BLOCKCHAIN TECHNOLOGY REVOLUTIONIZING THE REAL ESTATE INDUSTRYBy Darya Shneyder | May 28, 2019
Compared to other industries, Real Estate has not seen a lot of innovation in technology. The handling of purchase, sale and lease transactions has al- ways involved a lot of paperwork and several intermediaries. Many records are maintained in hard copies and are not digitally accessible.
While creating an electronic environment is costly, the benefits of having easily accessible information are limitless. The more information that is available to investors, the more educated decisions can be made and the more quickly deals can be completed. Among the ways that technology has accomplished this goal is blockchain technology.
What is Blockchain?
Blockchain is a method of recording all transactions related to a specific matter, whereby all data is stored in one secure database and is accessible by only those involved. The term blockchain was coined in 2008 as a way of securely processing cybercurrency transactions. Over the last 10 years, blockchain hasn’t always had a positive connotation, but it has evolved to affect more than the way bitcoin and other cryptocurrency transactions are processed—it has begun changing the real estate industry.
Blockchain in Real Estate
Blockchain provides a secure way of recording transactions by ensuring accuracy and reducing time spent in the review process. The use of a blockchain ledger system provides an easily tracked history of changes made, with a clear audit log of modifications that were made at every step. In our highly digital world, where the public expects everything to be readily available and transparent, a blockchain ledger is a great solution.
There are multiple ways blockchain technology can be utilized in the real estate industry. Transitioning from saving electronic or hard copy documents in various locations to implementing a blockchain ledger can seem intimidating at first, but the industry’s demands for efficiency, privacy and timeliness could be enough to overcome the fear.
A blockchain smart contract can be used in purchase agreements in a real estate transaction. A smart contract can be an agreement made between the buyer and the seller that is made without third party intermediaries. All the details of the contract are included by both parties, and changes can be made in real time. Controls are embedded to review the information and ensure all terms of the contract are met. The execution of the contract is completed only after certain steps are met (e.g. mortgage approval, money transfer) and information is validated. The information within the contract is kept private through encryption, available only to those who are involved in the specific transaction.
A smart contract has multiple uses and can be modified to fit any transaction type—not only a purchase/sale transaction as mentioned above. For example, a smart contract can be used for a lease agreement between a landlord and a tenant. The contract would identify the terms of the lease, escalations, improvement allowances, etc. Once put together, it would be transmitted electronically to the required parties for digital signature.
Real estate management can be greatly improved by establishing a blockchain. Typically, real estate management involves different software and a high volume of files saved in multiple locations, which must be manually combined to obtain an objective. By having one ledger, all information can be centralized and encrypted when necessary. This type of smart contract can involve the real estate managers, tenants and service providers.
Blockchain is the Future
The ability to connect all of the individuals involved in a transaction and seamlessly obtain input provides a significant comfort level and leads to a successful transaction for all parties. The full potential of blockchain in the real estate industry is not yet uncovered, as the technology continues to evolve, and new advances are introduced. The key is for the real estate industry to embrace and be prepared for a world full of transparency, recognizing that the costs of blockchain and other new technologies are outweighed by the many benefits provided to everyone involved.
About Darya Shneyder
Darya Shneyder, CPA, is a Partner in the Real Estate Group at Marks Paneth LLP. Ms. Shneyder specializes in providing accounting, auditing, tax and advisory services to commercial and residential real estate owners, developers and co-ops and condominiums. She also specializes in securing real estate tax reduction via certiorari audit filings. With more than 13 years of experience in public accounting, Ms. Shneyder’s background also includes audit and tax services for the manufacturing and distribution... READ MORE +