Blockchain Basics 8 – Blockchain Technology and Real Estate

Blockchain Basics 8 – Blockchain Technology and Real Estate

The Future of Buying and Selling Homes 

Shared Databases for Real Estate

Bitcoin has had a short yet storied history. Most of the headlines focus on Bitcoin as an asset. However, many of the most impactful applications actually center around the technology underlying cryptocurrencies — the blockchain. Blockchain technology has the potential to disrupt many industries. In real estate, potential applications include accounting, contracts and transactions to title business. Its effect could make processes more modern and efficient, while saving time and increasing transparency.  

Applications in MLS

The blockchain has a democratizing factor. This technology eliminates the preverbal middleman in protocols like chain of custody and ownership of real property. Banks, certification authorities, and privately-held companies have previously been monopolizing these protocols. Instead of one entity, a network of personal computers could encrypt and maintain the integrity of the ledger’s contents, even making recorded transactions non-reversible. There are three areas blockchain technology may impact the way we do business in real estate; MLS property data, title records, transactions, and smart contracts.  

A multiple listing service (MLS) is what every real estate transaction goes through to track which agent represents which client, contracts, listing agreements, appraisals, and more. However, the system is outdated, fragmented, and records appear as pending long after being finalized. Data is also decentralized and restricted, making it difficult for people who are not real estate professionals to access. At the same time, it hampers an agent’s ability to make comparisons and identify trends. A solution to this may be blockchain technology, utilizing its realtime ledger capabilities to shared databases in realtime. This makes the process of buying and selling homes more centralized and accessible.

Local Level Uses

The same challenges apply to title records that are stored offline at the local level. The blockchain could provide a central title database for the entire country to securely store and instantly access historical title records. Thus, blockchain technology allows for the streamlining of title transfer in property sales. In 2016, Cook County, Illinois was the first county in the USA to experiment with blockchain technology for transferring and tracking property titles. When someone buys a property, they receive a digital token and the traditional paper deed. The accompanying documentation of the token transfer is proof of ownership. Eventually, tokens could become the standard and take the place of paper deeds altogether.

In regard to real estate transactions, the blockchain does not require there to be trust between two parties to conduct business. One person can send funds to another person that won’t release until the transaction is formally completed. Whether or not the buyer and seller are in the same place, property financing is sped up by the existence of a centralized financial records for each party.

Smarts Contracts and Sales 

Smart contracts would have one of the biggest impacts on real estate lease or sale agreements. They would automate deals and make the contract management process smoother and faster, even after business hours. Contracting parties could access a contract with a personal digital key, arguably reducing the likelihood of fraud. Authentication and audits of smart contracts could take place in real-time across the world and without intervention by intermediaries. 

In its simplest form, blockchain is a distributed database. By recording and combining transactions into a de-centralized, secure ledger system, it creates a “chain” of chronological data that no one party controls. The value lies in the system’s ability to authenticate and track transactions in real time without the use of a third party, such as a bank. 

Full development of systems is still ahead and technology will certainly evolve faster than its implementation. In the long term, real estate investors, developers, and landlords may find they have little choice but to move with the times.

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