After more than a decade, blockchain is still something of a mystery—not always well understood and prompting different opinions about its relevance to real estate. Some see it as a promising idea that never quite took off. Others are passionate about its potential to secure and streamline transactions and are actively working on projects to make it a fixture of the real estate industry.
In the simplest terms, blockchain is a fully secure, tamper-proof record-keeping system. Every record is stored in a “block” that’s part of a longer chain, and the content of each block has to “agree” with the blocks that come before and after it. If it doesn’t, the whole chain is invalid. There’s no way to hack a block without breaking the chain, so accuracy is guaranteed.
For an industry that’s seeing growing rates of fraud, this kind of security could be good news. In 2018, 11,300 people were victims of real estate fraud in the U.S., an increase of 17% over 2017. In Canada, the national accounting firm MNP found that mortgage fraud was one of the top seven types of fraud in 2019.
“Blockchain could effectively eradicate wire fraud,” says John DiMichele, CEO of the Toronto Regional Real Estate Board (TRREB). “That’s been a problem in the U.S. for a while, and it’s starting to creep up here in Canada as well.”
Blockchain could also support critical document repositories, storing deeds, leases and other contracts. Its fast, continuous data processing means updates are posted nearly instantly, eliminating the need for manual exchanges of paperwork.
Josh Nekrep of FX1 Realty in Winnipeg, Manitoba, says blockchain’s iron-clad recordkeeping is a natural fit for real estate, especially title management. “Blockchain eliminates any confusion about who owns a property,” he says. “It’s an immutable public ledger that provides mathematical certainty of ownership.”
Just getting started
Organizations in many other sectors are already exploiting the advantages of blockchain. The United Nations is using it to fight human trafficking and Walmart is using it to ensure food safety. Some charities have cut their operating costs significantly by using blockchains for fund transfers. Real estate, on the other hand, has just begun to scratch the surface of what’s possible, DiMichele says.
“Think about something like ‘smart contracts,’” says David Conroy, Director of Emerging Technology at the National Association of REALTORS® (NAR). “You can basically automate parts of the transaction with complete reliability—for instance, automatically releasing or transferring funds when the right conditions are met—instead of needing a person to manually take the next action.”
Blockchain can support much richer kinds of data than are currently available to parties in a real estate transaction, Conroy says. He suggests properties could one day have unique identifiers the same way vehicles do, which could give access to all kinds of historical details.
“When you buy a car, the VIN [vehicle identification number] can tell you about its past owners, if it’s been in any accidents, how it’s been serviced,” he says. “With blockchain you could have the same for a house, so you could know what repairs or renovations had been done, utility costs and so on, instead of relying on what the previous owners choose to say.”
Making it happen
One of the main obstacles to blockchain adoption to date has been the fact that most existing regulations were created for an analog world.
“Regulators tend to be risk-averse, and they don’t adapt nearly as fast as the technology,” says Nekrep. “In many cases, it may seem simpler to stick with the status quo, where blockchain is just not accepted.”
Despite the regulatory challenge, organizations such as CREA and TRREB are actively developing blockchain solutions for real estate. TRREB’s blockchain work began in 2017. The organization researched what other industries were doing and determined it would be better to adapt blockchain to suit the real estate industry than adapt real estate to blockchain — in other words, to create a platform tailor-made for the sector. Once fully developed and operational, TRREB’s blockchain environment will support applications that facilitate the real estate process from contract to conveyance.
CREA is working on a pilot with the Ontario Real Estate Association (OREA) and the Kitchener-Waterloo Association of REALTORS® on a blockchain solution to better track members’ professional credentials—information that’s currently siloed in different organizations’ databases. The pilot is focused on building a distributed blockchain ledger of member activity across all three levels of organized real estate: municipal, provincial and federal.
“Being able to see it all accurately and at a glance will help CREA and other organizations ensure professionals have all the right qualifications,” says Kriteen Lahiry, Director of Product Development and Information Technology at CREA. “It will also help inform decisions about who to tap for specific committees and projects.”
Catching up on cryptocurrency
Blockchain used to be closely associated with cryptocurrencies like bitcoin. While that’s no longer the case, there are still questions about whether or not cryptocurrencies have a place in the future of real estate. To date, relatively few transactions have been conducted using them—an arrangement that both the buyer and the seller must agree to—and the infrastructure to support mass use of cryptocurrencies in real estate does not yet exist.
The future of blockchain
Looking ahead, fractional investment could emerge as one of the big domestic and international applications for blockchain. Today, real estate can generally only be bought and sold in complete units, which restricts the number of potential investors who can bring capital to a project. It also puts real estate investment out of reach for most individuals.
“With blockchain, you can tokenize a property and sell micro-portions — like crowdfunding,” says Josh Nekrep. “This would let owners raise capital without having to sell or re-mortgage the whole property and allow a lot more people to make smaller investments. It will democratize the whole industry. A kid with a paper route can become a global real estate investor.”
Encryption research that secures blockchains could also strengthen the privacy of real estate transactions with what’s known as “zero-knowledge proofs”, for example when someone is applying for a loan or to rent an apartment.
“Current processes burden landlords and applicants with obtaining extraneous information when all landlords really want to know is if applicants can pay the rent,” explains Conroy. “Blockchain could provide a reliable yes or no without all those details landlords don’t need.”
For CREA, TRREB, NAR and others, collaboration across jurisdictions and industries is key to realizing the potential of blockchain.
“New solutions are being developed all the time, and we’re really excited to be at the forefront of it for real estate,” says DiMichele. “When the technology matures and is widely adopted, the possibilities will be limitless.”
This is so interesting! I can see that there would be many applications for our industry. Please right more updates on this subject so we can all follow along.