Blockchain is becoming an attractive way to transfer and manage real estate.
A digital ledger or history of a property blockchain is able to streamline, enhance and accelerate the ownership verification process. For investors, developers or real estate investment trusts blockchain offers alternative finance models. For financial services it can create a transparent process for lenders and borrowers.
“The old way of following the money – from signature to close – can be done rapidly and securely [with blockchain]. That’s where I see the industry going in the next three to five years,” said Alex Lange, vice president of strategy and innovation for the National Association of Realtors in Chicago.
Lehigh Valley markets are “still in the beginning stages of using blockchain, and there is greater acceptance and a higher comfort level over using it,” said Graham Simmons, shareholder and co-chair of the business law group at Norris McLaughlin P.A. in Allentown.
“The idea behind the tech is to create the most accurate and secure record of these transactions. In theory, it would reduce the potential for fraud,” Simmons said.
Ownership rights and transaction histories are established by rules governing blockchain “so there is regulatory compliance,” he said.
Secondary markets with mortgages or mortgage-backed securities and assets could be among the first to integrate blockchain into new recording practices, Simmons said.
Among the earliest Lehigh Valley adopters of blockchain tech could be larger financial institutions and companies already incorporating cutting edge technologies into their business practices, he said.
Blockchain offers several advantages: from tracking a property’s ownership history to speeding up title searches or other proof of ownership processes to created a more decentralized place for record keeping.
The combination of AI, IoT (the Internet of Things) the metaverse and blockchain create “a convergence of the tech that makes it super viable,” Lang said.
What is real estate blockchain
Blockchain is used to virtual digital ledger – or history – of a property.
Simmons said there is tremendous potential in real estate for using blockchain, which could change the way title searches are conducted and property ownerships verified.
“Blockchain is a secure way of documenting commercial transactions, contracts and even titles for different assets,” Simmons explained.
Transaction changes, escrow and title changes can be done using blockchain efficiently without human intervention, according to Lange.
Investor management; raising capital
Blockchain represents a more “decentralized” concept for record keeping, said Daniel Jameson, an attorney and member at Jameson Stone, LLC in Camp Hill in Cumberland County.
“I think it’s the businesses with the larger war chest who can afford to invest in the tech on the early end. Before it becomes more widely available and understood,” he said.
For real estate investors blockchain offers alternative finance models for developers or a real estate investment trust.
“For example there could be a fund with tens of thousands of investors and [blockchain] could track the ownership,” Simmons said.
Secondary markets with mortgages or mortgage-backed securities and assets could also be part of the industry impacted by blockchain tech, he said.
“With blockchain everything that’s happening with a mortgage can be checked at any time,” Lange said.
Simmons predicts the industry is heading toward blockchain to create the most accurate and secure of property records.
“In theory [blockchain] would reduce the potential for fraud,” Simmons said.
Jameson said while blockchain and other tech advancements have “helped move us along, the downside is everyone does not have access to it,” he said.
While younger generations are more comfortable with new technology many of those currently buying and selling properties may not have the knowledge, access or willingness to move into the unknown realm blockchain represents.
Many records already digitized
Jameson said many property records have already moved or been migrated to searchable electronic formats over the past 10 to 15 years, and many use the same technology.
While a conventional title search may involve several in-person site visits to county offices to discover and verify property ownership, blockchain changes the process.
A title search would include whether or not a property has judgments against it; among them financial or tax liens, deeds recordings, divorce or bankruptcy proceedings.
“The idea with blockchain is you can take one transaction and all of the records related to that transaction would be kept in one depositary,” Jameson said.
Because all of the details – or history – or a property’s ownership is kept in one searchable and customizable digital space the process is expedited, Jameson said.
Using blockchain to create a property’s history would create a secure record of ownership, transfers and any other events related to it – and make future sale or transfer transactions more streamlined, efficient and less time consuming.
Blockchain and cryptocurrency
Blockchain is separate from cryptocurrency – including bitcoin.
Lange said bitcoin is nearly nonexistent in real estate transactions – even on the national level.
“People are dabbling with it. We’re seeing more blockchain as a tech being leveraged across the entire spectrum – and it’s growing,” he said.
Simmons said current professional advice from attorney’s, real estate agents and financial advisors remains that bitcoin does not hold or maintain a stable market value making it unsuitable for buying property and real estate.
Cryptocurrency’s volatile and unpredictable nature – and the ease with which it can be influenced – is among the reasons people don’t use it for property or land purchases, he said.
Regulated industries like real estate, banking and finance hamstring cryptocurrency’s for as a widely accepted currency.
“Bitcoin presents a risk point from a compliance standpoint. The other concern about cryptocurrency is it seems to be the currency of choice for nefarious actors out there,” Simmons said.
Jameson said real estate transactions are large-scale transactions for consumers and lenders with “a lot of hoops to jump through.” Most people prefer to err on the side of caution – rather than gamble with an unfamiliar or uncomfortable currency technology.
“It could eventually become a type of payment system, and I think people are looking into that. But for now, you’re not selling your house with bitcoin,” he said.
Melinda Rizzo is a freelance writer
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