Derryn Shrosbree’s ideal real estate deal involves no agents, no lawyers or other intermediaries. In his mind’s eye, there is just a buyer, a seller and a lot of Bitcoin.
So in February, Shrosbree listed his two-bedroom Mississauga condominium for 35 bitcoins – about CDN$445,000 at the time — on the Multiple Listing Service (MLS).
Within a week, he got an offer. But to his disappointment, the buyer – who was completely unfamiliar with cryptocurrencies — wanted to pay the old fashioned way, in Canadian dollars.
“The settlement is unfortunately in cash,” said Shrosbree, who has nevertheless arranged to have the payment converted to Bitcoin before he receives it. “As per every new technology and every new thing that comes down the pipe there’s going to be various stages where it’s still a bit clunky.”
Though Shrosbree hasn’t given up – he says he’ll soon list two more properties for Bitcoin — his experience demonstrates some of the current challenges to using cryptocurrencies in real estate transactions.
For one thing, cryptocurrencies like Bitcoin are wildly volatile. The value of a single Bitcoin sometimes fluctuates by 10 per cent or more within days or even hours, adding significant complexity to a standard property transaction.
To ensure Shrosbree’s listing reflected the value he wanted for his property, for example, his real estate agent Brett Starke had to change the Bitcoin price on MLS every day, with Shrosbree signing off on the moves. A separate condition on the sale was that the bitcoin payment had to be equivalent to the value in Canadian dollars on the day the sale closed.
“It’s very hard for a price denominated in Bitcoin to be sticky for long periods of time,” said Stephen McKeon, a professor of finance at the University of Oregon who studies the intersection of digital currencies and real estate. “It’s very volatile and presumably the cost will be in whatever the native currency is. That’s the number one problem.”
Another obvious problem is finding a buyer comfortable with a Bitcoin arrangement, McKeon adds. Despite all the attention they receive, cryptocurrencies aren’t widely understood or held by mainstream consumers.
And there remain concerns about their use in criminal activities. The Real Estate Council of British Columbia and the Real Estate Council of Ontario have both noted that cryptocurrencies cannot be held in trust and have advised buyers using them to seek legal advice.
In a statement, the B.C. regulator said that while there were many legitimate purposes for cryptocurrencies, there are also “significant risks associated with them, including the risk that the currency may be used to disguise the source of money derived from criminal activities – commonly known as money laundering.”
But for all the fear and hype surrounding Bitcoin, technology experts say the real opportunity for innovation in the real estate industry rests not with digital coins but with the technology that underlies them: blockchains. These decentralized public ledgers verify and record transactions across many computers. Supporters of the technology say they have the potential to make property transactions faster, less expensive and more resistant — though not immune — to fraud.
“Buying a property in Bitcoin is equivalent to buying it in one fiat-backed currency and switching it to another,” said Simone Brunozzi, chief executive of San Francisco-based Fabrica.city, which is developing a software platform for property transactions. “Blockchain is a global registry. When you record a transaction, it’s there forever. It’s a trusted public record.”
The Republic of Georgia, Honduras and the city of South Burlington, Vermont have all either tested or are experimenting with storing transaction records or land titles on a blockchain. And Sweden’s Lantmäteriet, or land registration authority, is months away from testing its first property transaction on a newly developed blockchain system.
While property titles will continue to be held digitally in the Swedish land registry office, transactions will be recorded into digital blocks on the blockchain, said Jörgen Moden, chief solutions architect at ChromaWay AB, the technology firm leading the project. Any information related to the deal cannot be altered without the approval of all parties involved, cutting back the opportunities for fraudulent practices. And though currently it can take several months for a property to change hands in Sweden, the new system could see the timeline reduced to mere hours, Moden said.
“All the signatures are right there and all parties can see them, including the banks, who can then issue loans. We construct a chain of evidence that enables more trust and much faster turnover of property.”
The project has had its challenges. Digital signatures aren’t permitted in land sales in Sweden, though Moden hopes that will change. And while many hope that blockchain could remove all intermediaries from the process, the Swedish experiment suggests there will still be a role for many of the current players in property deals. For instance, a real estate agent will still be present to verify the seller’s possession of the house and her identity when a digital signature is created, he said.
“Ultimately we are trying to cut down on the number of intermediaries but right now the focus is on increasing speed and trust in the system,” he said.
Nevertheless, the ability of blockchains to create transparent, secure records of transaction could prove immediately disruptive, said Brunozzi of Fabrica.city.
“In the U.S., any time you buy a house, you have to get the title insured to make sure there are no outstanding claims against it and that’s a multibillion dollar industry,” he said. “The blockchain creates a trusted public record. So title insurance isn’t as important.”
Though much development still remains, Shrosbree – a former Wall Street derivatives trader now working on an insurance business that accepts bitcoin as payment — believes a seamless transaction between buyer and seller could happen sooner than many think.
The sale of his Mississauga condominium closes in April. He plans to list the next two properties soon.
“We’re hoping the second and third sales will truly be a 100 per cent fiat free transaction where we can start to disintermediate the chain,” he said.
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