The commercial real estate (CRE) industry is comprised of many different types of service providers, including property management, brokerage firms, banks, and other types of lenders. When a CRE transaction occurs, various operators are involved, requiring extensive sharing of official property documents and financial information, which must be validated. The requirements for validating all information across all parties slow down the speed of each transaction, which can take weeks and months to complete. Many CRE firms have turned to blockchain to speed up execution times, decrease errors and increase transparency in each transaction.

What Is Blockchain?

Blockchain technology is a way to store and transfer information encrypted by distributing data instead of copying it to a central location. Blockchain does so through a cloud and peer-to-peer network that eliminates the need for a third party, ultimately reducing transaction fees. A digital ledger is created and updated with each financial transaction in blocks.

There are plenty of benefits to making transactions and transferring data using blockchain as the technology is not controlled by one central entity, such as a central bank. This means breaching these blocks is extremely difficult, maintaining the sanctity and transparency of its transactions and data.

The blockchain is the backbone of cryptocurrencies such as Bitcoin, which offer speedy and low-cost sending and receiving money.

Faster Transactions

One of the most exciting ways blockchain disrupts the CRE world is in the form of smart contracts. The industry currently relies on an inefficient system of old-school verification of property ownership by researching to ensure the property belongs to the party selling it.

Blockchain can reduce the speed at which the chain of custody regarding CRE properties occurs as a property’s title would be stored on a public ledger. This would remove the need for another central repository, thus reducing transaction, state, city, and legal costs. The same principle would apply to leases that would be recorded via blockchain.

More Transparent Deals

Blockchain can also ensure that real estate assets are more liquid and both sides fully understand the terms of the agreement as every piece of data regarding a property would be stored publicly. This includes former owners’ data, property construction, past maintenance costs, and records regarding one-time inspections.

All this information would give the investor a more comprehensive idea of the property they are investing in. Blockchain ensures that everyone is on the same page and both sides are fully aware of what they’re getting into, as every piece of information is available for anyone to access.

Digital Paper Trail

Another challenge with the CRE industry is that public records can be outdated, unreliable, or unavailable. Following a property’s paper trail can be time-consuming and frustrating. Much of this information is lost due to poor organizational skills from industry workers and legacy systems that lose data when updated.

With blockchain, every piece of information on a property would be available in the same place rather than in multiple physical and digital domains. Blockchain would also help eliminate the type of fraud in the industry, as deeds and titles can be easily counterfeited.

Buying Property With Cryptocurrencies

As previously mentioned, Bitcoin is a cryptocurrency that relies on blockchain to complete financial transactions online in a matter of seconds. Some investors and real estate firms have started adding Bitcoin to the industry, including Ivan Pacheco, who bought a two-bedroom condominium in Florida for $275,000 in Bitcoin.

You can buy a condo on the Lower East Side of Manhattan with Bitcoin in the residential space. Meanwhile, some New York City apartments allow their tenants to pay for rent using Bitcoin. Cryptocurrencies have been historically volatile and have been on the decline since peaking in December 2017. Still, some investors believe that the future of real estate will be closely tied with Bitcoin and other digital coins.

Nevertheless, blockchain’s role in the CRE industry is becoming more prevalent daily. The technology’s potential to speed up transactions with smart contracts, its ability to add transparency to a deed or title, and the fact that it dramatically decreases the chance for fraud suggest that more investors flock towards firms that use blockchain for CRE transactions.

Author: Karl Utermohlen


The original article appeared on RealAtom.