Blockchain technology has the potential to revolutionize the real estate industry by making transactions, even those between parties half a world apart, faster and more secure.
However, New York, the country’s most significant property market, has yet to touch it. Many in the industry are unclear about what blockchain is, some have heard of it but can’t define it. Like a trending hashtag, it’s everywhere and nowhere at the same time.
Kevin Shtofman, manager of Deloitte’s real estate practice, believes that will change in the near future. He sees companies creating test models this year and pushing them live as early as 2019.
While the U.S. is just beginning to toy with the concept, Shtofman has seen blockchain technology work in European markets such as Holland, Ireland and Israel. It’s also ensconced in the banking sector.
“We’re still in the proof of concept, proof of value, stage,” Shtofman said. “We’re in the second inning of a nine-inning game.”
What is blockchain?
A blockchain is a secure network of computers that creates as a living ledger for transactions. When the record is updated with new information — the signing of a contract, the movement of funds, the transfer of ownership — it is updated and time stamped in every computer simultaneously, whether there are two dozen or 2,000. The records are the blocks, the network is the chain.
Shtofman, who is is giving a presentation about blockchain Wednesday at the Grand Hyatt New York, said the technology will significantly speed up transactions by allowing them to confidently digitize documents that have long been relegated to paper sources, possibly cutting 60-day closing periods down to six days.
Each block is protected by 32-character security code and every computer, or node, in the network serves as an extra layer of protection. If information is altered in one, the others will flag it and cut it off from the network.
“To hack a network with 10,000 nodes, someone would have to hack all 10,000 at once and change the information simultaneously,” Shtofman said. “The security is pretty fantastic if enough computers are participating, it becomes almost impossible to compromise.”
Blockchains are often associated with Bitcoin and other digital currencies that log transactions through such networks, but the technology can be used to store, protect and track any type of information.
In addition to smoothing out the back end machinations of a property sale, on the customer side, blockchain technology also has the potential to make searching and more transparent for buyers.
Propify, an Australian startup, hopes to leverage the technology into a one-stop shop for home buyers. Drawing from various listing sites, governmental databases and social media, the software company aggregates all available information about available properties into a single space, sourced from a blockchain.
Once a Propify user finds a home they like, the buyer or their agent can see exactly what is going on with the transaction, be it the status of a mortgage application or the cause for a closing delay, Joel Leslie, a partner at the company, said.
“There hasn’t been a change in property and real estate since the invention of the Internet, it revolutionized it made it incredibly easy, but it hasn’t been updated,” Leslie said. “Not many people are looking at blockchain as this change, but we believe it’s really going to change the transaction of properties from start to finish.
“Just like what Uber did for the taxi industry, it’s the simplification of the entire process,” he said.
What’s the holdup?
At its core, blockchain technology aims to decentralize data. In real estate, an industry rooted in the hoarding of advantageous information, that concept could be unappealing. Also, like anything that increases efficiency, it raises questions of displacement for the numerous people tasked with safeguarding confidential information.
“To a degree, that concern is valid and warranted,” Shtofman said. “Like any new disruptive technology, it’s going to change the margins for the affected parties, but a lot of these companies don’t bill by the hour, they get paid per transaction so there might be a benefit to getting more transactions done quicker.”
He also noted that there are various permission structures available between different blockchains and even within individual networks; it’s just a matter of figuring out what level of protection fits best.
Shtofman said rival brokerages, lenders and other interested parties must work collaboratively to establish best practices, which is what the financial services sector has done.
In Europe, for example, Deutsche Bank, Société Générale, Rabobank and UniCredit are collaborating on a consortium called Digital Trade Chain. Together, they’re working on solutions for cross-border transactions between small and medium-sized businesses.
“Real estate, as an industry, typically lags behind other industries in the adoption of new technologies,” Shtofman said. “Banking is usually the first to adopt because they have constant customer interactions, but real estate typically doesn’t want to invest money into something until it’s been proven.”
Tristan Ahumada, chief executive officer at Lab Coat Agents, an online community that claims 80,000 real estate brokers throughout the country as members, has been tracking the use of blockchain technologies and digital currencies for the past several years. From his experience, many brokers are eager for both but the adoption has been delayed by skeptical escrow and title companies.
Ahumada said he saw a similar hesitance during the advent of digital signatures in 2004 and once title and escrow sectors began accepting them, the rest of the industry fell in line. He’s confident that shift is coming soon.
“Anything that makes things faster and easier for the consumer is good for business,” he said. “Everybody wants everything to be like Amazon Prime, they want it right now.”