Blockchain is gaining traction in the real estate industry, raising eyebrows as to the rationale for using this technology in an industry that is already worth more than $326 trillion.
Blockchain is much more than a gimmick that sellers of luxury penthouses can offer their ultra-wealthy clients. It can help governments, businesses and individuals looking to buy or rent a home.
Here are five critical aspects that blockchain technology has the potential to improve or completely transform:
1. Property search process
The whole process starts with a property search, and that’s where the first problems appear.
Statistics suggest that 93% of home buyers in the United States use an online website to find a home. These websites – primarily marketplaces and real estate platforms – connect buyers and sellers and allow potential buyers to use filters to drill down into specific criteria for their ideal property. Not all Web2 applications, however, are without flaws.
Firstly, information about the properties hosted on these websites is often inaccurate, outdated or incomplete. Additionally, the fragmentation of data across multiple SEO platforms can be confusing. Blockchain technology, on the other hand, has the potential to solve these problems in several ways.
Instead of manually putting the same information about a property across multiple platforms, agents and sellers can simply put it once into the blockchain database. Second, the data entered into the blockchain is irreversible and cannot be changed. Finally, future platforms might start handling things like listing, payment, and legal documentation.
2. Commissions and additional costs
The main winners in commercial and residential real estate transactions are the intermediaries who connect buyers and sellers: brokers, real estate agents, bankers and lawyers.
The faster the parties want to close the deal, the more they have to pay the mediators, which means they lose a lot of money. However, a report from Deloitte says blockchain could soon change the way real estate transactions work.
With virtual tours, direct communication between buyer and owner, and a comprehensive document guide, people can avoid middlemen and save money on transactions without taking risks.
The amount of money saved will be huge since real estate agents charge on average 6% for each transaction. So if you were buying a $200,000 house, you would save an additional $12,000 on realtor services.
3. Financing and loan
Financing is another big issue in real estate. Buyers have to wait days or weeks to get their mortgage approved.
The origination and underwriting of loans remain manual and not standardized. Security structuring is left to interpretation, and avoiding double pledging of assets requires significant effort. Trading and asset management decisions are often based on outdated information. Finally, cash reconciliations across the lifecycle often lead to settlement delays, affecting investors’ cash flow.
Traditional financial institutions can benefit from the blockchain’s single version of verified information, secure data sharing, immutable transaction monitoring, and real-time payment settlement. By digitizing a loan or mortgage, relevant data such as ownership rights and loan payment history can be programmed to support future servicing decisions. Smart contracts can collect and distribute payments to beneficiaries while simultaneously 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 mistakes would be easy to spot with data on a digital ledger.
4. Decision making for tenants and landlords
One need only recall the bursting of the real estate bubble in 2008 to realize how important data transparency is for market stability. Investors and mortgage seekers would be spooked if banks couldn’t hide the real numbers.
What’s been done can’t be undone, but if the data is accessible to all network peers and immutable, it can prevent the next crisis. People can use the blockchain to check all the documentation and find the best market option for their budget.
Potential tenants can also benefit from blockchain integration. They could know in advance whether the owner is meeting the mortgage payments, thus removing a source of stress.
5. Management of title deeds
Last but not least, blockchain has the potential to simplify and speed up property transfers by removing the human factor from the equation. The current land title system is often fragmented and difficult to manage. Bureaucratic institutions take longer to process information about changes in ownership, which can lead to problems in court or when selling a property.
Each house or apartment would have a digital title that would be stored on the blockchain. It would be much easier to keep track of ownership. But blockchain won’t necessarily eliminate the need for documentation. On the contrary, the implementation of technology will make paperwork faster and more efficient. If there is an error in a document, managers can always check the information on the blockchain to find it.
Keeping data in a secure location is also a great way to prevent fraud. Even if the crooks get the owner’s signature and other information, they won’t complete the transactions because the most critical information is still stored on the blockchain and they have little chance of accessing it.
Prospects for the real estate sector in the era of blockchain
I won’t say that blockchain will ever completely dominate the real estate market, eliminating the need for paperwork and various types of consultants. Everything I’ve suggested before should be considered an alternative to the traditional process.
Blockchain greatly simplifies the lives of those who believe in artificial intelligence rather than people. Any fear that the technology is not reliable enough stems from a misunderstanding of its importance, reliability and accessibility. However, larger companies will likely solve this problem by educating customers on what they can achieve if blockchain is integrated. Adoption always starts with those people trust.