Globally, real estate has recently been valued at over USD 280 trillion — a more valuable asset class than all worldwide stocks, shares and securitized debt combined and represents the largest store of wealth at three and a half times the total global GDP. In the United States, the first record of a home sale was recorded in 1890, but it wasn’t until the 1910s that agents began acting as middlemen for buyers and sellers using walkthroughs, home staging and yard signs to market a home.
These agents provided, and still provide, a valuable resource: trust! When you go through the home selling or buying process with an experienced agent, you can rely on their knowledge around not just the local laws and regulations, but also their guarantee that the seller actually owns the home and the buyer has the funds to pay for the home. While the marketing tactics used in the 1910s are still going strong today, the processes involved in buying or selling real estate are ready to be disrupted with blockchain technology.
Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. By having a single, public version of records, the trust needed between a buyer and seller is decreased since the seller can immediately prove their ownership of a property and the buyer can immediately prove their funds on hand. In fact, with the utilization of smart contracts on a blockchain, Mark Zilbert, EVP of Brown Harris Stevens Miami says that real estate transactions could become as easy as online shopping, enabling real estate contracts, escrows and property records to be completed and monies distributed without title companies or attorneys.
Even beyond the individual buying and selling of property, blockchain offers the ability to change how people invest in real estate. By tokenizing a property on a blockchain, a developer removes the need for traditional bank financing and frees themselves from the traditional sales timeline constraints on investment property. On the buyer’s side, expanding or decreasing a position is as easy as finding a buyer or seller for a share of the property. Tokenization of luxury property has even attracted some of New York’s top brokers to blockchain technology.
Ryan Serhant, bestselling author of “Sell It Like Serhant” and star of Bravo’s Million Dollar Listing New York, told Forbes, “The market in New York is always strong, but it can take some time to sell for the right price in a new construction building. With blockchain tokenization, we can remove the unruly pressure of traditional bank financing, which is much healthier for the project and all of the stakeholders. Tokenization is paving the way for a new forefront in real estate development.”
Blockchain smart contracts in real estate
While the real estate industry has been focused on blockchain for record keeping, smart contracts represent a future where buying and selling real estate is as easy as online shopping. Smart contracts are lines of code that are stored on a blockchain and automatically execute when predetermined terms and conditions are met. At the most basic level, they are programs that run as they’ve been set up to run by the people who developed them. Instead of the complicated process currently in place, with each party involved increasing the price of a piece of property through their commission, trust could be assured between participants through a single version of the truth.
With your identity stored on a blockchain, mortgage lenders can quickly make a decision about credit. Then, a smart contract could be issued between the bank, the agent and the mortgage lender so that once the funds have been released to the agent, the mortgage lender will hold the property and repayment will be initiated based on the agreed terms. The transfer of ownership could be automatic as the transaction gets recorded to a blockchain and is shared among the participants who can check the process at any time.
Tokenization on blockchain in real estate
Tokens are a digital store for value. In real estate, tokenization occurs when an ownership interest takes place via a token and can be represented by many things like ownership of an asset, equity in the ownership of an asset, part of the debt secured by the property, cash flow from the property, and others. Though similar to a real estate investment trust (REIT), tokenized real estate differs in that assets are much more flexible and have fewer fees from middlemen.
The major benefits for tokenizing real estate, as well as all illiquid assets are: additional liquidity, lower investment barriers, programmable securities and security and immutability. Major brands like the St. Regis Aspen Resort in Colorado have already begun taking advantage of security tokens when they raised $18 million through their “Aspen Coin” via Indiegogo.
Decentralization with blockchain in real estate
Trust is a major part of the real estate business and blockchain has the ability to enable not just trust, but co-opetition between opaque agencies. While the majority of the real estate industry has been focused on blockchain for record-keeping, a few avant-garde players have been quick to see the advantages both smart contracts and tokenization could offer. These players will be well situated to help their clients take advantage of the potential future opportunities enabled by blockchain technology.
Although blockchain has the potential to disrupt the industry, whether it’s an $18 million deal in Aspen or a smart contract that makes buying a home as easy as shopping for toothpaste, real estate professionals will continue to thrive. As Mark Zilbert says, “The advice, knowledge and hand-holding of real estate professionals will always be an important part of a buyer or seller’s process.“