NFTs and blockchain may change the way we think about both residential and commercial real estate. Physical structures, such as a house or office building, are usually sold and bought via stacks of paperwork. The buying and selling process includes other parties, such as lawyers and lenders and the closing is completed in person.
However, with the wide (albeit slow) integration of blockchain into real estate, owners can sell properties digitally and automatically. Sellers have the ability to list homes as non-fungible tokens (NFTs) and take advantage of smart contracts, which opens up the possibilities for international ownership. Not everyone, however, is on board with the implications of this decentralized information network. A lack of universal response to concerns related to using blockchain technology can make navigating it far from straightforward. Here’s a look at some of the ways blockchain will give rise to automation within the world of real estate and some challenges to consider.
As house auctions often do not allow for in-person viewings, the auction process naturally lends itself to an all-digital experience. Therefore, it's open to total disruption.
Real estate auctions typically include homes that have been foreclosed or homes that have a delinquent tax record. While typical auction platforms require the bidders to be present on site, online digital platforms for bidding on housing auctions like Auction make it easy to bid from anywhere.
Experienced investors know that buying a house via auction is a risky move. Buyers typically don't see the interior of the home or even obtain a home inspection. This may not be your best bet if you’re looking to move a family into an inspected and approved starter home. However, for an investor, they can prove to be a bargain.
While not all online real estate auctions conduct business using blockchain technology, it does provide multiple benefits. It can help save stakeholders’ time and money as well as increase overall security. By removing the middle man such as banks, it can also cut down on fees.
Propy, a digital-focused, automated transaction management platform, is a real estate company built to overcome real estate fraud. The company recently completed its first-ever NFT home sale to show the power of blockchain. NFTs can represent physical assets — think anything from real estate to art. Blockchain tech then allows for the owner of this asset to be verified digitally.
The house that sold as an NFT in 2017 was not a ‘first and only’ sale; others are following suit. There is indeed an added level of security that comes with selling physical homes using blockchain technology. The ledger can mitigate fraud and lenders can complete instant verification of both the property or borrowers.
Homes that are being sold as NFTs don't rely on the standard wet-ink signatures so often needed in the world of real estate. Instead, these contracts execute automatically after the fulfillment of a set list of requirements.
Some experts believe that all real estate transactions will eventually transition over to smart contracts. The contracts have the power to transfer ownership of the new property, which can then recorded on the blockchain.
Between almost automatic verification and increased security, blockchain technology, and NFTs may be a logical next step for the entire real estate market. But remember to take the following considerations into account.
Smart contracts may save a lot of hassle for those involved, but not all real estate actions are simple and straightforward. Some properties may have more nuanced items included within their contract. Smart contracts may not be able to capture all of these details.
The legality of the contracts themselves may be called into question. For example, mortgage lenders must inform borrowers of unfair terms within a real estate contract, which blockchain cannot do.
One way to solve this could be to bring in a third party. A lawyer, notary or other gatekeeper can check that the transaction is legal. They can also provide a pathway to external agents sometimes referred to as 'oracles.' It's an oracle's job to verify that an event really happened before submitting that information to the blockchain.
Human error is also a consideration when it comes to implementing blockchain into real estate. Although information cannot be tampered with once entered into a blockchain, the entering itself is prone to mistakes. That means information about the owner, seller, etc. may be entered incorrectly. Due to the nature of the ‘chain,’ if someone incorrectly enters information, security issues can arise down the road. Of course, chains usually are monitored so that no one gains the ability to influence such a large swath of data.
Checking ID's is imperative when it comes to real estate transactions, and blockchain can't easily replace all of the functions notaries perform. Tasks may include verifying that the person with the ID has the funds to make the transaction. This challenge is a chance for online notarization to lend itself to the process.
While blockchain may offer efficient ways of saving both time and money within the real estate space, it is not without its challenges. Like investing in cryptocurrency, the use of blockchain for real estate investments is open to both risks and rewards. Nevertheless, blockchain is continuing to define — and in many ways, disrupt — today’s real estate space.