Use Cases for Blockchain Applications in Real Estate
Who owns what property? What is the chain of custody for this title? Blockchain would improve traceability through transparency and availability of immutable data sources. This would make title investigations much easier for those in the real estate business. The result? Expedited closings and lowered risk for error during title transfers.
Tokenized Real Estate Platforms
Tokenizing real estate assets makes purchasing property with digital currency investments. Tokens within a larger real estate specific ecosystem could increase in value through use. The tokens still can be liquidated or exchanged for other cryptocurrencies or buyers can receive in crypto and keep it as an investment. It would be the equivalent of accepting valuable stock for your property opening up the potential for more gains on your investment.
Tokenizing platforms specific to real estate could consolidate all transactions and processes, eliminating closing costs and broker fees. The transactions could be complete in a day rather than over the course of several weeks via several different platforms. Tokenization can support the exchange of real assets.
Real Estate Investment Trusts (REIT)
Blockchain applications and REIT are a match made in heaven. From shareholder communication to dividend distribution, REIT can benefit end-to-end from decentralization. Smart contracts can execute upon event according to predetermined conditions. REITs can crowdfund using digital IPOs. Investors can receive funds in a timelier fashion not having to wait for REITs to make good on paper contracts.
Smart Contract Escrow
This might be the most viable use case for blockchain applications in real estate. Smart contracts double as escrow and create a safe repository for funds to then be trustless-ly released to the verified parties when triggered by event confirmation. Rather than tenants sending landlords checks every month in the mail, tenants can have a multi-signature transaction with the use of public-private key cryptography. Security deposits can be held in escrow for the duration of the lease and only returned at the end upon two out of three parties (third being an arbitrator) using their private key.
Real estate paperwork authentication often requires a notary. Buyer and seller sign an agreement and then the transaction can be recorded on the smart contract, and this agreement then receives designated a hash. The buyer then can obtain the address of the smart contract to send the funds to the correct blockchain-based locale. Notarization can now happen on-chain as the seller goes to the notary with the smart contract address and sign the final document without the presence of the buyer. The notary is then able to use their private key to mark the deal executed on the blockchain. In the future, as governments accept blockchain transactions as trustless, the notary can be eliminated from the process.
Property History Traceable via Blockchain
Property history databases are never up-to-date and are certainly not transparent in their origins or motives. Using blockchain to track the history of repairs and issues a property experiences can later help sellers improve resale value or make buyers aware of the property’s troubled past. A home inspection would also be either unnecessary or a less involved task. Home inspectors could contribute to databases to make sure property issues are part of the immutable records. This would help buyers feel more confident in their purchases knowing the full history of the property.
Depending on a bank to approve a loan and set interest rates for mortgages can be lengthy and expensive, sometimes impossible process. P2P lending facilitated by on-chain technology can break down the barriers for home ownership for those with bad credit or past debt who otherwise should be eligible for a loan. Borrowing from a network of lenders rather than just one results in lower interest rates and service fees, above all else, it creates an opening for those who would otherwise be ineligible or face incredible interest rates.
Tenant Screening and Leasing Process
Manual pen and paper tenant screening is still common practice in the real estate industry. Landlords do not have a centralized hub to verify tenants through immutable data stores detailing rental history. Landlords have to conduct background checks with only the information provided to them by the tenant. Renter fraud is a common woe for property owners who have no tried and true way to screen tenants. Instead, they are forced to conduct credit and rental history checks themselves. If landlords and tenants could use blockchain to complete all rental-associated tasks on a p2p network, this could help standardize pre-authenticated on-chain renter and landlord profiles with immutable histories and reputation scores to help tenants avoid slum lords, and landlords prevent rent dodgers. P2P rental networks could also help renters crowdsource deposits to reduce the need to hold their own funds in a smart contract for a year or more.
Smart contracts aren’t just used for buyer-seller or renter-landlord interactions. They can also be used to help real estate companies better manage their resources and fund distribution. It is common for multiple agents to be working on a single listing creating commission distribution hiccups. For multi-broker listings, everyone gets paid a percentage of the commission as described in paper commission-splitting agreements. Smart contracts can easily automate this process and companies can avoid the associated overhead that is involved in figuring out who gets what, how and when. Brokers and agents benefit from automated commission splitting as they will no longer have to wait for their funds, they can receive payment the same day the deal is closed.