Blockchain technology has hit the headlines due to its potential to revolutionize dozens of industries, and real estate is no different in that regard. The blockchain is a digital ledger that’s shared on a network of computers, and any changes to that ledger have to be authorized digitally by all of the authorized participants in that network. Changes are verified by complex algorithms before the transaction can be approved, which means individuals can make updates without any need for a central verifying authority.
The technology was made famous by the Bitcoin digital cryptocurrency, but blockchain now looks set to penetrate other industries like banking and finance, and many more. One of the industries that could derive real benefits from blockchain is real estate, as we’ll explain below.
No more middleman
Transactions in real estate are notoriously slow due to the numerous parties involved, including agents, brokers, buyers, sellers and banks. There’s also the complication of various contracts that need to be drawn up, an escrow company, title company, inspectors who all want their own fees, government offices, lawyers and more.
Although blockchain can’t speed up physical tasks like home inspections, it can help to ease the pain of the complex financial transactions involved. For one thing, blockchain means no more escrow company is needed because blockchain effectively does that job itself, using its distributed database to verify a property’s financial, legal and physical attributes. The blockchain will record the history of all the property’s transactions, and helps buyers and sellers to save on the 1-2 percent escrow company fee.
Blockchain also helps out because it can reduce the number of steps in a transaction by creating digital titles that are secured using cryptography. These e-titles can be immediately and securely transferred to the county record, notary, buyer and seller, rather than by traditional mail.
Because each transaction on the blockchain is recorded and secured via cryptographic means, the record is immutable – it cannot be changed, and it’s available for all to see. Properties can be assigned with a unique address that makes it simple to look up this kind of data and verify it. Other things, such as repairs and refurbishments, can also be documented and saved on the blockchain. Buyers can also do the same for their financial data, which means they don’t have to waste time obtaining statements from the bank. It’s expected that this will lead to the creation of “smart contracts” that speed up and add greater transparency to the process.
No more fraud
Fraud is believed to cost the real estate industry billions of dollars a year, thanks to the ease in which scammers can recreate forged documents, notary seals, property deeds and other bits of paperwork. But if blockchain is initiated, these kinds of scams will become virtually impossible. By creating a unique digital address for saved properties, scammers won’t be able to sell or forge documents for those that they don’t own. In addition, the costs of verifying ownership, rights and title transfers will be reduced.
With the above facts in mind it’s easy to see why some are so keen on implementing blockchain in real estate. The industry has struggled for years to find ways to improve the laborious and imperfect buying and selling process, and blockchain seemingly has all the answers.