Consumers have long been able to buy software, electronics and even furniture with cryptocurrency. But did you know consumers can also buy a house with digital coins? A small but fast-growing movement within the real estate industry hopes to make this a reality for everyone.

Here in California, home sales, rental payments and mortgage refinances are just some of the real estate transactions consumers can complete with digital currencies.

Crypto basics

Cryptocurrencies are digital currencies whose transactions are secured by cryptography using a decentralized network of computers. In other words: digital money that can’t easily be counterfeited or manipulated.

There are many different cryptocurrencies, but the original Bitcoin remains the most popular and widely used in real estate transactions. Bitcoin and other cryptocurrencies:

  • use blockchain, a peer-to-peer network system, to create a permanent record of transactions;
  • are encrypted, or secured, with computer code; and
  • are stored in digital wallets.

So how many bitcoins is your house worth? Well, that depends on the day.

Bitcoin’s value peaked at around $63,000 per coin in April 2021. Like most cryptocurrencies, its value fluctuates daily. As of the time of this writing, Bitcoin is down to about $43,000 per coin, according to Markets Insider.

Despite the volatility, a clear trend emerges. Bitcoin’s current value is currently:

  • 546% greater than in September 2018 when the currency was trading for $6,500 per coin;
  • 426% greater than September 2019 when trading values were $8,000 per coin; and
  • 301% greater than September 2020 when the value was $10,700 per coin.

Pros and cons of transacting with Bitcoin

Before jumping into a cryptocurrency transaction — or answering client questions on its potential — familiarize yourself with the system’s advantages and drawbacks.

The upsides to using cryptocurrency in real estate transactions include:

  • efficiency, since cryptocurrency transactions occur instantly and typically take only minutes to confirm;
  • fewer fees, since there are fewer middlemen in cryptocurrency transactions than in traditional real estate transactions;
  • greater privacy when buying property thanks to the anonymous nature of Bitcoin wallets; and
  • clout with first-time homebuyers, who tend to be younger and more tech savvy.

On the other hand, using cryptocurrency to conduct real estate transactions also has its downsides, including:

  • volatility, with exchange rates sometimes fluctuating dramatically in the span of a day;
  • security threats from hackers and scammers;
  • a lack of recourse for lost or stolen funds; and
  • complex tax implications.

In home sales transactions

This burgeoning trend has quickly crept up on California’s real estate industry. One of the first and largest real estate transactions involving bitcoin was for a home valued at $1.6 million in Lake Tahoe, California in 2014.

Since then, more California home listings have jumped on the trend, including a Beverly Hills estate valued at $65 million, a Santa Rosa home valued at $3.3 million and a San Francisco home valued at $2.8 million — each accepting payment in cryptocurrency.

Of course, the buyer and the seller both need to agree on exchanging cryptocurrency for the property before the sale.

In rental payments

Some tenants of residential and commercial properties are eligible to pay their rent with bitcoin in California.

In April 2021, a Los Angeles-based company owned by billionaire Rick Caruso announced it will begin accepting bitcoin as rent payment at its residential and retail properties, which includes luxury apartments and outdoor malls.

The announcement closes with cautious optimism, claiming that this investment in cryptocurrency isn’t about the next year or five years, but instead a look forward to the next decade. Cryptocurrency is poised to become a major player in the future of retail and real estate.

In mortgage refinances

Refinancing a mortgage with Bitcoin is also possible in California.

One of the largest independently owned escrow companies in California, Glen Oaks Escrow, accepted Bitcoin in funding a home mortgage refinance in July 2021. While the escrow company has been assisting buyers with using Bitcoin for payments since 2018, this was the first time a lender used Bitcoin to fund a refinance.

This milestone showcases how cryptocurrency’s footprint in real estate is growing beyond the homebuyer. Cryptocurrency is still a nascent technology in the real estate industry, so high-profile sales like these are important proofs of concept for brokerages looking to expand their own appeal.

An MLS agents can trust

In 2018, firsttuesday ranked cryptocurrency as the top upcoming trend for real estate agents to watch. But it is the system on which cryptocurrencies are built — the blockchain — that makes it particularly useful in real estate beyond payments.

A blockchain is a distributed ledger of securely recorded data. This means data is more trustworthy because it is independently verifiable against everyone else’s copy of the ledger instead of against a (possibly unreliable) third party’s record. This significantly reduces the risk of double spending, fraud, abuse and manipulation of real estate information.

Just as online listing services such as Redfin and Zillow repackage the multiple listing service (MLS) and make it more accessible, blockchain has the potential to streamline the homebuying process.

An MLS secured via blockchain can provide a more efficient and reliable property search than the traditional MLS. For instance, with the traditional MLS, an agent manually enters property information to create a listing. The amount of human intervention and lack of uniformity involved in the process often leads to listings with inaccurate, out of date and incomplete information.

But with a blockchain-enabled MLS, a transparent database is created, one that supplies agents and brokers with an unbroken chain of independently verifiable and complete property information.

Title search

Likewise, title issues may be simplified with the adoption of blockchain technology.

Title defects and encumbrances are common on most properties. The traditional method for discovering title defects and encumbrances is for a title company to conduct a title search by combing through documents from multiple sources such as the county courthouse, the recorder’s office and the county assessor’s office.

But with blockchain technology, the title search might also be simpler, less costly and safer. By using the blockchain to store and share data, fraud risks are minimized. This is thanks to the encrypted nature of the blockchain, where any transaction that occurs on the blockchain is recorded, authenticated and impossible to modify thereafter. With verifiable property and title information publicly available, the search will also take less time and be less expensive.

“Smart” real estate contracts

Blockchain technology also has vast legal applications. Lease agreements and purchase agreements present an opportunity for blockchain in the form of smart contracts.

A smart contract lists the terms of the agreement and is officially recorded in a public ledger. In the case of lease agreements, it may also automate rental payments from the tenant, and on termination of the lease, triggers the payment of the security deposit back to the tenant.

These features have the potential to streamline tedious but important property management tasks.

California’s real estate industry is only beginning to enter the age of cryptocurrencies in earnest. Veteran agents have survived many a threat of disruption from tech companies by adapting to emerging technologies rather than rejecting them wholesale. Today’s MLS, contracts, sales transactions and rentals are ripe for disruption — but it needs agents to blaze the trail.

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