From Virtual Assets to Tangible Treasures, How Blockchain Technology is Reshaping the Real Estate Industry

View in Luxury Real Estate Magazine

The real estate industry has seen a buzz around blockchain technology, Bitcoin and other cryptocurrencies. There are many obscurities regarding the new tech and what role it will play in the future. We spoke with three experts to ask prevalent questions surrounding real estate and blockchain tech today. Scott Williams of 2Costa Rica Real Estate has been personally and professionally engaged in the blockchain and cryptocurrency industry for many years. He has successfully completed one real estate transactions, using Bitcoin and BitPay, and has a few more in the works. Piper Moretti is a REALTOR® with First Team Real Estate and CEO of The Crypto Realty Group. She established the firm after seeing the demand for cryptocurrency transactions and has since completed five Bitcoin sales to date. Moretti is an advisor to the Los Angeles Blockchain Lab and a member of the Los Angeles chapter of the International Blockchain Real Estate Association. Peter Vessenes has a long history in blockchain, he launched the first venture-backed Bitcoin company, co-founded the Bitcoin Foundation and is currently managing director for New Alchemy, a blockchain and ICO advisory firm. Recently, his company launched a real estate division to leverage blockchain technology.

Scott Williams

2Costa Rica Real Estate – Manuel Antonio, Costa Rica

When you have closed real estate transactions with cryptocurrency, what were the conditions? Was the exchange done completely with cryptocurrency? Or was there a fiat currency (government backed physical money) conversion prior to the sale?

SW: For a recent $1.1 million transaction, we used a service called Bit- Pay, as the seller preferred his payment in fiat. The service charges a 1% fee, paid by the buyer in that case, whereby the seller provides an invoice for the net amount on closing day. The buyer has a 15-minute window in order to guarantee a conversion rate and send the equivalent value in cryptocurrency. BitPay then converts the cryptocurrency, in this case only a few cryptocurrencies can be used, and for this transaction it was Bitcoin; and the seller received the full net amount in fiat in his U.S. account within 24 hours. We had the closing notaries include language in the deed that the title transfer would not be effective until the seller confirmed receipt of funds as a safeguard for the seller.

What were the biggest obstacles you faced when completing cryptocurrency real estate transactions?

SW: Educating the seller who had no familiarity with cryptocurrencies. Fortunately for us, he was willing to consider BitPay, which is a great service and manages some very large accounts, providing it with international business credibility. Due to the volatility of crypto-currency prices, the perception by the seller was originally that the conversion and guaranteeing the pre-established amounts would be difficult, though BitPay fully mitigates this. The risk then falls onto the buyer that the cryptocurrency price will not drop drastically from the time of going under contract, through due diligence and until closing. So, ultimately, volatility does play a big part. Depending on which direction the price swings, this can work for and against the parties. During the process of the $1.1 million transaction, the price of Bitcoin went up 25%. The deal originally was negotiated as a seller financed transaction, and then due to the Bitcoin price increase, the buyer decided to pay the full amount at closing in the end, making it effectively an all-cash transaction.

In your cryptocurrency sales, did you use any title company, escrow company, inspectors or other traditional real estate transaction methods?

SW: Title insurance is not available in our market, but escrow services are used on almost every transaction. There is a real lack, or opportunity depending on the perspective, for an escrow company to fill this service gap for buyers holding cryptocurrencies. We showed the seller ‘proof of funds’ with snapshots of the buyer’s crypto wallet and the buyer also had sufficient money in fiat to cover the initial 5% deposit. All other aspects of the deal such as due diligence, inspections, reviews, etc. were kept pretty close to standard protocols.

How might the different rules and regulations regarding cryptocurrency in different countries affect the way real estate is exchanged on a global scale?

