How Smart Contracts are used for Real Estate
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Smart contracts are self-executing agreements with the terms of the agreement between buyer and seller being directly written into code.
They are being increasingly used in the real estate sector to streamline the buying-and-selling process and increase efficiency.
Smart contracts can be used in property sales to automate the transfer of ownership, in rental agreements to automate payments and transfers, in property listings to store information on a blockchain for a transparent record, and in escrow services to hold payment until the agreed-upon terms are met.
The use of smart contracts in real estate can reduce the risk of fraud and create a more transparent and efficient process for all parties involved.
To truly understand the significance of the changes that smart contracts are bringing into the world of real estate, it is important to first have a broad understanding of how the non-digital real estate world works.
There are also some issues with implementing smart contracts in real estate that we will explore in this article.
Lastly, we’ll look at other technologies apart from smart contracts that are significantly improving the entire industry.
How the Real Estate Industry Works
The real estate business involves the buying, selling, and renting of properties. Here’s a closer look at some of the key components of the real estate industry:
Property sales refer to the transfer of ownership of a property from the seller to the buyer. This typically involves the negotiation of a purchase price, the drafting of a sales contract, and the transfer of ownership through the exchange of a physical deed. Property sales may also involve real estate agents and brokers who act as intermediaries between buyers and sellers.
Rental and Lease Agreements
Rental and lease agreements refer to the arrangement between a landlord and a tenant in which the tenant rents a property from the landlord for a specified period of time. The agreement will typically include details such as the rent amount, the length of the rental period, and the responsibilities of both the landlord and the tenant.
Escrow services refer to a neutral third party that holds funds or property in trust during a transaction. In the context of real estate, escrow services are often used to hold the buyer’s payment in trust during a property sale. Once the agreed-upon terms of the sale have been met, the escrow service will release the payment to the seller. This helps to ensure that both parties fulfill their obligations and reduces the risk of fraud.
These processes are designed to facilitate the transfer of property ownership, ensure the protection of both buyers’ and sellers’ interests, and provide a secure and transparent system for real estate transactions.
Are Smart Contracts for Property Even Legal?
The legal enforceability of smart contracts varies from jurisdiction to jurisdiction, while the legal status of smart contracts is still evolving. In some countries, smart contracts may be considered enforceable as a matter of contract law, while in others, they may be treated as an unenforceable agreement for property sale.
Regarding the implementation of digital smart contracts for real estate, one way this can be achieved is by using blockchain technology to store and track property ownership information. By using a decentralized database, property ownership can be recorded in a transparent and secure manner, and the transfer of ownership can be automated through the use of smart contracts. In this sense, smart contracts serve as a digital representation of the underlying property rights.
While smart contracts can facilitate the transfer of property rights, they do not necessarily transfer physical ownership of the property itself. In most cases, physical property ownership is still transferred through traditional means, such as the transfer of a physical deed. However, the use of smart contracts can greatly streamline the process and provide a secure, tamper-proof record of the transaction.
Real Estate Companies Using Smart Contracts
So far, we have discussed the theoretical benefits of using smart contracts in real estate. However, these companies are practically applying smart contracts across the industry.
Let’s see what they are doing:
Propy is a real estate platform that uses blockchain technology to simplify the buying and selling of property. The company was founded in 2016 by Natalia Karayaneva and has raised over $2.7 million in funding. Propy’s platform allows buyers and sellers to connect, negotiate terms, and complete transactions online using smart contracts.
Ubitquity was founded in 2015 by Nathan Wosnack and has raised over $22.8 million in funding. What makes their work really interesting is that they use agnostic blockchain technology to provide NFTs via the Interplanetary File System and Filecoin. Their goal is to provide consumers with a unique experience, changing the system with “One Block at a Time”.
Meridio is a real estate platform that uses blockchain technology to simplify the buying and selling of fractional ownership in real estate assets. The company was founded in 2019 by Matt Sullivan, and it allows users to invest in real estate assets with smaller amounts of capital, providing them with exposure to the property market while reducing their overall risk.
These companies are using smart contracts to transform the real estate industry by providing a more safe, more effective, and more transparent way to handle property transactions. By utilizing blockchain technology and smart contracts, these companies are breaking down barriers to entry and providing a more accessible way for individuals to invest in real estate.
Other New Technologies in the Real Estate World
Smart contracts are not the only new thing in the property business today. Technologies like virtual and augmented reality are increasingly being used to provide potential buyers with immersive virtual tours of properties, allowing them to experience them without having to physically visit them. This technology is also being used to create virtual models of proposed building projects, allowing developers to showcase their plans to potential investors and buyers.
3D printing technology is also being used to create prototypes of building components, reducing the time and cost required for prototyping and enabling architects and engineers to test and refine their designs more efficiently. Apart from that, Artificial Intelligence and machine learning technologies are increasingly being utilized in the real estate industry to improve property management, asset management, and marketing strategies. For example, AI algorithms can be used to predict rental demand, helping property managers to make more informed pricing and marketing decisions.
Similarly, the Internet of Things (IoT) is used in the real estate business today to improve building management, provide building owners and managers with real-time data on energy consumption, build systems performance, and predict occupancy patterns. This information can be used to optimize building performance, reduce energy costs, and improve the comfort of building occupants.
The Future of the Real Estate Industry
The future of the real estate industry will likely be shaped by changes in the economy, new advances in technology, and the increasing use of smart contracts. The global economy is constantly evolving, and this will impact the real estate business, with changes in interest rates, inflation, and consumer spending affecting the demand for properties and their prices. Technology, including 3D printing, virtual reality, and Artificial Intelligence, will continue to play an important role in transforming the way properties are designed, marketed, and sold.
Smart contracts will also play a significant role, as they have the potential to greatly improve the efficiency, security, and transparency of real estate transactions by automating the transfer of property ownership, handling the payment process, and providing a secure and transparent record of property ownership on the blockchain. With these new developments, the real estate industry has the potential to become more accessible, efficient, and safe for individuals to invest in.
The Bottom Line
Smart contracts are revolutionizing the way real estate deals are undertaken in the future.
They are already being applied in the real estate industry, and the potential for their use is far-reaching. Smart contracts are a fantastic place to start for companies involved in the real estate business that wish to stay current.
It will not be an overstatement, therefore, to say that smart contracts are the future of real estate, and they are here to stay.
The editorial content of OriginStamp AG does not constitute a recommendation for investment or purchase advice. In principle, an investment can also lead to a total loss. Therefore, please seek advice before making an investment decision.