Can blockchain, electronic closures make the purchase of a safer home?

If you've ever bought or sold a home, you know it can be a bumpy process. Sometimes things happen so fast that your head turns. At other points, the entire agreement may be blocked due to the lack of a single stub or bank statement. And above all, it is expensive – not just the house itself, but also the closing costs, commissions of real estate agents, legal fees and other expenses.

An entrenched $ 15 trillion market is bound to have bumps and taxes. But while real estate is not exactly a hotbed of high-tech innovations, there are technologies – some simple, some disruptive – with the ability to make buying at home a little easier and less expensive.

One of the most direct innovations of the last decade has been a slow and steady push towards digital closure. Signing documents electronically can save time and reduce closing costs, said Hugh J. Fitzpatrick III, a lawyer and founder and CEO of New England Title & Escrow Services. "The biggest expense of the closing process is labor, the cost to get the lawyer to go out there and close the loan," he said.

It sounds quite simple – almost obvious in an era when app like Rocket Mortgage allow you to apply for a home loan in minutes on your phone. The problem is at the finish line.

"All of these guys are trying to develop tools with a simple interface to get loans started," Fitzpatrick said. "But the problem on the conclusive side is not enough for creditors who have embraced this concept of getting rid of paper." Right now we have two clients dealing with electronic locking, but the industry has not yet adopted these concepts. "

By taking electronic signatures a step forward, it is increasingly possible to obtain remotely annotated forms, as Richard Hill, vice president of industrial technology at the Mortgage Bankers Association, said.

"If you've ever bought a house, you know you have to trudge out of your house or work wherever the notary is to sign a stack of documents … it's a bit of a hassle," Hill said. An online notary simply testifies to the signature in a recorded videoconference. "You go through all the security protocols, so all the parties validate who they are, but it means you do not have to physically go somewhere else to do it," Hill said.

This can be a big time and cost saving for people who are moving or who are not otherwise able to participate in closing. "We see it as a huge benefit to people who are disparate," said Hill. "You can have someone close to a property in Virginia, but his wife is in the army for maneuvering, and they can go online and take a notary session and not have to worry about going back to Virginia for the closing ceremony. "

Technology has also helped shape buyers, reshaping the role of real estate agents. It's hard to understand now, when most homebuyers start searching online, but in the days leading up to Zillow and Trulia, access to the multiple listing service or MLS – a patchwork of regional property databases for sale – it was largely limited to real estate agents.

"The value of the real estate agent was to provide information to customers about which houses are available at this time it is access," said Sophia "Sonia", Gilbukh, assistant professor of real estate at the Zicklin School of Business of the City University of New York. "You know what houses are available, but working with an agent allows you to see a property, to arrange a visit."

A good agent can also guide you through the process and negotiate on your behalf. But that access and expertise will cost you: anywhere from 5 to 6 percent of the sales price, agents' commissions are by far the largest commissions in most real estate transactions; however, the increase in online discount intermediaries such as Redfin – which charges 1% to 1.5% on the seller's side, against the usual 2.5% to 3% – could put downward pressure on overall commissions.

The total average commission fell slowly, from 5.4% in 2012 to 5.08% in 2017, according to research by Real Trends Inc.

Gilbukh said lower fees will not only reduce costs for domestic buyers and sellers. They could help eliminate agents entering the industry during a boom cycle and, as shown by their research, have a negative impact on consumers due to their inexperience.

"Sellers who work with less experienced agents are less likely to sell their homes and, if they sell, take longer to do it," he said.

This scenario was particularly painful during the collapse of housing, revealed the search for Gilbukh, when sellers with inexperienced agents were more likely to be foreclosed because their homes were languishing on the market as prices plummeted.

However, Gilbukh is not sure how much discount brokers can really help. First, they tend to attract new agents who do not yet have their own network and can make more money under this structure than those who would initially embark on the traditional path, he said. He suspects that some agents may also be hesitant to deal with a brokerage of discounts, perhaps limiting options for the average buyer. But there is also only an inherent limitation on how much commissions can fall.

"It's a two-sided market: the seller and the buyer both have agents, so the discount you can offer is only half the commission," said Gilbukh. "So, because of this, I think it will take a long time for this bad balance to change."

A faster shift could come courtesy of blockchain. The much-publicized technology that decentralizes transaction data and instead creates a distributed book on a vast peer-to-peer network is better known as the backbone of cryptocurrencies like bitcoin. But its usefulness goes far beyond digital money.

Since blockchain is entirely based on the creation of a reliable and permanently verifiable record of a transaction between the parties, it can reduce the need for intermediaries, from payment processors to real estate agents and lawyers.

"Blockchain and smart contracts can reduce costs and improve the efficiency of real estate companies and consumers in many capacities," said David Conroy, Meridio's technical manager, a startup that uses blockchain to facilitate fractional real estate. This means that people can buy small shares of an investment property, as they may have some shares of Apple, and receive a quarterly dividend as the owner collects the rent.

"There's a lot less due diligence that needs to be repeated at every step," said Conroy, who removes some expensive frictions from the process. "We can code those [regulatory] it controls the smart contract, and it happens automatically as opposed to getting 15 people involved in each phase of the journey. . . . If something goes wrong or is missed, the transaction simply will not succeed. & # 39; & # 39;

A possible scenario of Conroy would be an accommodation to rent at home, where the landlord wants to free up some liquidity or encourage his tenants to feel a pride of ownership in the building so that it will take more care of it. "Tenants can own a piece of their rental property, build equity and get upward exposure," Conroy said.

The financial giants of Goldman Sachs and Fidelity have embraced the blockchain, and even local governments are experiencing this. Two municipalities in Vermont enlisted a startup called Propy to test blockchain-based land records. "[We’re] managing a cadastral blockchain register in South Burlington, Vt., which will soon begin to record routine transport documentation on the blockchain in parallel with the traditional land-based registration system, "said Natalia Karayaneva, CEO of Propy. also initiated a second test pilot program in the small town of Hubbardton, Vt., whose land documents are still mostly paper based. "

For now, these blockchain registries work in tandem with traditional ones to comply with applicable laws. But the hope is that since the blockchain records are virtually tamper-proof – because any interruption of an existing block would change its identifying hash and interrupt the whole chain – such a system could eventually limit or cancel the need for costly securities and insurance research.

"Blockchain-based registries and land titles will reduce the overhead of verifying ownership, title controls and transfer of ownership," said Conroy.

If your eyes cloud every time your tech-savvy friend tries to explain how the blockchain works, take courage: you do not necessarily have to understand the technology to appreciate its benefits.

"Most people do not dive into what TCP / IP is when they use Amazon or Facebook, people only use it," said Meridi cofounder and CEO Mo Shaikh. "You saw a window from five to seven years where people got comfortable with the Internet, and today we see this model with blockchain."

Whether you understand it or not, blockchain technology could finally accelerate the pace of real estate transactions: Shaikh said that Meridius can execute and record a transfer in 15 seconds.

While this makes sense for fractional investments, I admit that it hesitates at the thought of speeding up the domestic buying process so dramatically. When it comes to doing what is probably the biggest purchase of one's life, I find comfort as much as frustration with the slow and deliberate nature of the current slog.

But Hill reminded me that technology aims to strengthen us.

"You just want to eliminate unnecessary delays in the process, where the consumer is ready to move on to the next step but is currently waiting for the card to move or something," said Hill.

In other words, if you want to take your time with a particular phase of the process, you should be able to take your time – but this should not hinder more experienced and experienced buyers.

"The process should be able to move at the pace desired by the consumer."