By David Bartels, Broker of Help-U-Sell Full Service Realty in Westlake Village, California, outlines 5 ways that blockchain can transform the real estate sector.
In recent years, blockchain technology applications have increased considerably, with a wide range of dynamic use cases and proof-of-concepts (POCs) across a range of industries that increase transparency, improve automation, and expedite the delivery of services. Unfortunately, the real estate industry has not yet begun to realize the benefits of blockchain deployment. However, the future of the real estate space remains unwritten, and blockchain-powered solutions are inevitable. Here are five ways blockchain can deliver real change to the space.
Cutting Out the Middlemen
A simple real estate transaction between a buyer and a seller currently requires the services of several parties to successfully complete the transaction. These include real estate agents, mortgage lenders, escrow, and title professionals among others, that charge fees and commissions based on the size of the transaction. These transaction fees are often perceived as unnecessarily high or “bloated”. Real Estate Agent Fees make up the bulk of the cost of doing a real estate transaction and agents are resistant to any innovation that would result in a reduction in those fees. By challenging the status-quo of these third party intermediaries, these costs can be reduced by leveraging technology to automate key processes to save time, improve security, and offer a better experience for both buyer and seller.
Alleviating the Administrative Burden
The process of buying or selling a home is complex and includes multiple parties with multiple approvals and dozens of documents and signatures are required. This process can be simplified by the real-time settlement of recorded transactions on a ledger. The decentralized nature of blockchain ensures that all the necessary parties can access vital information through a permissioned peer-to-peer network, removing the need for manual correspondence between parties.
Immutable Title Transfers
Blockchain can help streamline the typically protracted process of recording and transferring titles. The American Land Title Association has estimated that the vast majority of real estate transactions incur at least one title defect that must be amended before the transferring of title can be conducted. This is precisely the type of prevalent problem that blockchain is tailored to address. Of course, as with any breakthrough technology, mainstream adoption often hinges on the support of enterprises and government officials. Authorities in Sweden began vigorously exploring blockchain’s capabilities to transform the country’s real estate sector, with a particular focus on digitizing title transfers as early as 2016, and last year, the UK government announced ambitious plans to transition towards a blockchain-based land registry system by 2022, as part of the aptly titled ‘Digital Street’ project – illustrating what a government-led embrace of blockchain technology with regards to real estate would look like.
Streamlining Multiple Listing Services
At present, realtors have exclusive access to Multiple Listing Services which are considered a huge draw to the potential buyer or seller as it increases their visibility in the marketplace. A 2018 report by Deloitte specifically highlighted the potential of blockchain to help centralize typically fragmented listing data – a vision that hasn’t materialized in the subsequent two years, but remains a distinct possibility. Delivering a revamped blockchain-powered MLS would ensure absolute clarity around property location, associated rental rates, and ownership history, granting prospective buyers access to the most reliable data sets needed to help inform their purchasing decisions. Ultimately, blockchain can empower prospective homebuyers and sellers to take ownership of key processes themselves, without the need to hire professionals.
Tokenized Real Estate
Through leveraging blockchain, the Commercial Real Estate (CRE) landscape can be reinvented via asset tokenization, allowing traditionally illiquid real estate assets to be converted into tradable tokens. The idea of tokenizing real estate is a relatively new concept, and involves the issuance of a digital token, immutably recorded on a blockchain, that represents ownership of a real asset. Tokenized real estate at scale, would be a major stride forward in terms of broadening market accessibility, and increasing the flow of liquidity globally. With ‘fractional ownership’ as a new reality, the barriers to real estate investment are lowered significantly, helping to resolve some of the far-reaching liquidity issues within the real estate market.