Bitcoin continues to attract the attention of the real estate industry as a number of states consider changing laws to allow it to be used to finance transactions.
Proponents of the technology, which enables digital currencies such as Bitcoin, say it can revolutionize real estate deals— but can it overcome its shady reputation?
From Miami to Manhattan, the real estate world is under pressure to accept bitcoin.
Most of the focus in the real-estate industry is on how ‘blockchain’ technology could affect the way property titles are recorded and transferred in the sales process.
Blockchain acts as a ledger for who owns a particular bitcoin or other cryptocurrency. Proponents say it can be applied to the process for recording and transferring property titles, providing an efficient and secure way to track who owns a piece of land, an office building or a home.
Ben Shaoul of Magnum Real Estate Group said he was shocked to find out how many people have bitcoin.
“I bought some myself last summer, and now I wish I bought more – who knew how this would explode?” he said.
Shaoul was approached by a buyer who has been collecting bitcoin for many years and was interested in using it to buy property.
“He said he really wanted to buy with bitcoin, so I spoke to my lawyers and the powers that be, and they said yes,” he noted.
There remains some skepticism, mostly centered on bitcoin’s volatility.
“Sure it’s volatile,” Shaoul acknowledges, “but so are the stock markets. Would you stop investing in stock markets? No, you wouldn’t. Each person is going to have a risk assessed judgement on whether or not they want to invest in bitcoin.”
Miami REALTOR® Stephan Burke recently told the Miami Herald the city is an ideal market for Bitcoin, “giving buyers and investors from South America, Canada, Russia, Asia, and the Middle East the opportunity to make their purchases quickly and smoothly.”
“Our city has a tremendous opportunity to be a trendsetter in this regard,” he added.
However, is the bitcoin phenomenon sustainable? People who invest in property are doing so for low-risk returns. This does not sit well with the typical Bitcoin investor’s risk profile.
There are storm clouds on the horizon, which agents should take note of as they develop a business strategy that may include this trend,.
In September, REcoin, a startup that billed itself as the “only cryptocurrency backed by real estate,” was busted for fraud by the U.S Securities and Exchange Commission.
The Las Vegas-based startup had planned to use blockchain technology — a growing list of public records that are encrypted and linked across a network of computers — to support its currency. It launched an initial coin offering (ICO), the equivalent of an initial public offering for digital currency, or tokens, and claimed to have raised millions. But as it turned out, REcoin was duping investors. It never had “any real operations,” had made no investments and misrepresented how much money was raised, according to the SEC.
That’s not to say Bitcoin’s primary technology doesn’t have its benefits that also can be beneficial for real estate professionals. In October, JPMorgan launched a blockchain-based payment processing network, which the bank says will allow for faster and more secure transfers of money.
However, these issues have not been linked with Bitcoin. And the industry is finding the savings that can be associated with the technology.
Eric Hedvat, also of Magnum, added that Bitcoin is more efficient than other payment methods and reduces fees and transaction time.
“When you send Bitcoin, it’s peer-to-peer, so you don’t have to go through the bank process, which could take three to four days,” he explained. “With the blockchain and the trusted network, you know in an instant if it was sent.”
Backers of the technology claim it will allow for smoother cross-border transfers, reduce transaction times from weeks to hours, end data monopolies like CoStar Group and Zillow, and usher in a secure globalized real estate market.
While blockchain is primarily thought of as a means to create cryptocurrency, it has other applications for real estate, such as changing how properties are sold and how deals are recorded.
Blockchain uses a protocol that is tabbed as “smart contracts” — a feature of the blockchain-based platform Ethereum, which was developed by a group of programmers in 2014. Smart contracts automatically execute commands when conditions, like an expiration date, are met.
In 2018, Stayawhile officials hope to debut a smart contract system that essentially acts as an escrow account. The firm launched in 2016 and quickly discovered the challenges for foreigners who want to rent in the U.S., its primary user base.
“Even if you’re wealthy and you’re foreign, it’s difficult to rent in the U.S.,” said Stayawhile’s CEO Janine Yorio. “We felt like we could address a lot of these problems with blockchain, because without a solution we really can’t offer our product to international customers.”
Cook County, Ill., approved a title transfer via blockchain earlier this year. The county’s recorder of deeds collaborated with the California-based startup Velox.RE and law firm Hogan Lovells to transfer a property title via blockchain and document it in public records.