SW: Cryptocurrency and blockchain technology represent an unstoppable tidal wave of new technology and revolutionary protocols. Countries, states, markets and brokers that embrace this will be rewarded with a lot of new business. Those who shy away or attempt to overregulate will simply miss out. There will inevitably be havens for cryptocurrencies, and those places will boom due to this positioning. Newly created crypto capital will flock to these markets. Furthermore, the overarching concept of a universal medium of exchange and store of value will allow real estate buyers to shop and think more globally. Concerns about currency conversions will eventually fade and currency movements will be affected more quickly. Fees are lower, and blockchain, along with smart contract technology, aim to create a trustless environment; meaning you don’t have to trust the counterparty precisely because this new set of protocols doesn’t allow for cheating. Eventually there will be a blockchain of blockchains tying together ownership registries, market data and other elements, which will make for extremely efficient decision making and more seamless transactions.

What about the characteristics of cryptocurrency make it a good fit for luxury real estate transactions?

SW: There is a lot of new wealth creation in this space, and much of it is not modest. Cryptocurrency early adopters tend to be savvy, and they also recognize the value of transferring some of their newfound wealth into hard assets. Also, much of this newly created wealth is often concentrated in areas where there are a high concentration of tech jobs and headquarters. The Bay Area, Seattle area and even certain states like Arizona are positioning themselves to be crypto and blockchain friendly. Also, since we’ve seen a recent market cycle, big rise, serious market correction and now seemingly another good run on the horizon; I would imagine many crypto holders will be coming off the sidelines now that their portfolios are gaining in value again. With another bull run, we should see crypto holders taking profits off the table and putting them into other assets like real estate.

Where do you see the future of cryptocurrency in luxury real estate?

SW: I see it as being integral. Cryptocurrencies represent a rising asset class, and we see this ecosystem becoming more mature with the introduction of institutional money, hedge funds and an ever-increasing number of retail investors. Beyond cryptocurrencies, blockchain technology, the underlying “shared ledger” that most cryptos are built upon, allows for many use applications. In the not too distant future, blockchain could likely disrupt escrow services, act as ownership/land registries and with the implementation of smart contracts, contracts which automatically execute upon the completion of conditions set by their creators; we will see more and more transactions happening on the blockchain. Industries ranging from banks to supply chain distributions are implementing blockchain technology now, and real estate has been targeted as an area that will be ‘disrupted’ by this new technology. I think just as the internet revolutionized the way we as brokers work, the way we advertise our listings, seek our clients and do our business, likewise, we will see similar ‘disruption’ in our professional fields given the advent of this technology.

Piper Moretti

First Team Real Estate/Crypto Realty Group – Los Angeles, CA

How has the demand for cryptocurrency transactions in the real estate industry changed since the first transaction you completed?

PM: When I started this endeavor a year and a half ago, Bitcoin was around $760. As of this writing, it’s hovering around $8,000. Even with the frenzied spike back in December when it hit $20,000, the price has still risen from even back then, but now we’re seeing a little more stabilization, and that’s good. Now that the word is essentially out that you can actually purchase tangible assets with cryptocurrency, the demand has been growing exponentially. I get calls from all over the world on a weekly basis from both buyers and sellers.

How does a Title and/or Escrow company fit into a cryptocurrency real estate transaction?

PM: All my transactions so far have been Bitcoin that’s been con-verted to cash, so it’s treated just like a cash transaction on the other end, and title isn’t affected. We’ve had to get creative at times during the escrow process by either transferring the funds directly to the seller or using a third party or bank out of London that accepts cryptocurrency then converts it to euros. I now have a local escrow company set up with a cryptocurrency payment processor called BitPay, and they convert the money and wire it directly to escrow, just as a bank would.

How can luxury home buyers and sellers protect themselves from the volatility of cryptocurrencies?

PM: A savvy crypto investor will keep a close eye on the market and know when to sell or hold (HODL). For crypto-to-cash transactions, as soon as buyers find a home, they can easily transfer the funds to escrow to hold to mitigate any more risk. If accepting crypto, sellers can specify in the contract that the selling price will be met regardless of the price of Bitcoin, or whatever coin they’re accepting, and once the cryptocurrency is transferred over at the time of close, it’s a done deal. If the price goes up, great, they’ve already made a profit! If it goes down, then that’s what it is. My advice would be to transfer over as much fiat as you feel comfort-able with to lessen that risk as well.

Other than cryptocurrencies, what uses of blockchain technology do you anticipate being used in the real estate industry?

