The settlement or closing process in traditional real estate is a dynamic operation involving a great deal of time, energy, and attention. The land transfer process stayed the same for decades. However, smart contract Development with Blockchain for real estate offers real change and an efficient alternative to the settlement process.
Real Estate Settlement
The closing of real estate is the transition of a real-estate title from a seller to a buyer according to the selling contract. In the process, the buyer gets the property title and the seller gets the money. There are, however, various settlement prerequisites and expenses that make it more complicated than purchasing something at a supermarket. The sales contract itself accounts for both requirements and costs. Many real estate closings use an escrow agent's services, which acts as a third party that both the buyer and the seller must trust. An escrow manages the activities between a buyer and a seller through an agreement of sale and purchase. However, in typical contexts, this trust is always constrained and can be compromised. The cost of closing the mortgage varies from 3 percent to 6 percent.
Real Estate Settlement | What are the Challenges
Trustless automation with protection has tremendous potential to offer benefits like increased production, improved resource efficiency, and enhanced product and service offering. Most sectors have already reaped the benefits of automation, from e-commerce to electronics manufacturing. Yet the real estate industry has been an exception. Besides, the process of purchasing property is based on three factors, including paperwork (document signing), transfer of payment, and transfer of ownership.
Too many parties currently have to be involved in the property closing process and each of these parties uses their software.
Also, escrow companies help to build trust between traditional real estate transactions, but with a price. Also, they remain vulnerable to human actions (such as error and greed).
To simplify real-estate settlement without using an escrow, one single place is required where a buyer, a seller, agents, and a title company can meet. Therefore, a transaction needs a buyer and a seller to create and guarantee trust.
Also, read | Blockchain Smart Contracts in Real Estate: A Long-Awaited Breakthrough
Can Smart Contracts substitute Escrow from Real-Estate Settlement?
Smart blockchain contracts have emerged as a challenge to the Escrow agencies' life. These are documents that are stored on the blockchain and translated into computer code. Smart contracts immediately execute a contract upon fulfillment of pre-defined terms, without having a middleman, leading to a quick settlement and closing. Once all parties sign the agreement digitally when carrying out their duties, a smart contract immediately releases the deed to the buyer and the money to the seller. Therefore, the escrow fees are practically removed.
It is not just a philosophical theory, though. The cycle of substituting Escrow businesses for smart contracts is well underway. The automation of acquisitions of property by settlement procedures is a fact that many successful cases back.
How it works - An Imaginary Scenario
On the blockchain, we'll record and execute a real estate purchase. For example, Bob buys an apartment in his American home in Manchester, England, while he lives overseas. The property payment will happen with Ethereum's Ether ( ETH) and payable to a smart contract.
Bob signs a purchasing agreement, sends ETH to a particular address and awaits the seller to submit the final signed document with a notary. Then, the smart contract executes the rest of the transaction by giving the respective parties both the ETH and the deed. All this while blockchain records all aspects of the contract permanently. In the future, if any of the contracting parties make a claim, the data on the blockchain would be publicly available to come into use as proper evidence.
There was no escrow in place for the transaction in this case. Surely, finding a seller to agree to accept payment in crypto and process the transaction through a smart contract program can be very challenging. Nonetheless, this hypothetical use case shows to some degree that smart contracts are entirely capable of handling the intermediary position that Escrow companies undertake.
Also, read | Applications of Smart Contracts in Today's Businesses
Can Smart Contracts go Mainstream
Lately, using cryptocurrency has occurred to be the use case for property transactions. However, there are more secure alternatives that might attract more traditional real estate agencies.
The primary issue with executing any cryptocurrency transaction is the volatility issue. Bitcoin, Ethereum, and other top coins can easily change 15 percent in a single day. Many are uncomfortable taking chances on big transactions like real estate purchases. Smart contracts using fiat money are entirely feasible and gain popularity due to the relative fiat stability.
What’s next
Imagine living in a society where purchasing real estate is instantaneous, easy, safe, and digital. Real estate professionals might take on more specialised employment opportunities by reducing resources by substituting computer protocols for laborious operations.
Automation is no longer impossible in the real estate transaction phase. It is a working concept in which companies like Oodles are working and constantly improving. We understand the technology's potential and therefore, create settlement protocols powered by smart contracts that can eventually achieve broad acceptance.
Our smart contract developers play a crucial role in ensuring secure and automated real estate transactions.
