Blockchain is becoming an attractive way to transfer and manage real estate.
A digital ledger or real estate blockchain history is capable of streamlining, improving and accelerating the property verification process. For investors, developers or real estate investment trusts, blockchain offers alternative financing models. For financial services, this can create a transparent process for lenders and borrowers.
“The old way of tracking money – from signing to closing – can be done quickly and securely (with blockchain). That’s where I see the industry moving in the next three to five years,” said Alex Lange, vice president of strategy and innovation for the National Association of Realtors in Chicago.
The Lehigh Valley markets are “still in the early stages of using blockchain, and there is greater acceptance and comfort level with its use,” said Graham Simmons, shareholder and co-chairman of the business law group at Norris McLaughlin PA in Allentown.
“The idea behind this technology is to create the most accurate and secure record of these transactions. In theory, this would reduce the risk of fraud,” Simmons said.
Ownership rights and transaction history are established by the rules governing the 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 early adopters of blockchain technology in Lehigh Valley could be large financial institutions and companies that are already integrating cutting-edge technologies into their business practices, he said.
Blockchain offers several benefits: from tracking a property’s ownership history, to speeding up title searches or other proof-of-ownership processes, to creating a more decentralized venue for holding registers.
The combination of AI, IoT (Internet of Things), metaverse and blockchain creates “a convergence of technology that makes it super viable,” Lang said.
What is real estate blockchain
Blockchain is used for the virtual digital ledger – or history – of a property.
Simmons said there is huge potential in real estate for the use of blockchain, which could change the way title searches are conducted and ownership verified.
“Blockchain is a secure way to document business transactions, contracts, and even titles to different assets,” Simmons explained.
According to Lange, transaction modifications, deposit and title changes can be done efficiently using blockchain without human intervention.
Investor management; raise capital
Blockchain represents a more “decentralized” concept of recordkeeping, said Daniel Jameson, an attorney and member of Jameson Stone, LLC in Camp Hill in Cumberland County.
“I think it’s the companies with the biggest war chest that can afford to invest in technology early on. Before it is more widely available and understood,” he said.
For real estate investors, blockchain offers alternative financing models for developers or REITs.
“For example, there could be a fund with tens of thousands of investors and (blockchain) could track ownership,” Simmons said.
Secondary markets with mortgages or mortgage-backed securities and assets could also be part of the sector affected by blockchain technology, he said.
“With blockchain, everything that happens with a mortgage can be verified at any time,” Lange said.
Simmons predicts that the industry is moving toward blockchain to create the most accurate and secure property records.
“In theory, blockchain would reduce the risk of fraud,” Simmons said.
Jameson said that while blockchain and other technological advances “have helped us move forward, the downside is that not everyone has access to it,” he said.
While younger generations are more comfortable with new technologies, many of those currently buying and selling properties may not have the knowledge, access or desire to venture into the field unknown that the blockchain represents.
Many documents already digitized
Jameson said many property records have already been moved or 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 multiple in-person visits to county offices to discover and verify 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, registration of deeds, divorce or bankruptcy proceedings.
“The idea with blockchain is that you can make a transaction and all the records related to that transaction would be kept in a single custodian,” Jameson said.
Because all the details – or history – or ownership of a property are kept in a searchable, customizable digital space, the process is expedited, Jameson said.
Using blockchain to create the history of a property 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 long.
Blockchain and cryptocurrency
Blockchain is distinct from cryptocurrency, including bitcoin.
Lange said bitcoin is almost non-existent in real estate transactions, even on a national level.
“People get involved. We’re seeing more and more blockchain as a technology being leveraged across the spectrum – and it’s growing,” he said.
Simmons said current professional advice from lawyers, real estate agents and financial advisors remains that Bitcoin does not hold or maintain a stable market value, making it unsuitable for purchasing properties and real estate.
The volatile and unpredictable nature of cryptocurrency – and the ease with which it can be influenced – is one reason people don’t use it to buy property or land, he said .
Regulated industries like real estate, banking, and finance are crippling cryptocurrency as a widely accepted currency.
“Bitcoin poses a risk from a compliance perspective. The other concern with cryptocurrency is that it seems to be the currency of choice for nefarious actors,” Simmons said.
Jameson said real estate transactions are large-scale transactions for consumers and lenders with “many hurdles to jump through.” Most people prefer to err on the side of caution rather than play with unfamiliar or uncomfortable monetary technology.
“It could eventually become some sort of payment system, and I think people are looking at that.” But right now, you don’t sell your house with Bitcoin,” he said.
Melinda Rizzo is a freelance writer
