The below is just a basic overview of blockchain technology and how it could change the real estate industry sooner than you believe.
Blockchains are systems that maintain an ever growing list of records or transactions across a network of computers. These systems are decentralized and distributed, meaning it is hard for one person to take down, or corrupt the records. The records added to this list are permanent, and audited by all parties involved. The basic idea behind blockchain is simple, they provide an independent, verifiable, and trustworthyrecord of events and transactions.
For real estate, this would mean a verifiable record of property data. In most transactions, the parties involved do not know each other, and this would allow for an agreement of trust between the buyer and the seller. The buyer can be assured that seller has true ownership of the property and that there are no claims against the title of the property. In real estate, having a clear chain of title is incredibly important and blockchain may be a way to more efficiently and effectively keep track of property records.
Ways Blockchain Could Impact the Real Estate Industry
As mentioned earlier, blockchain technology would allow for the buyer to verify that the property has a clear and undisputed title. This would have an impact on title insurance companies. Currently, a part of the real estate transfer process involves the buyer purchasing lender’s title insurance which protects the holder (typically a mortgage company) from financial loss sustained from defects in the property title. Blockchain would have the ability to instantly provide verifiable proof of title and that there aren’t any open claims agains the property, in which case there would be no need to protect the lender from loss due to defects in the title.
Blockchain would also change the way payments are made in real estate transactions. Settlement time in accepting rent, escrow, and purchase payments would be reduced to seconds instead of a few days. Additionally, real estate related wire fraud scams have been increasing rapidly. These scammers will assume the identity of title or real estate agents and will send false wire transfer information to parties involved in the transaction (for reference in a real estate transaction ALWAYS confirm wire instructions with your title agent before transferring money). Many people are losing tens of thousands of dollars through wire fraud. However, blockchain could reduce wire fraud drastically as it is a more secure and transparent form of transacting real estate related transfers.
Property Inspection Transparency
Many people are in aware of how little legal liability sellers have in disclosing material defects during the sale of their property. Did you know that for any home built prior to 1978, the property owner is legally required to sign a lead based paint disclosure? Or that in Florida, home sellers must disclose any KNOWN property defects, but it can be hard to prove in court that the seller actually knew about these defects, such as black mold? This leaves a lot of room for error during the closing process and mistrust between the seller and buyer of a property. Blockchain would allow for homeowners to be required to input data about defects, repairs, and inspections on a public ledger which would allow for greater trust between parties in the real estate transaction. Buyers would be able to be confident in the purchase they’re making as all property related repairs, inspections, and defects would be recorded.
Reality is, blockchain has the potential to greatly impact real estate, but it will likely still be years before we see it mainstreamed into the industry. Whether it is by providing verifiable property records or assisting in the transferring of funds during a transaction, blockchain is something to be on the lookout for in the future within the real estate industry.. Agents would be able to bring their clients to the closing table faster with less risks involved. Many of these risks mentioned above that blockchain can minimize, can also be reduced by working with a knowledgeable real estate a agent. Feel free to contact me about questions you should be asking an agent when interviewing them for assisting in the potential sale or purchase of a home. Until blockchain is mainstreamed in the real estate industry, it is important to have a knowledgeable, trustworthy, and professional agent that will protect the largest asset you own.