There are barriers involved in real estate that force fees upon both buyer and seller that are soon to be a thing of the past. Entire multiple billion dollar industries are soon to be turned upside down and forced to adopt to a new era of real estate.
The new era
Areas in the United States such as San Francisco are suffering from a housing crisis. This article explains some of the issue going on in the bay area.
The main issue is the price of housing is skyrocketing compared to the wages of the average person.
Making it increasingly difficult for normal person to own a home. The current landscape of real estate has multiple industries within it that force an unjust amount of fees on the consumer.
Fundamentally changing the way the business works by creating new processes could make for the most incredible bull market in the real estate industry. New tools and developments in the blockchain space will fix less than ideal facets of the entire industry.
Buying a home is not consumer friendly
If you are looking to sell your home there are multiple industries that just suck on top the flaws in the way real estate deals are done.
In the diagram above you can see that the money is held in escrow. Escrow is is typically a contractual agreement that allows a third party to hold, receive and distribute funds based on the circumstances given within the contractual agreement.
The diagram depicts a section called “title insurance”. These title agencies provide everyone with a poor user experience and charge outrageous fees for doing simple tasks that the will be automated thanks to a public ledger.
A basic title agency provides the following services to its customers:
- Initial request — starts the escrow process. This is typically done by the buyers attorney.
- A Records Search — A Title Officer requests three records searches including Name Searches, Property Searches, and Tax Searches.
- Title Examination — a detailed report of the title and history of the home.
- Binder / Commitment — This is a written specification on the dollar amount of coverage, identifying covered parties, terms, conditions, and limitations during the transfer of ownership.
- Encroachment Clearance — Encroachment is defined as an intrusion on a person’s territory, In real estate this could be unpaid judgements on the property.
- Delivering the policy — To conclude the closing of the property, the underwriter will issue the policies the appropriate parties, both Buyer, Lender, and, and Seller.
The basics of real estate on the blockchain
In order for you to understand why the entire title agency business will be disrupted you need to have a basic understanding of smart contracts, public ledger.
A smart contract can be applied to any type of transaction and allows for pre qualifiers to be met before funds are distributed.
In simple terms, you can code your own Escrow with conditional logic in solidity, or another similar web3 language.
Smart contracts the escrow of the future. The only fee involved in smart contracts are typically network fees. These network fees depend on the blockchain being used but are minimal and are designed to support different proofs, avoid network spam and DDOS-like attacks.
In the current meta of real estate there are centralized ledgers that only certain people have access to as opposed to a decentralized public ledger similar to Ethereums.
An example of this is the is the price history section of zillow.
This is a great experience for customers to hop on zillow and get a peak at the history of their home. The issue with this is that zillow owns this data, when this data should be owned by the person who owns the property.
The property online associated with your home should belong to you. There are protocols like IPFS that allows data to be associate to a particular hash. This hash is a unique identifier in the ETH blockchain.
What does this all mean for the average property owner?
To the people who have no idea about blockchain, real estate fees, or how this will help you. We are going to be entering a new era of real estate. A much more user friendly experience that allows for people to own their own home and own all aspects of it. Both online, and offline.
The future of blockchain will disrupt all intermediaries, such as title companies and escrow. removing this part of the home buying process will streamline everything to enhance the buying and selling experience.
The main problem we face as consumers is the unfair fees involved in the record keeping and escrow process involved in real estate transactions. Smart contracts and public ledger will soon remedy the problem by enabling everything these title companies do in a free, and more public way that allows the home owner to own the data about their own as well. Without smaller businesses leeching off the real estate industry consumers will be more empowered than ever and will allow the entire industry to flourish.