As Bitcoin and blockchain technology have crept their way into retail and restaurants, they are gaining momentum in the selling and purchasing of properties. While the real estate industry has taken the first steps, it’s readily embracing the technology and acknowledging its benefits.
Bitcoin is a digital, next-gen currency that is making the headlines almost every day, skyrocketing in value and breaking all records – it’s become a global phenomenon. Cryptocurrencies offer the anonymity and high-level security that most financial systems have failed to provide, depicting its potential to replace coin and paper-based money, especially for large-scale transactions.
Bitcoin still has a long way to go to become the mainstream method for real estate transactions, but the US and other major countries have already started working on introducing laws to regulate Bitcoin and other cryptocurrencies.
Image source: http://www.savills.com/blog/article/216300/residential-property/how-much-is-the-world-worth.aspx
According to the Savills World Research team, the global real estate market is worth $228 trillion. With such a gigantic amount of money on the table and the soaring value of cryptocurrencies, it’s just a matter of time that more and more investors will deviate from tradition and swim with the tide.
A NEW MARKET FOR INVESTORS
Today, you can buy over 2.5 million commodities using digital currency, including real estate. Online platforms, like BitPremier, feature properties and other luxury items, making it easier for buyers and sellers to close deals. This directed the attention of title companies, appraisers, brokerages, real estate agents, and others involved in the process toward the Bitcoin plate, providing a new prospect to secure more business from modern investors.
The stories of Bitcoin being used as a mode of payment continue to pop up by the passing day. According to Mike Komaransky of Cumberland Mining, Bitcoin owners are now thinking of investing digital money into the real estate market and other tangible assets. That’s why an upward trajectory has been observed in recent times of purchasing luxury properties with Bitcoins. While buyers are making way into high-end real estate markets, like Miami, London, and Los Angeles, developers are not far behind in the action, accepting digital currency for notable, high-valued projects in Dubai and New York.
REAL ESTATE TRANSACTIONS THROUGH BITCOIN
In November, 2016, Bitcoin was worth about $5,800, but just within a year, its value has shot up to 180 percent, currently standing at $16,084 (as of December 27, 2017). With such a massive upsurge, the a home currently valued at millions of dollars, would only be a few hundred Bitcoins when converted. For example, a house in San Francisco in January, 2016 would cost about 2,800 BTC, but today, it would be around just 80 BTC. On the other hand, according to Redfin’s calculations, an average American home will only cost 18 BTC.
Image source: https://www.redfin.com/blog/2017/12/18-bitcoins-will-buy-the-average-american-home.html
Transactions using cryptocurrency can take place in three ways:
- Converting Bitcoin into cash for property purchase
- Buying the property entirely through Bitcoin
- Only exchanging Bitcoin to cash to make title purchases
What’s in it for sellers? By accepting Bitcoin, they are able to get a large amount of Bitcoins in a hassle-free way without having to go through the cryptocurrency buying process. This is because purchasing a lot of Bitcoins at a time is difficult, but with real estate transaction, it’s like hitting two birds with one stone. Additionally, this digital currency has the potential to go up by several hundred thousands of dollars in value in relatively less amount of time than real estate, making it a more investment option.
The discussion boils down to the question: Why should you choose Bitcoin and other cryptocurrencies over the good old pounds, euros, or dollars for buying your next home?
To enlighten you, consider the many benefits of using digital currency for real estate transactions.
The Benefits of the Disruptive Blockchain Technology
People are contemplating whether or not cryptocurrency will be the future of real estate transactions. Considering the rapid prevalence of Bitcoin and blockchain technology, it’s a matter of “how and when”.
Why is that? Because of how reliable the blockchain technology is for secured transaction. It allows quick and easy access to information that is readily verifiable and stored as a public record. Since property titles are safely kept in blockchain, it could speed up the process dramatically for title and mortgage, wrapping up the entire transaction in relatively less amount of time than the traditional method. The same benefit applies to buying properties on foreign land, saving buyers the pain of going through a whole host of procedures and regulations to make the investment.
Smart Contracts to Streamline the Process
Once everything has been agreed upon between the buyer and the seller, it is written into the blockchain through smart contracts. Once included in blockchain, the terms are executed and remain visible to all parties involved to ensure transparency. While such real estate transactions cannot bypass state and local regulations on housing, they can cut down processing time required for transferring ownership and verification with the help of smart contracts.
Top-Notch Security and Fraud Prevention
According to the International Blockchain Real Estate Association (IBREA), smart contracts can prevent real estate fraud. Currently there are over 4,000 members of the IBREA spread in 17 countries, working toward implementing and improving the technology. Among its several initiatives, the organization plans on creating universal platforms for property and title that are secure, nonprofit, open source, and scalable.
With smart contracts in place, it can be almost impossible to forge documents, falsify listings, and engage in rental scams, as nothing will be on paper. Instead, it will be on the blockchain in digital form, eliminating the chances of real estate fraud. Additionally, the IBREA is working on devising standards for cryptocurrency-based real estate transactions and determining the best practices of the industry for refining the escrow process.
Cut Out the Middlemen
Using the blockchain technology, you may not have to involve a few types of intermediaries for buying or selling a property. Banks/lending institutions, lawyers, and brokers can be all be eliminated from the equation if you use Bitcoin or any other cryptocurrency for real estate transaction. This, in turn, will save money in the payments and fees that goes into the pockets of these middlemen.
ASSESSING THE RISK FACTOR FOR HOME BUYERS AND SELLERS
Despite the benefits and the simple nature of real estate transition through Bitcoin, there are still many unanswered questions and hidden risks attached to this technology. Most sellers are offering Bitcoin payment as an additional option to buyers – they are comfortable as long as the transaction is treated like a cash sale.
Bitcoin is supported by the advantage of providing anonymity, but this very fact has made it difficult to create safeguards for sizable exchange. Adding to the uncertainty is the fluctuating price – just recently, it dropped 22 percent, going from nearly $20,000 to $15,262. Sellers can incur huge losses, if such a massive drop in value takes place right after closing a deal through Bitcoin.
Another obstacle is the inability to perform credit checks on Bitcoin buyers. They would be practically useless because owning Bitcoins doesn’t appear on the credit report, making it impossible for a seller to determine a buyer’s reliability.
A majority of ancillary transactions involved in a real estate deal, such as legal fees, property inspection, and title transfers, are carried out by entities that don’t accept Bitcoin. You’ll have to keep extra funds on hand even if the transaction takes place via Bitcoin.
Though Bitcoin and the blockchain technology offer a multitude of benefits, they present their fair share of risks. However, judging by the pace of investments being made in the global real estate industry, modern investors are willing to take the risk and bet their bottom dollar on this cryptocurrency.
Do you see any impact or benefit from Blockchain and Bitcoin in the Real Estate Industry? Comment below and let us know!