PM: The sky is the limit. Startups (ICOs) are infiltrating the space. Some can customize the technology to the needs of the brokerage and have all records; minus the sensitive information which can be tokenized for security, up on the blockchain. Some [ICOs] are made for crowdfunding purposes, making purchasing more affordable for some, while creating new investment opportunities for others. Some are trying to outright bypass agents and sell properties on their own, but I think those still have a way to go. There are also title conveyance startups that are doing quite well.

How does using blockchain technology speed up the home buying and/or selling process?

PM: Crypto-to-crypto transactions are another ball- game. We’ve proven we can convey title on the blockchain already, and California is working to make blockchain a legal form of record, just behind Arizona and Wyoming. There have been problems in the past with straight crypto transactions, e.g. the city not recognizing the payment because it wasn’t in USD but wanting the transfer tax. Having all records on the blockchain would eliminate these problems, cutting down a 30- or 60-day escrow to just a few days. I’m working with startups such as CPROP, who will eventually create an end-to-end platform with all the disclosures, vendors, title, escrow and even payment gateways. Also, Block66 will be funding loans within 48 hours using blockchain technology, all within the guidelines of U.S. banking regulations. It’s an exciting time.

In what way do you see the role of real estate professionals changing because of these new technologies available?

PM: Disintermediation is a hot topic with all of this. To quote one of my colleagues, Ragnar Lifthrasir, founder of velox.RE; real estate professionals aren’t going away, but their roles are going to change. We’re going to be more like project managers with less “boots on the ground.” I feel as if the human element will always be needed, as buying and selling real estate will still be emotional in some form. I do think the ones that are slow to adoption or just flat out refuse will lose out, while the ones who educate themselves and stay with the changing times will prevail.

Peter Vessenes

New Alchemy – Seattle,WA

What elements of blockchain technology make it applicable to the luxury real estate industry?

PV: Luxury real estate is famously illiquid; significant properties can take years to find the right buyer. Our tokenization process can make these properties fractionally liquid in as little as six weeks. I think that’s probably the number one thing that property owners want and the market demands — instant liquidity and fractional liquidity for these historically desirable properties.

How can blockchain technology create more transparency throughout the real estate transaction process?

PV: There are a lot of proposals out there for putting things such as title, insurance and ownership onto blockchains or other ledger technologies. However, I don’t think most real estate owners care very much about that stuff, rather, they want to be able to acquire, use, benefit from and monetize or sell their properties with as much freedom as possible.

What is a smart contract, and how is one applied to a real estate transaction?

PV: Smart contracts are essentially a way to attach a computer pro- gram to money or real estate interests or other assets. Once you have these programs, you can enforce good behavior such as dividends, or certain actions being taken on transfer of ownership — the possibilities are endless. Smart contracts don’t necessarily apply much to real estate right now, but they will over the next few years.

Who/what do smart contracts protect? How do they offer this type of protection?

PV: Because smart contracts are code, they can’t be manipulated by people. In real estate, this means that a lot of the traditional back-and-forth designed to minimize counterparty risk can be published once as a smart contract and trusted from then on. Smart contracts can also be used to pay out dividends to a large number of buyers of a property. Right now, there’s a practical limit on how many limited partners a mid-size property might want because at some point the costs of dealing with the partners exceeds any value the seller might get. Smart contracts change that equation as they make it almost free to pay and work with a large number of limited partners.

How might blockchain technology disintermediate “real estate middlemen?” (i.e. escrow companies, title insurance companies, MLS associations, county recorders and notary publics)

PV: I think the first thing we’ll see is a mass transfer of properties into a tokenized world. As that occurs, we’ll see new business models dealing with these tokens. Ownership of the underlying partnerships might change much less rapidly, but ownership of the economic interests through the tokens might change very rapidly. This will push new entrants to the fore and cause significant worries for these long-standing staid industry participants.

What is your outlook on blockchain technology and crypto- currency’s future in the real estate industry?

PV: I predict the tech is going to enable and preside over a massive global shift into this more liquid and free form of real estate ownership — think trillions of dollars of assets over the next five years. Should be fun!

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: