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Blockchain In Real Estate: 10 Possible Use Cases

  • 9 November 2018
  • Sam Mire

In 2017, venture capital funding in real estate technology jumped to $12.6 billion. This level of investment is expected to have a transformative effect given enough time, and blockchain technology is no small part of the change set to upend the way property is bought and sold. Millennials are also coming around to the idea of home ownership. While just 36% of the American population aged 35 and younger owns a home, this actually represents an uptick from the previous year.

With a massive potential market share to cater to and roughly 70% of millennials experiencing buyers’ remorse, there is clearly space for blockchain technology to provide the assurances many young people will require to be persuaded into purchasing a home. With the blockchain, currently exorbitant fees will be reduced, provenance of a given property will become more transparent, fraud will be less of a threat, and the overall market for purchasing and selling homes will take on a more authentically peer-to-peer dynamic.

While home prices are rising rapidly, the rate of growth is due for a correction. Between 2012 and 2015, the rate of property valuation growth averaged between 12–15%, compared to the average in the past decade of 5–10% per year. Above-average growth almost never sustains itself, and players in the real estate industry have to prepare themselves for an inevitable crash — or, hopefully, soft landing — back down to earth.

The challenges facing the industry include few property offerings, the dearth of millennials investing in homes, home price increases, and a lack of transparency in the marketplace, among other concerns. There are many positives — houses are selling 8% faster than they were in 2017 — but every industry, especially the particularly volatile real estate sector, must be prepared for inevitable downturns. Utilizing blockchain technology is one way that real estate businesses can insulate themselves from downward shifts in the market.

Blockchain in real estate - Practical use cases

Title Transfer Transparency

Blockchain use cases in real estate - Title Transfer Transparency

Homebuyer horror stories abound. Whether it means avoiding spending $15,000 to remove asbestos or $7,000 on a re-shingling job, the ability to view the critical details of a property’s history, from maintenance to foreclosures and beyond, reduces the likelihood that a home purchase will come back to bite overly optimistic new owners. Also, the U.S. Title Insurance industry is comprised of about 1,900 companies producing a combined annual revenue of $13 billion, depending on market and economic conditions. According to the American Land Title Association, $3.7 billion in claims were paid out in Q2 2017 alone, with 37 states showing an increase from the previous year, an illustration of the inherent risk that comes with homebuying. This risk doesn’t mix well with the fact that over the past 4–5 years, buyers aged 35 years and younger — otherwise known as millennials and Gen Yers — have come to make up 34% of home buyers.

Capable with technology but often less patient than their elders, this demographic was raised on easy-to-use data aggregation resources, such as CARFAX. Creating a CARFAX equivalent for properties could help enhance confidence in the real estate market, as well as limit foreclosures due to unforeseen, unsustainable costs associated with a lack of information upon purchase. Records of ownership and repairs can assist a potential buyer in making an informed decision, and the blockchain could serve as a ledger — augmenting, not replacing the physical paper trail — to boost buyer awareness by providing more complete, trustworthy information.

Companies Trying to Solve This Problem

  • Ubitquity – Land records and title on a blockchain platform.
  • Propy – Securing real estate data on the blockchain, especially for international transactions. 

Smart Contracts

Blockchain use cases in real estate - Smart Contracts

Typically, those selling their home can expect to hand over 5–6% of a home’s sale price to their real estate agent or broker. Similarly, sellers can expect their closing costs to be bloated thanks to a slew of intermediaries. Appraisals usually run $300–$500, inspection another $300–$500, 1–3% in “earnest money”, along with taxes and other fees, administrative and otherwise. In addition, real estate agent salaries are on the rise, projected anywhere in the low to high $40,000s. Proponents of the blockchain have a simple stance on these trends: home buyers and sellers give up far too much a cut to third parties and intermediaries, and something’s gotta give.

Some see self-executing smart contracts as a tool that will eventually eliminate many of the middlemen in real estate, allowing buyers to acquire property with the click of a button. It won’t be popular among agents and brokers, but the ability to input one’s credentials and financial history into a digitized, self-processing database would drive down the cost for buyers and renters.

Companies Trying to Solve This Problem

  • Propy – Using smart contracts to safely and securely close real estate deals digitally. 
  • Zap  Giving real-world data to smart contract developers. 

