Paperwork: It’s so yesterday, right? Not when it comes to buying and selling property, where there are still plenty of layers of it. Documents that require searches, verifications, stamps, recordings, signatures and multiple, often disjointed processes that seem to take an awful lot of time and feel shrouded in mystery to those outside of the industry.
In spite of the rapid advancements and transparency that high tech has brought to so many other types of transactions, the overall real estate conveyancing process has lagged behind. The reasons for that are debatable, but one thing is crystal clear: It’s an area ripe for a high-tech transformation, and you don’t have to look very far to see it coming.
Real estate research and marketing agency Re:Tech reports that global venture capital investment in the real estate technology sector grew to roughly $12.6 billion in 2017, following a moderate $4.2 billion in the prior year. Real estate startups using non-traditional currencies and all-digital transactions are on the rise.
“There is one form of technology that will have greater impact on the world economy than self-driving cars, solar energy, or even artificial intelligence. Blockchain is that technology.”–Don and Alex Tapscott in Blockchain Revolution: How the Technology Behind Bitcoin and Other Cryptocurrencies Is Changing the World
Blockchain technology could very well be one of, if not the biggest driver of digital change in real estate. In fact, it arguably already is, when you consider the successful eight-month pilot program between the Cook County Recorder of Deeds (CCRD), velox.RE and other partners to explore its use in land and deed recording in the state of Illinois. Or South Burlington, Vermont’s first successful all-blockchain-based real estate transaction conducted earlier this year, in partnership with startup Propy Inc.
In order to see the potential implications to the industry, it’s important to understand what it is – and isn’t. In the simplest of terms, it’s a digital ledger that records groups or blocks of transactions, encrypts them, and connects them in an endless, unalterable chain. It came to fame as the platform on which the cryptocurrency bitcoin was exchanged, and it’s also the backbone of the open-source, public operating system, Ethereum, which allows for the building and deploying of a variety of decentralized applications.
It's hard to read anything about blockchain without coming across the term “immutable,” too. That’s because it’s decentralized, with users contributing to the operation of the network all over the world to verify transactions. It’s not controlled by any one main server or group of servers, making it much harder to hack. Because each transaction is verified, transparent and unalterable, it’s far less susceptible to fraud and provides access to the same information, at the same time. All of those factors contribute to a level of security on both sides of a transaction, particularly for those engaging in cross-border activity, where physical distance and unique customs, languages and regulations necessitate an even stronger need for transparency and trust in the other party.
Blockchain is not an “all-or-nothing” scenario. The CCRD reported in its findings from the pilot program that “aspects of the component technology can be implemented individually or selectively to improve recordkeeping outcomes.” So, it could be rolled out initially in phases, to handle just the title verification and recording parts of the process, for instance, if not the entire financial or asset exchange.
The Ethereum blockchain has enabled the evolution of the smart contract, too, which operates on a basic “if/then” principle. As an article on Blockgeeks.com explains it, “When running on the blockchain a smart contract becomes like a self-operating computer program that automatically executes when specific conditions are met. Because smart contracts run on the blockchain, they run exactly as programmed without any possibility of censorship, downtime, fraud or third party interference.” Think of the implications for renters or temporary housing clients, for example, who could automatically gain access to a unique property entry code once identities and payments have been verified and confirmed.
So, if blockchain has the ability to improve accuracy, speed, transparency and universal access in so many ways, why hasn’t it taken hold faster and more broadly in the real estate sector?
“As long as the market continues to stay strong, we’re very likely to see huge changes ahead.”–Jay Hershman, SCRP
“I think blockchain will definitely play a wider role in the future of property transfer, it’s really just a question of when,” notes Jay Hershman, SCRP, senior partner with Baillie & Hershman P.C. and current chairman of the Worldwide ERC® Real Estate and Mortgage Forum. “It’s undoubtedly a‘hot topic’ right now, and a developing trend that our Forum members and a technology task force are monitoring very closely. Interestingly, we’re at a point in the conversations around blockchain that is very similar to when we were talking about eClosings in the early to mid-2000s – just before the U.S. housing bubble and real estate collapse. There was certainly an appetite to embrace the benefits of technology at that time, too, but economic conditions forced those conversations—and investments in the necessary tools—to the backburners. As long as the market continues to stay strong, we’re very likely to see huge changes ahead.”
Other factors impacting the rate of adoption are time, regulation and variances in the different stages of the process. While nothing in the current laws in the U.S. technically prevents the use of blockchain and cryptocurrencies for property transactions today, there are still wide disparities in the ways state and local municipalities handle real estate ownership transfer. In the absence of a universal approach, the software and workflows would need to be adapted to be valid according to each jurisdiction’s requirements and the tests of state, federal and international law as applicable.
“The current process in the U.S. is very local,” adds Hershman, “with some states conducting title searches and recording deeds at the county level, and some by individual towns. There are even some areas of the country where clerks are literally still hand recording the data. I don’t think anybody disputes that the desire to change antiquated processes and gain greater speed, accuracy and efficiency is there, but it will take time to develop and implement.”
And then there’s the question of currency. As noted, blockchain gained notoriety as the technology for tracking bitcoin transactions – the original cryptocurrency released in 2009. While bitcoin is the most widely used and recognized example of cryptocurrency today, there are others, in both coin or “alt coin” format, and tokens, available in both security and utility forms. Global markets and government regulators continue to explore the fine lines between the different types and their implications.
“I don’t think we’ll see an embracing of blockchain across the entire spectrum of real estate conveyancing until the question of exactly which cryptocurrency or currencies—and their values—becomes a bit more stable,” notes Hershman, “many investors remain in a ‘wait and see’ mindset.”
Real estate firms, relocation management companies and corporate employers with in-house programs could all benefit from the enhanced speed, security and centralized management of records that the blockchain technology can offer. The tokenization of real estate assets and removal of currency exchange fees could result in cost savings for global companies and consumers. The benefits of streamlined, digital, secure and transparent processes – whether for cross-state or cross-border transactions, are significant, and the development of the smart contract adds another layer of potential automation, accuracy and timeliness.
As with all new technologies, it will be a bit of time before all of the true implications—and some of the potential roadblocks or risks—are known. But things are moving fast, and this is clearly a trend for industry professionals to watch. To learn more, plan to attend the “Show Me the Money—Banking on Cryptocurrencies” session at the Worldwide ERC® Global Workforce Symposium in Seattle on Thursday, 18 October, from 11:15 – 11:45 a.m. Panelists will explore both sides of the cryptocurrency coin and the impact of digital transactions on the talent mobility industry’s future.