Blockchain: The New Real Estate Frontier
August 31, 2018 |
The Franklin County Auditor’s Office recently announced a pilot project to use blockchain technology to transfer a real estate deed. Ohio is not the first state to explore the technology for real estate transactions. In July of this year, California became the first state to conduct a blockchain only real estate deal. Similar to the Internet in the ‘90’s, as this technology becomes more mainstream, it will fundamentally alter how real estate agents practice and how real estate transactions are closed.
Blockchain is essentially a digital ledger, historically known for recording and tracking Bitcoin and other cryptocurrency transactions. However, Blockchain can be used for any industry that maintains records. It also adds the ability to verify and audit transactions more quickly and inexpensively. Because the Blockchain records are public and maintained on hundreds of thousands of computers, they are permanent, verifiable, and resistant to modification.
The California blockchain transaction was handled through a real estate startup called Propy. Propy’s CEO Natalia Karayaneva commented that she believes the technology will revolutionize the real estate purchasing process and the management of public records. Much like a traditional transaction the buyer and seller were represented by an agent with an escrow agent and a title deed. New was the use of smart contracts, cryptocurrency, and blockchain.
A smart contract is a form of cyber agreement, premised on an if/then structure. For example, if you agree to sell your home and a buyer agrees to pay you for the home, the contract will hold title to the real estate until the cryptocurrency is received by a certain date. If the cryptocurrency is received, the title is transferred to the buyer and deed recorded in the blockchain. If it is not, then the contract is voided, and the title is cleared.
This June, Ohio Senator Dolan introduced legislation to amend Ohio’s Uniform Electronic Transactions Act to define records and contracts secured by blockchain technology as electronic records and permit the use of smart contract terms. The legislation defines blockchain technology, electronic record, electronic signature, and smart contract. Further, the legislation protects a user’s information notwithstanding the fact that it is maintained using blockchain technology.
The true measure of the impact on the real estate industry has yet to be fully explored. Beyond increased efficiencies that come with sidelining the stack of transactional documents, information will become more accessible (title, tax, liens) and closings will occur more quickly. No more waiting on lenders, escrow agents, title companies or attorneys to circulate and execute documents. Every phase of a real estate transaction will be handled electronically. And because information recorded in blockchain is stored on multiple computers, the information is more secure because it cannot be hacked, altered or deleted. Although inconceivable now, large real estate firms are already investing in technology preparing for blockchain, digital money, and electronic closings. Will you be ready for the next real estate frontier?