Blockchain is gaining traction in the real estate industry, which raises eyebrows at the justification for using this technology in a sector already worth more than $326 trillion.
Blockchain is far more than a gimmick for luxury penthouse sellers to offer their ultra-wealthy clients. It can help governments, businesses and ordinary people who want to buy or rent a house.
Here are five critical aspects that blockchain technology can improve or completely change:
1. Property search process
The whole process starts with a property search, and this is where the first problems start to appear.
Statistics suggest that 93% of homebuyers in the US use an online website to find a home. These sites – primarily property marketplaces and platforms – bring buyers and sellers together and allow potential buyers to use filters to break down the specific criteria of their ideal property. However, not all Web2 applications are error-free.
First and foremost, the real estate information hosted on these websites is often inaccurate, out of date or incomplete. Additionally, data fragmentation across multiple listing platforms can create confusion. Blockchain technology, on the other hand, has the potential to solve these problems in many ways.
Instead of manually entering the same information about a property into multiple platforms, agents and sellers can simply enter it once into the blockchain database. Second, data entered into the blockchain is irreversible and cannot be changed. Eventually, future platforms could begin to handle tasks like listing, payment, and legal documentation.
2. Commissions and Additional Fees
The main winners in commercial and residential real estate transactions are the middlemen who bring buyers and sellers together: brokers, real estate agents, bankers and lawyers.
The faster the parties want to close the deal, the more they have to pay the mediators and lose a lot of money as a result. However, a report by Deloitte states that blockchain could soon change the way real estate transactions work.
With virtual tours, direct communication between buyer and owner, and a complete guide to paperwork, people can avoid intermediaries and save money on deals without taking risks.
The amount of money saved will be huge as brokers charge an average of 6% for each trade. So if you’re buying a $200,000 home, you’ll save an additional $12,000 on agent services.
3. Funding and Loans
Financing is another big issue when it comes to real estate. Buyers have to wait days or weeks for their mortgage to be approved.
Lending and underwriting remain manual and non-standard. The structuring of collateral is left to interpretation and avoiding double pledging of assets requires significant effort. Trading and wealth management decisions are often based on outdated information. Finally, cross-lifecycle cash reconciliations often cause settlement delays that impact investors’ cash flow.
Traditional financial institutions can benefit from the only blockchain version of verified information, secure data sharing, immutable transaction monitoring, and real-time payment processing. By digitizing a loan or mortgage, relevant data such as ownership rights and loan payment history can be programmed to support future maintenance decisions. Smart contracts can collect and distribute payments to beneficiaries while reporting to regulators.
Blockchain-based real estate platforms make buying a home easier while reducing the risk of fraud. The same goes for mortgage applications. Any errors would be easy to spot with data in a digital ledger.
4. Decision making for tenants and landlords
One only needs to remember the bursting of the real estate bubble in 2008 to realize how important data transparency is to market stability. Investors and mortgage applicants would be put off if banks couldn’t hide the real numbers.
What has been done cannot be undone, but if the data is accessible and immutable to all network partners, it can prevent the next crisis. People can use blockchain to review all documentation and find the best market option for their budget.
Potential tenants can also benefit from blockchain integration. You could find out in advance whether the landlord is keeping up with mortgage payments, eliminating a source of stress.
5. Title Management
Last but not least, blockchain has the potential to make ownership transfers easier and faster by removing the human factor from the equation. The current property title system is often fragmented and difficult to manage. Bureaucratic institutions take longer to process information about changes of ownership, which can cause problems in court or when selling real estate.
Each house or apartment would have a digital title that would be stored on the blockchain. It would make it much easier to keep track of ownership. However, the blockchain will not necessarily eliminate the need for documentation. On the contrary, the use of technology makes paperwork faster and more efficient. If a document contains an error, officials can always check the information on the blockchain to find it.
Keeping data in a safe place is also a great way to prevent fraud. Even if scammers get the owner’s signature and other information, they will not complete transactions because the most important information is still stored in the blockchain and they have little chance of accessing it.
Perspectives for the real estate industry in the blockchain age
I’m not going to say that one day blockchain will completely dominate the real estate market, eliminating the paperwork and various types of advisors. Everything I have suggested before should be seen as an alternative to the traditional process.
Blockchain greatly simplifies life for those who believe in artificial intelligence rather than humans. Any concern that the technology is not trustworthy stems from a misunderstanding of its importance, reliability and accessibility. However, large companies will likely solve this problem by educating their customers about what they can achieve when blockchain is integrated. Adoption always starts with those people trust.