Preventing Deed and Title Fraud

Blockchain use cases in real estate - Preventing Title Frauds

Deed fraud has reached astounding levels in the age of internet property sales. The case of Sybil Patrick, whose Harlem brownstone was sold without her knowledge for $750,000, tells the tale of how tricky fraudsters can be. Using easily available online records, Patrick and 30 others fell victim to criminals forging deeds to sell properties they didn’t own. As of 2015, the NYC Department of Finance was investigating 120 cases of deed fraud, and Chicago was investigating 62 instances. There was also the case of a Tampa Bay realtor who drove by to check on a $300,000 home that he had listed for sale, only to find that somebody had moved in without his knowledge. The occupants had been sold a fraudulent deed and didn’t own the home at all.

With ease of access to deeds has come this unintended consequence of fraud. Initial efforts to tokenize deed and title transfers may eventually give way to the complete blockchain-based digitization of real estate titles, making fraudulent deeds nearly impossible to pass along thanks to anti-duplication measures that the blockchain provides.

Preventing Email and Wire Fraud

Blockchain use cases in real estate - Preventing Wire Frauds

Real estate-related wire fraud scams have been increasing at a rate of 480% per year, resulting in a reported — and shocking — 2,370% increase in identified exposed losses incurred to the victims. 2017 was even worse, as the FBI received a reported 301,580 complaints from over 9,600 victims who reported losses of more than $1.4 billion. Fraudsters who were able to assume the identity of title or real estate agents made out like bandits, as Business Email Compromise (BEC) and Email Account Compromise (EAC) were responsible for $675 million of the total losses. Criminals are even using Equifax in attempts to thieve away properties from rightful owners — looking up your credit score has never been so expensive. Wire fraud was a less prevalent but significant means by which criminals leveraged real estate, often in the form of fake down payments, to finagle $19 million from perhaps overly gullible would-be homeowners.

The blockchain may reduce these numbers drastically, as it is a more secure form of transacting real estate-related transfers between individuals whose identities are tied to unique personal identifiers. Platforms as insecure as email have never been sufficient as a means to negotiate and conduct such rich transactions, and fortunately there is now a technology that offers a greater measure of identify authentication and multi-step security to protect homebuyers and their agents from clever fraudsters.  

Decentralizing MLS

Blockchain use cases in real estate - Decentralizing MLS

The origins of multiple listing services are born out of cooperation. Listing brokers and real estate agents gather together and make arrangements about who will receive what in the instance that they assist in the sale of a property. Multiple listing services were responsible for 26% of For Sale by Owner homes in 2017, making them one of the most popular and effective ways for homeowners to market their properties. But communication among members of MLSs is ripe for an upgrade in terms of convenience and security. As a unified record by which information can be stored and viewed by only authorized parties, blockchain’s distributed ledger technology solves both of these needs.

Companies Trying to Solve This Problem

  • Imbrex – Creating a decentralized global MLS on the blockchain. 

Crowdfunded Investing

Blockchain use cases in real estate - Crowfunded Investing

Crowdfunding in real estate constitutes one of the fastest growing sectors of crowdfunding, with a 2016 valuation of $3.5 billion. This valuation comes on the heels of a 156% increase in the industry’s value in 2014. The real estate crowdfunding opportunities are expected to continue ballooning at a rapid clip, with 55% of millennials interested in investing in real estate.

Crowdfunding represents a means to capitalize on tangible investment at a fraction of the cost of total ownership. The evolution of traditional real estate clubs, as well as the creation of new forms of real estate crowdfunding, is one of the most popular use cases for blockchain technology in real estate. The technology would improve shared records, the ease of group decision-making, and other essential features of group real estate investment.

Companies Trying to Solve This Problem

  • Meridio  Fractional ownership made possible through tokenizing real estate assets. Check out our interview with Meridio on Episode 17 of Blockchain Disruption. 

Tokenized Ownership

Blockchain use cases in real estate - Tokenized Ownership

By any measure, investment in real estate is on the rise. Home prices, sales, and inventory have been steadily trending upwards since approximately 2012, and Redfin’s Housing Demand Index went from 83.1 in 2014 to 127 in 2017. These trends are indicative of a hot real estate investment market, and property managers and brokers who tokenize their properties are likely to create a more appealing, transparent system by which investors can acquire a stake and see how their payout is calculated.

