Like most other industries, real estate has been forced into change by emerging technologies and disruptive new thought leaders.
As Nobul founder Regan McGee puts it, “Anytime you bring innovative technology to the table that can make the process easier, it will be viewed as disruptive.” Speaking to Superb Crew about the techie real estate revolution, he explained that “Incidentally, technological advancements are beginning to gain real traction in a stalwart industry that was initially skeptical.
One major technological disruptor that has emerged in the last decade is blockchain. Still hazily understood by many in the industry, blockchain nevertheless has the ability to affect massive, positive change – upending the way we think about buying and selling homes.
In this article, let’s explore the intersection of blockchain and real estate. What does it entail? How will it force the industry to adapt? And what implications will it have for future buyers and sellers?
Blockchain in Real Estate
For the uninitiated, blockchain is essentially a shared, unchangeable and decentralized public ledger existing in a network. It stores transactions and assets, often pertaining to cryptocurrencies like Bitcoin.
Blockchains can be applied to just about any asset transaction, tangible or intangible. People use them to buy and sell cars, copyrights, physical currency, and – yes – real estate.
Real estate buyers and sellers use blockchains for various reasons, which we’ll explore below in more detail. But here are the salient points: blockchains are transparent; they simplify and lower the bar for real estate investment; they remove the need for certain third-party costs.
Let’s take a closer look.
Transparency in an Opaque Industry
The real estate industry has come a long way since its “wild west” days of widespread fraud, corruption and opacity. Still, it isn’t perfect (see, for example, 2008).
Fraud still happens, which is a big problem in a market that deals in large assets. And opacity is still an issue. Property and deed statuses are challenging to find (nearly impossible, in fact, for the lay investor), making it hard for investors to research property histories reliably.
A blockchain’s immutable, publicly visible ledger allows for transparency in real estate. Prospective investors can research deeds and titles, ensuring that their money is secure.
Removing Transactional Costs
Because blockchains are transparent, investors may be able to bypass certain third parties, saving time and money in the process.
The seller can verify the buyer’s funds via the ledger, removing the need for an escrow. A buyer can verify a seller’s ownership, removing the need for title search. And both parties can sign a blockchain-supported smart contract, potentially saving on attorney costs.
In this way, blockchains may lower the bar for entry into the real estate market (a win-win for real estate agents and investors).
Fractional Investing and Real Estate Tokenization
One of the most noteworthy intersections of real estate and blockchain is what’s called “tokenization.” Essentially, tokenization is a form of fractional ownership – investors can buy a small share of a property rather than ponying up a sizeable down payment. Buyers can trade tokens (or fractions of tokens) via a trading app, with all transactions safely, methodically and instantly documented on the blockchain.
Tokenization opens the real estate floodgates to a much wider pool of small capital investors who can pool their resources and basically treat real estate like any other financial investment.
Real estate has weathered all sorts of changes before, and has come out the other side looking better and brighter. As the industry rises to embrace blockchain technology, you can rest easy knowing that the intersection of blockchain and real estate will create a more transparent, accessible and welcoming space for new investors.