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Blockchain could speed up homebuying, lower costs once hurdles are cleared
ANYONE who has ever bought or sold a home knows how expensive and drawn out that can be. Now an Ohio county wants to cut the time to transfer a title to hours or even seconds using blockchain. The technology could reduce closing costs that run into thousands of dollars.
Franklin County, the 33rd largest county in the US, plans to move all of its 438,000 parcels onto a digital ledger in the next two to three years, auditor Clarence Mingo said in a phone interview.
Sellers, real-estate agents, title companies, lenders and government will use the technology, expected to be virtually tamper proof, to complete sales faster and cut down on fraud.
Many governments in the US and around the world - including Bermuda, Ukraine, Dubai and India - are exploring or already placing property deeds on blockchain, an effort that could reshape how sales are processed in the global real-estate market, which is expected to reach US$4.26 trillion by 2025. The change will require altering existing laws and may force blockchain startups to foot the bill for the development of new government registries.
Eventually a young couple buying their first home could complete a deal in seconds, by tapping a mobile app.
Lenders, agents, insurers and other parties to real-estate transactions would all be on blockchain to facilitate a deal.
"Transaction costs could come down from thousands of dollars per sale to a modest service fee," Mike Graglia and Christopher Mellon, property rights analysts at the New America think tank in Washington, said in a recent report.
As deeds migrate onto blockchain, title companies and others involved in real-estate transactions could see their roles shrink.
Costly functions like escrow could become automated with so-called smart contracts - bits of software that live on blockchain.
The need to reconcile different real-estate documents should go away, because blockchain keeps a secure, unchangeable record that should reduce discrepancies.
"Title and escrow companies would have meaningful risk from technology developing in this direction, as the need for their services is diminished if not eliminated," Gil Luria, director of research at DA Davidson & Co, said in an email.
Many in the title industry expect this changeover to be slow and don't sound worried. For a sale to close, title companies have to access not only deeds, but other databases that can keep a sale from going through. Those include records of divorces, child support, outstanding utility bills and property taxes, said Marc Shaw, president of title agent World Wide Land Transfer. Getting all of those databases on blockchain could take 15 to 20 years, he said.
"The title insurance industry will become more efficient," Mr Shaw said in a phone interview.
Other countries are moving to blockchain-based deeds faster, often because their land registries are less reliable and there's rampant fraud, or because data are centralised nationally thus easier to change.
In the US, each of more than 3,000 counties maintains deeds separately. "So there are thousands of different entities that need to be migrated," Stephen McKeon, associate professor of finance at the University of Oregon, said in an email.
"It's a big lift," he said, explaining why "we will see these systems deployed in countries that maintain land title at the national level first".
Bitfury Group, for example, has already helped register more than 300,000 titles in the Republic of Georgia on the bitcoin blockchain. "It's an issue that has a dramatic impact on the financial security of people around the world," said John Mercurio, a spokesman for Bitfury.
Startups working with government agencies often have to subsidise the technology's rollout.
SafeChain, which is working with Franklin County on its blockchain project, wasn't charging the county for the initial test, though it will do so for the rollout.
It plans to make money from realtors, title companies and others that access the blockchain registry, said its chief executive fficer Tony Franco.
The exact rates are still being determined, but another startup, Propy, that's recording deeds on blockchain in a test with three counties in Vermont, charges agents 0.2 per cent of the purchase price, and buyers about US$50 to US$200, for example.
"We believe across the entire state within the next four years, we'll be able to execute a 30-second transaction," Mr Franco said. "You'll be able to walk down the street, contact the owner automatically, and buy the house 30 seconds later."
The startup is also working with Washington and other counties in the state.
In September, Franklin County's auditor auctioned off 36 forfeiture properties by transferring the deeds via the Ethereum blockchain.
"The wonderful thing about it is, those deeds that were recorded, they have legal standing," said Mr Mingo, who is up for re-election this November. "Those deeds would stand up in the court of law."
That said, local legislatures usually have to tweak laws to allow for a change in the recording of deeds and property transfers - a process that currently involves papers or microfilm. But these changes are already underway. In May, Vermont enacted a law that mandates a study of blockchain in government records. This year, Arizona enacted a law that eases the way for blockchain-based deeds.
Mr Mingo is now working with Ohio legislators to make any required tweaks to his state's laws - an effort he says is "100 per cent doable". BLOOMBERG