Smart Contracts for Real Estate Transactions

Modern technology is making our lives easier than before, especially with the introduction of smart contracts and blockchain technology in real estate.

What is a Smart Contract?

Smart Contracts are self-executing contracts with the terms of the agreement between buyer and seller directly written into lines of code.

The code and agreements exist across a distributed, decentralised blockchain network.
Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority or external enforcement mechanism.

Smart contracts therefore offer a potential solution of the management of real estate transactions via the introduction of a universal, distributed ledger that does not require trust in a single third party.

According to Vitalik Butern, programmer of digital currency, Ethereum, Smart Contracts are "the simplest form of decentralised automation, and is most easily and accurately defined as a mechanism involving digital assets and two or more parties, where some or all of the parties put assets in and assets are automatically redistributed among those parties according to a formula based on certain data that is not known at the time the contract is initiated."

How do Smart Contracts work?

The main principle of a smart contract can be compared to the work of a vending machine. They execute only the instructions given to them automatically.
Firstly, assets and contract terms are coded and put into the block of a Blockchain. This contract is distributed and copied multiple times between the nodes of the platform.
After the trigger happens, the contract is performed in accordance with the contract terms. The program check the implementation of the commitments automatically.

How Smart Contracts can use the Real Estate industry

Cryptocurrency powered by a blockchain technology and smart contracts, has the potential to eliminate the need for trusted third parties to facilitate real estate transactions. In the case of real estate agreements, contracts could be verified and enforced automatically without the need for human interaction, reducing the need for agents, lenders, inspectors and title insurance providers.

There are nine main ways in which the real estate market benefits from Blockchain technology: it allows for more fast, more secure and fully transparent transactions.

9 benefits of smart contracts

Here are basic benefits that smart contract technologies bring to the real estate industry.

• Automatic Signatures

Smart contract technology makes it possible for everyone to create a smart contract, e-sign agreements (obligating both parties to follow terms set in the contract), and automation of all processes. This could help with cutting out additional inspection costs, registration and loan fees, as well as taxes, and mean the process is all enforced by quantifiable smart contracts

• Payments Overseas

Currently, if people want to transfer money to a person or institution in another country, online payment services like Paypal or bank transfers come with large minimum costs and are heavy with fees. Whereas with blockchain technology, this transaction would be done a few minutes at a very low cost. Eliminating intermediaries removes additional fees, allowing businesses and their customers not only to interact and transact directly but also to do so with low to no fees for transactions.

• Property ownership

Any digital property ownership is able to be managed with Smart Contracts.
Digital content ownership can be established and manipulated in a simple and transparent way with smart contracts. For example, upon the primary owner’s death, a Digital Will can automatically trigger the contract execution in favour of a primary beneficiary.

• Leasing transactions

Real Estate owners have an opportunity to reduce some of the existing big challenges in their leasing transactions using blockchain technology, making it near impossible for frauds to undermine the rental procedure on any level.

The contract execution on a decentralised rental platform will create a set of complete and traceable records. It means that any transaction between parties can be audited.

• Reduce the risk of breach and fraud

For instance, a seller and a buyer agree to transfer title as the agreement with $300,000 in digital currency.

The transfer of the money to the seller would trigger the automatic transmittal of a specialised coin or digital certificate that represents the title to the buyer, with the title transfer immediately recorded in a block on the blockchain.

• Keep a record of transactions

All agreements via smart contracts are stored in chronological order in the blockchain and can be accessed along with the complete audit trail.

This allows for uniform financial data across organisations, improving financial reporting and reducing auditing costs.

The records at a future date, they also make an auto-release, auto-renew or automatically request collateral. In performing such functions, smart contracts reduce legal and auditing costs.

• Land Title Recording

The facilitation of property transactions will be met with decreased fraudulent activity, improved transaction transparency and efficiency, and strengthened confidence in identity. Additionally, it will speed up land registration, be a simpler process, and provide for an open approach to data.

• Trust

Smart contracts generate absolute confidence in their execution. The transparent, autonomous, and secure nature of the agreement removes any possibility of manipulation, bias, or error.

The advantages of smart contracts that have been innovative in so many industries - automation, predictability and speed - could finally be brought to bear on segments of the legal industry.

Representing contractual terms in code, rather than natural language, could bring clarity and predictability to agreements.

• Legalities in Australia

In Australia, the legal title can only transfer by deed. Legal charges over real estate assets are also typically created by deed.

Some jurisdictions, including England, Wales and Australia, require deeds to be executed by hand on a paper document. Other jurisdictions go further, requiring the in-person involvement of notaries.

Legislative change will be required if blockchain is to eliminate the interference between the real and online worlds.

Still in the small-scale pilot, part of Australian utility businesses have already been investigating blockchain for records management and use it build smart contracts for transaction management.

What it has already done is generated interest from much larger pools of capital, like outcomes-based procurement, where they pay only on verified impact achieved.

Smart contract and real estate crowdfunding

Within a few years, financial markets may be trading fully-digital assets across blockchain networks, with the terms of those trades enforced by code.

Banks, exchanges, and other financial institutions are actively developing blockchain technologies that will enable them to store and trade real assets over blockchain systems.

Real Estate Crowdfunding and Blockchain technology will invent a whole new way to invest and raise capital. As a result, any platform will have the ability to offer Investors from anywhere in the world, investment in real estate assets using cryptocurrency generating profits paid in cryptocurrency like Ether or Bitcoin.

The CrowdfundUP platform wants to make relations in the real estate process fast, transparent, efficient and reliable, via the use of Smart Contract technology, something CrowdfundUP sees as necessary for future industry growth.

The information in this article is general in nature. Any advice it contains is general advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person.
The article content is not intended to be a substitute for professional advice and readers are urged to seek their own appropriate advice before making decisions.
Any reference to a particular investment is not a recommendation to buy, sell or hold the investment.

   May 22. 2018 CrowdfundUP