and more people will be buying and selling homes online and only use real estate agents for negotiations and legal matters. Blockchain technology could transform the real estate industry in three main ways:
- Compile property data into one database
As explained earlier, one of the biggest problems with MLS is that it is extremely fragmented. One of the core functionalities of blockchain technology is the ability to share information in an effective and transparent way. This opens up a possibility to have data about real estate properties for sale on one blockchain that is accessible to members of the ecosystem. Because blockchains can be public and private, there could be a public blockchain that shares just the basic information with the market and there could also be private closed-access blockchains only for real estate agents.
Because there are many various MLS databases, some of the databases can be out-of-date. With one national blockchain database, the real estate industry could have one large database with information about properties for sale that would have real-time updates to real estate listings in the same way the Bitcoin network and other cryptocurrencies update the wallets of their users when the users send and receive funds. A blockchain for real estate could have a very similar structure with listings becoming available or updating their status to “sold.” Such a database could not only provide better access but also provide members of the industry with the new partnership and collaboration opportunities.
- Serve as a secure place to store, transfer and track property records
The way governments all around the world currently store information about properties and assets is yet another area where the use of blockchain technology could lead to significant advancements and efficiency. Most information about title records, even in the most technologically advanced countries in the world such as the United States, is stored on paper, offline, at the local level.
Under the United States laws, public records about properties and property transactions are presumed immutable without actually being immutable. Blockchain technology could help change that and make the records about properties de facto immutable.
Because blockchain networks are decentralized, every record would be stored not just by one office, but by all offices. This property of blockchain technology makes is superior to storing information about real estate on central servers. For example, every clerk office in a state or even in the country could become a node on a blockchain, meaning that it would have a full copy of the blockchain with all the records that are now impossible to change because they are on the blockchain. Such a system would make loss or damage to property records almost impossible, which makes using decentralized blockchain networks for storage of important information superior to both offline storage and to using centralized servers. Once an entity secures records by placing them on the blockchain, implementing record maintenance and retention policies becomes an extremely easy task, which is not the case today with offline storage.
- Process transactions with the help of smart contracts
Today parties that want to participate in a real estate transaction need to hire attorneys and pay closing costs. In essence, an attorney is a trusted third party that helps two parties that don’t know each other and don’t trust each other make a deal.
A blockchain network does not require parties to trust each other before, during or after a transaction that they complete on the network. Each user on a blockchain network has a unique cryptography-based identity secured via a private key or private keys. This means that during a real estate transaction, both financial information and asset information could be shared and exchanged securely, based on the conditions of a smart contract. One party could send funds to another party, yet the network won’t release the funds before the final completion of the transaction. The final completion could require a number of steps, such as property inspections and evaluations.
This functionality of the blockchain networks could significantly speed up the process of making real estate deals while at the same time drive the transaction costs down. Buyers and sellers also wouldn’t have to be in the same place geographically.
Blockchain technology could streamline virtually all processes in the real estate industry, from transfers of the funds to creation and management of real estate contracts to storage of title records. Blockchain technology could enable people to share money and information securely and without having to rely on a third party. This would make participation in real estate transactions more accessible to vast numbers of people, cut the costs associated with middlemen and reduce the risks of fraud. Such changes would benefit all the members of the industry and society.