Buying a home or a rental property can be a frustrating, challenging process, in part because of some pretty old-fashioned ways things are done. Of course it's important to make sure buyers are creditworthy and titles can be transferred, but it's also kind of ridiculous that despite modern technology, many of the steps to closing on a real estate deal have remained unchanged for decades or more.
This may not be the case for much longer, as an increasing number of real-estate tech companies have started using new technologies, like blockchains and the applications that can be built on top of them, to improve the process, for both real estate buyers and sellers.
Here are some burning issues that could be improved by applying blockchain-based solutions.
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1. The time spent on the minutiae of purchase contracts is huge
There are potentially a huge number of issues that can be anticipated and addressed in a real estate agreement, but that doesn't mean you should have to lug around a huge tome that is your purchase contract. Although some are working with digitized versions of old-fashioned paper contracts, other companies are trying something new: smart contracts.
Smart contracts are agreements that are recorded on the blockchain, with the potential to run automatically when conditions are met. For example, if you have agreed to put up $10k in earnest money upon the signing of a contract, a smart contract could be programmed to extract that money (saving you a trip to the bank and another to meet with your agent, who then has to deposit the check in the broker's escrow account). Any sort of conditions can be programmed into smart contracts, which run on one of many blockchains, to make your transaction move more smoothly and quickly.
2. Title searches are very involved, slowing down purchases
Title searches are necessarily thorough, but because may be hundreds of years of sales records to comb through, often in different formats, it can take a while for someone to complete the search that says your title is 100% clear. If more data related to real estate transactions were moved into a blockchain ledger, it would take a fraction of that time.
Instead of having to look through individual records, each property could have its own entry, on a ledger where records can only be added, never removed. Because the data is checked against other copies of the same ledger, it helps to maintain the integrity of the information, ensuring that this faster method for title work is also highly accurate.
Of course, that's in theory. But there are tests being run in New York City to see just how well this system would work in a larger community. Smaller blockchain-based deed ledgers have been running in places like Teton County, Wyoming, for years.
3. Title insurance is too expensive
Title insurance is an amazing thing to have when you really need it, but most of the time, you don't. And when you don't, it can feel like a huge sunk cost on the expensive road to homeownership. With the use of the title systems explained above, title insurance would be dramatically cheaper because it would be very difficult for something to slip through the cracks. Fewer claims mean less expense to the title insurance company and a lower premium.
A blockchain-based deed recording system might not eliminate the need for title insurance, but it would certainly cut back on the situations where it would be necessary to untangle title issues, therefore speeding up the process of issuing policies.
Solving problems in homebuying helps buyers and sellers
No matter which end of a transaction you're on, being able to buy or sell a home faster would be ideal for most people. Not only would you get the cash in hand (or access to the property) more quickly, meaning that you can stop worrying over the contract and all the things that can go wrong, but you'll spend less of your own time on moving the process along.
Cheaper contracts would be better for everyone as well, and that's the other beautiful thing about working with blockchain technology. Because there's the potential to automate a large part of a real estate transaction, with only minimal input from people who would need to verify certain types of subjective conditions (e.g., whether repairs were completed correctly), transfer costs could be significantly reduced because there's less need for human input.
Blockchain technologies like smart contracts and deed ledgers are still in the early stages but they probably represent an incredible revolution in real estate sales. In a time with record sales numbers and files piling up on desks at real estate, escrow, and closing companies across the country, a little revolution would make a huge difference.
