Bitcoin Is Creeping Into Real Estate Deals
The real-estate industry is taking its first steps in adopting cryptocurrencies and the technology that backs them in what could eventually produce important changes in the way property is bought and sold.
While noticeable differences might be years or even decades away, several U.S. states already have changed laws to allow the technology to be used in property deals.
Most of the focus in the real-estate industry is on how “blockchain” technology could affect the way property titles are recorded and transferred in the sales process. Blockchain acts as a ledger for who owns a particular bitcoin or other cryptocurrency. Proponents say it can be applied to the process for recording and transferring property titles, providing an efficient and secure way to track who owns a piece of land, an office building or a home.
“If you were to design a [title] system today, it would look a lot more like what people are talking about in terms of recording electronically and through something like the blockchain than the system we have in place now,” said Michael Pieciak, commissioner of financial regulations for Vermont, one of the most aggressive U.S. states in adopting the technology.
Some real-estate companies also are beginning to experiment with using cryptocurrencies for such things as rental payments or even to buy property.
ManageGo, a New York-based company that provides technology to residential property managers, plans to begin enabling people to pay rents with virtual money early next year, according to Chaim Lowenstein, a ManageGo vice president. The apartment-building managers who use ManageGo will be able to offer their tenants the ability to use bitcoin or two other cryptocurrencies, ethereum and litecoin, to pay rent.
“This is just another amenity for this crowd that fits the demographics of people that have dabbled in bitcoin,” said Mr. Lowenstein.
Like other new technologies, blockchain has the potential to be enormously disruptive in real estate. The impact could be biggest in the multibillion-dollar industry that provides title insurance and plays an integral role in most real-estate sales.
As a precaution, many title-insurance companies are studying the use of blockchain to ensure they are “in the drivers’ seat versus being in the passenger’s seat” if these changes take place, said Steven Gottheim, senior counsel of the American Land Title Association, a trade group. “The lesson you can see in the industries that have been disrupted” is that the greatest danger is to companies that “don’t realize new technology is coming,” he said.
Mr. Gottheim said initial tests of the use of blockchain technology for title recording by IBM and startups like R3 CEV look promising. But he pointed out that enormous hurdles face the use of blockchain technology and businesses are in the “really early stages of trying to figure out if this is hype or reality.”
The traditional system of recording property ownership has been centuries in the making. In the U.S., property titles are public documents recorded with roughly 3,600 counties, towns and other jurisdictions. In some cases, the record is available only in writing and can be viewed only by visiting a town clerk’s office.
Title-insurance companies essentially guarantee property owners that their ownership claim to a property is solid. If it isn’t the insurers cover the loss.
Blockchain potentially could do this much more efficiently. “That would be a great thing if we could have all records digitized and available online and available in a low-cost and speedy way of finding them, searching and analyzing them,” Mr. Gottheim said.
A number of startups have jumped into this arena. For example, last year, Amsterdam-based Bitfury Group said it had an agreement with the Republic of Georgia to develop a land-titling registry using blockchain technology.
Several state governments in the U.S. also are paving the way for the use of the new technology. Earlier this year, Arizona Gov. Doug Ducey signed legislation that enables local municipalities to substitute blockchain technology for the conventional method of recording property ownership and sales. “It establishes blockchain as a usable format for smart contracts,” said Patrick Ptak, a spokesman for the governor.
Last year, Vermont enacted a law that said that transactions recorded with blockchain technology “have the presumption of admissibility from an evidentiary perspective,” said Mr. Pieciak. It would allow people to “authenticate a blockchain real-estate transaction whether it’s over a title dispute or divorce proceeding,” he said.
Mr. Pieciak said the legislation is part of an effort by Vermont to encourage financial technology companies to base themselves in the state or to boost their businesses through the use of blockchain technology in a wide range of industries. “We’re looking at ways Vermont could do anything to make our regulatory environment more hospitable,” he said.
Mr. Pierciak said a number of questions remain, such as how mortgages would be incorporated and how title insurance world work. But technically local municipalities in Vermont now have the legal framework to switch to recording deeds using blockchain technology, although none has made that move so far.
Proponents of the new technologies envision a day when crytpocurrencies will be used to buy real estate and blockchain technology will be used to record the transfers. A San Francisco-based startup named Propy in September said ethereum had been used to buy an apartment in Ukraine.
“I think it’s going to happen much faster than everyone anticipated,” said Alex Voloshyn, Propy’s chief technology officer.