Experts have suggested a number of niche industries that will be made more secure by the untamperable data record provided by blockchain technology — including international art dealing, pharmaceuticals and international trade of high-value goods — but to date, very little attention has been given to the potential effects on the real estate market.
According to HomeInsight, the typical homeowner sells his or her home every five-seven years, and the average individual will move 11.7 times during his or her lifetime. While most normal Americans will not note the differences of the changes to the international art trade, the changes within the real estate market directly affect millions of people every year.
Buying a home is the biggest investment that most people will make in their lifetimes, yet, to date, there have been few technological advances to expedite the process and make it more secure for buyers, lenders and homeowners alike. This article will look at three ways that blockchain could disrupt the real estate market: by speeding up the system, providing more transparency and offering safer investments to everyone involved.
Expediting the process
After a period of “slow” sales in 2014, house prices have risen to the extent that in fall 2015, some experts warned the housing market was entering a bubble far worse than seen in the run-up to the Great Recession. Demand for houses is higher than ever, and with less new constructions being built, prices for existing properties are shooting up. Despite slight sales hiccups in August 2015, experts predict that prices are going to keep on rising.
With a shortage of existing houses for sale, and the jury still out about whether the U.S. real estate market is in a bubble, buyers and sellers alike want to finalize deals and get papers signed as quickly as possible. However, the traditional real estate market is not known for being quick and easy. Real estate transactions have always been cumbersome and complicated.
Government bodies around the country slow down the system by placing additional restrictions or costs on the transaction or transfer of real estate. Point of sale mandates, including utility and whole home inspections, and a range of sales restrictions, can cause a house sale to slow to a snail’s pace even though both parties are keen to seal the deal.
While the blockchain can do little to influence local legislators’ sales restrictions, it will have a great impact on the financial verification element of the sales process itself. At current, most buyers and sellers make use of escrow and title companies for third-party verification — a safety net to make sure both parties keep their end of the deal, as well as to reduce the risk of fraud.
While undoubtedly important, this third-party verification comes at a cost — normally 1-2 percent of the total value of the property — and adds extra time to the process. With blockchain, the middleman (in this case the escrow company) could effectively be cut out. By using a blockchain distributed database to prove authenticity, homeowners could legitimately transfer ownership immediately without the need to pay for third-party verification.