If you’ve heard of Bitcoin, a popular cryptocurrency, you likely already know at least something about blockchain technologies. What many people still don’t fully appreciate is that blockchain technologies aren’t simply changing the world of currency. In fact, some industry insiders predict that the real impact of blockchain will not be its impact on currency but rather on contracts. As a result, there is widespread speculation that over the coming decade, the real estate industry will be transformed by blockchain technology on multiple levels.
Understanding blockchain technologies
At its most basic, blockchain refers to a decentralized, distributed, and public digital ledger that is used to record various transactions on multiple computers. Unlike traditional forms of record keeping, with blockchain, a record cannot be altered without the alteration of all subsequent blocks and the consensus of the entire network. When it comes to contracts, this is a compelling technological breakthrough. Since no single person has full access to any document and no single person or even institution has the ability to alter a document, blockchain technologies open up new potential to ratify contracts without the services of notaries and attorneys. More importantly, blockchain technologies hold the potential to eliminate fraudulent contractual dealings.
Five ways blockchain technologies will disrupt real estate
Given the potential to decrease the cost of real estate transactions while increasing their legality, it seems likely that the real estate industry in particular may have a lot to gain from embracing blockchain technologies. Here are just five ways industry insiders expect blockchain technology to change how the real estate industry operates in the near future.
1. Investors will discover increased liquidity: While real estate is generally a great long-term investment, it has traditionally posed one obstacle: Investors have been expected to trade off liquidity for potential long-term gains. Blockchain technologies change the investment map by increasing liquidity. In short, by creating new ways to invest, blockchain technologies offer investors increased opportunities for early exits if and when an early exit is required. In turn, they also create new opportunities for investors to buy in at different points in the investment cycle (e.g., by making it easier for investors to exchange shares). Another consequence is the potential increased liquidity might have on who can invest. Indeed, increased liquidity is also expected to create more opportunities for investors who may want to buy in but can’t commit to holding for ten to fifteen years on average.
2. Brokers, agents, and buyers will have access to more timely data: Despite advancements in data sharing over the past two decades, multiple listing service (MLS) data is frequently flawed and dated. There is widespread speculation that blockchain technology might eventually solve the MLS problem. Since blockchain technologies make sharing information, even across state and national borders, much easier, there is hope that this obstacle may finally be overcome. Indeed, as Matthew Murphy, Global Vice President at Renren, recently wrote in Forbes, “By providing a way to securely share data, the blockchain makes a shared, nationwide database possible, one that offers real-time access to property information straight from the source and enables a more holistic view. It also opens up more opportunities for collaboration among players in the real estate industry.”
3. Land titles will become more accurate: In theory, tracking down a land title and then having the rightful owner sign it over is supposed to be easy, but this isn’t always the case. Flawed paperwork, forged signatures, and other issues—sometimes due to the fact that a property was purchased long ago under a completely different political or economic system—can make property transfers extremely complex. So-called land registry blockchains are increasingly be proposed as a potential way to fix these problems. There is specific hope that using blockchain technology may help buyers more easily locate and transfer land titles in a global real estate. As Alexandru Oprunenco and Chami Akmeemana emphasized in a recent article published on the LSE Business Review, blockchain technology holds the potential to transform how land titles are managed in two key ways: by offering “an immutable history of transactional records, so no one can ever doubt the authenticity” and by further ensuring these “records are permanently linked to the system so no one can ever tamper with or forge a record of their own.”
4. Real estate lawyers won’t necessarily be required to close deals: This isn’t something most attorneys want to hear, but the reality is that as blockchain technologies become the norm, the need for real estate lawyers will decrease. While it seems likely that their services will still be needed in more complex cases, run-of-the-mill transactions (e.g., closing a condo or co-op deal between two private owners) will likely no longer require the services of a real estate attorney. Given that legal fees alone can often add one to three percent to a sale, this is certainly good news for buyers and sellers. In addition to the cost savings, there is also the potential that blockchain technologies will speed up the agonizing wait one often faces when buying or selling a home.
5. Voting rights in condos and co-ops will become increasingly regulated: It is no secret that on many condos and co-ops, voting isn’t always as accurate as it should be. While it may not be legal, concerns about voting are commonplace in condos and co-ops where residents sometimes take matters into their own hands to ratify or reject certain building matters. Theoretically, blockchain technologies could be used to guarantee more reliable voting. First, since the technologies would enable anyone who is an eligible voting member to participate whether or not they can make it to the meeting, there is the potential to increase the number of votes cast. Second, and more importantly, relying on blockchain technologies as opposed to board members to count votes, there is increased assurance that any votes cast will be registered correctly.
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