A tokenized property is tied directly to a specific set of evenly-valued coins on a blockchain, and investors are able to purchase an amount of coins that suits their budget and level of risk aversion. Stakes in tokenized properties can be transferred more easily, and the tokenized property system could significantly decrease the fee-generated cost of buying and selling properties.

Companies Trying to Solve This Problem

  • Deedcoin  Disruption commission and transaction models by tokenizing real estate transactions.
  • ATLANT – Full cycle real estate solutions powered by blockchain.
  • Brickblock – Creating investing vehicles on the blockchain.
  • Muirfield Investment Partners  Updating equity for investors using blockchain.
  • Meridio  Creating fractional ownership by tokenizing properties. 

Decentralizing Airbnb

Blockchain use cases in real estate - Decentralizing Airbnb

With over 4 million listings, an approximate valuation of $31 billion, and a presence in 191 countries encompassing 65,000 cities, Airbnb is one of the most successful business models to date, having certifiably revolutionized the travel and lodging industries. But as Airbnb eyes a June 2019 IPO, the cost of hosting and utilizing Airbnb is almost certain to go up.

Getting ahead of this inevitability by providing a blockchain-based, decentralized version of the game-changing lodging service is only logical. Utilizing blockchain’s decentralized ledger to connect property owners and travelers and de-intermediate the Airbnb model — especially as fees grow over time to fund the empire’s expansion — is seen by the technology’s proponents as a viable way to increase competition, keep costs reasonable, and maintain a product with strong value.

Companies Trying to Solve This Problem

  • Bee Token – Enabling home sharing on a blockchain platform.
  • Winding Tree Blockchain powered smart contracts for the travel industry.
  • TUI Group Creating blockchain powered and interoperable data platform for hotel stays.
  • ATLANT Tokenized rental options. 

Fighting Mortgage Fraud

Blockchain use cases in real estate - Fighting Mortgage Fraud

CoreLogic’s Mortgage Fraud Index showed a 16.9% increase between Q2 2016 and Q2 2017, continuing a trend that has emerged since Q3 2010. The shift toward a purchase-heavy market has exacerbated this trend, and the continued rise in property values means that the issue of mortgage fraud will only continue to cause the industry greater losses, pending a significant change in market conditions. With mortgage fraud already costing an estimated $2.5 billion per year in the United States alone, a worsening of the problem is a frightening prospect.

Those tasked with preventing and policing fraud in the mortgage origination process are in agreement that digitization of processes is a strong start to minimizing the ability for fraudsters to sneak through undetected, as well as reducing the cost of oversight. Blockchain-based mortgage fraud prevention tools reduce the clutter, cost, and confusion associated with paper-based systems. In addition, the data contained on the blockchain — derived from verified sources — would be interoperable among the agencies and departments charged with detecting mortgage fraud.

Companies Trying to Solve This Problem

  • Block66 Listing key mortgage and financial data on the blockchain to speed approvals and reduce fraud.   

Property Inspection Transparency

Blockchain use cases in real estate - Property Inspection Transparency

Did you know that for any home built before 1978, a property seller is legally required to sign a lead paint disclosure? Or that, according to California’s Civil Code 1710.2, a property owner does not have to disclose a death that occurred in a home so long as it occurred more than three years prior to the sale? Or that, while Florida’s 2nd District Court of Appeals ruled in Jensen v. Bailey in 2011 that a home seller must disclose problems they know about, it can be virtually impossible to prove in court that the seller actually knew about, say, black mold at the time of sale?

While services such as CARFAX allow would-be buyers to see a vehicle history report before purchasing a new ride, a similar service for home ownership has yet to arise. However, if somehow home owners could be required to input data about defects, repairs, and inspections on a public blockchain ledger, the element of trust between home seller and buyer could be significantly mitigated. As it stands, sellers actually have an incentive not to disclose a home’s problem areas, but many believe that buyers have a right to know such things. Ultimately, a blockchain ledger of home repair and defect history would protect buyers and help reduce legal costs that are a burden on individuals and the taxpaying citizenry.

About Sam Mire

Sam is a Market Research Analyst at Disruptor Daily. He's a trained journalist with experience in the field of disruptive technology. He’s versed in the impact that blockchain technology is having on industries of today, from healthcare to cannabis. He’s written extensively on the individuals and companies shaping the future of tech, working directly with many of them to advance their vision. Sam is known for writing work that brings value to industry professionals and the generally curious – as well as an occasional smile to the face.