Real Estate at a Crossroads

by Gregory Charlop

  Gregory Charlop: How is that different from PayPal? In other words, if I wanted to buy your car, I might PayPal you the amount of money that we agreed to buy your car. Why would I choose to pay you with Bitcoin rather than PayPal other than if I just had a bunch of Bitcoin and I wanted to use it up?

  Ragnar Lifthrasir: PayPal is still a form of a bank. You still have to have an account with them. They still charge large fees. They will question a large transaction, like if you try to pay for property in PayPal, they probably won’t let you. They're going to flag it and stop it and there will be long delays. So, in terms of friction, cost, and having that intermediary—those reasons. The other thing is, with Bitcoin, it's not just the payment; you can also program that payment. You can do a smart contract in terms of an escrow. You could program the money to only leave after one day or 10 days or 30 days automatically, so you could actually program the money.

  Gregory Charlop: You provided me another perfect segue. What is a smart contract and how might a smart contract be used in real estate?

  Ragnar Lifthrasir: Smart contracts are one of the most over-hyped and misunderstood concepts in blockchain. Blockchain really is just taking code and automating something that was performed manually. Here’s an analogy from Nick Szabo, the father of smart contracts He said a smart contract is like a vending machine. Before vending machines existed, you had a human who would have the food behind the counter. You have to talk to him and pay him the money, then he'd get the thing you wanted and hand it over the counter. A vending machine automates that process. You put a dollar bill in the machine and you get your candy bar. Likewise, a smart contract really just takes code and automates an otherwise manual human process.

  Escrow is the best example of a blockchain smart contract. Normally, when you're' going to buy a property, you deposit money into escrow. That means a human holds that money in a bank that is controlled by other humans. To release that money, you have to talk to the humans and go through all these steps with the humans in physical space. Whereas a smart contract in Bitcoin just means you could automate that process to where, as long as the buyer and the seller agree, the money can automatically be released on a certain day, for example, after a certain time. Or they could actually lock up those funds in an escrow so that neither of them can access those funds unless they both agree to release the funds. The best real estate smart contract really is what's called a multi-signature escrow.

  Gregory Charlop: That sounds like a great idea. Using something like that could, potentially, eliminate a lot of, as you say, friction, and a lot of parties’ involvement in making an escrow contract work.

  Ragnar Lifthrasir: The reason you don't see it yet is because there's still some volatility in Bitcoin, so if you try to do a 30-day escrow, the price of the Bitcoin will fluctuate. Now, for short term escrow, it's fine, but that is one issue. Another good use, for example, is for a security deposit, like a lease, because a big problem right now is that landlords often take the security deposit and don't give it back or give a portion of it back. That’s against the law, but they are able to do that because it takes a tenant taking them to court to get their money back. The tenant could say, "Okay, let's put my security deposit in a Bitcoin smart contract that will automatically release in 12 months, or let's put it in a smart contract where the money will only be released if both of us agree to it. And if we both don't agree, let's have it decided by an arbitrator who has one of the private keys.” That would really cut down on all of these small claims court cases of security deposits, for example.

  Now, you still have the volatility of Bitcoin, but if you look at the amount of money that most people lose in these things, I think that risk would be worth it for a lot of people, especially if you could hedge that with something.

  Gregory Charlop: Earlier, you mentioned land title and owning land title via the blockchain. What does that mean?

  Ragnar Lifthrasir: Title is all the rights to something. You take all the title information, the address, the owner, the legal description, anything like that, and you take a digest of that (called a hash) and then you put it on a blockchain token, like a portion of a Bitcoin, for example. And you say, "This token is the paper deed, and if I want to transfer ownership, I send you this blockchain token just like I could send you a Bitcoin, I could send you this blockchain deed using pretty much the same software."

  I Imagine: instead of writing your deed on paper, you print it on a dollar bill. You could do that. It's probably illegal but you could do it in terms of technology. Take it a step further. I instead of printing your deed on paper, instead of printing it on a dollar bill, you print it on a Bitcoin. That's what we mean by blockchain title. That's the first part.

  When we say real estate on the blockchain, first what we mean is a deed token that transfers ownership. The second aspect is the chain of title, so when someone transfers that blockchain token, the deed gets recorded on the blockchain. Every blockchain transaction is on the blockchain. Every time someone sends a Bitcoin, it's recorded on the blockchain. That's what the ledger is. So if you have this blockchain token that represents title, and it transfers from person A to B to C to D to E, four transfers, each of those transfers is going to be recorded on the blockchain. The chain of title, therefore, is on the blockchain as it went from person A, B, C to D.

  Gregory Charlop: If you use the three components of blockchain—the title, the currency aspect with something like Bitcoin and the smart contract—it sounds like you could really roll up a whole real estate transaction entirely through blockchain.

  Ragnar Lifthrasir: Exactly. You're putting the pieces together. Where this really is exciting and where I see this going ultimately is blockchain can be a comprehensive platform for the currency, for the escrow, for the title, for the chain of title, for some of the contract stuff. It can all be done on the blockchain, and that's when you cut down the friction, you cut down the cost, you cut down the middlemen, because it's all the same thing.

  Gregory Charlop: If and when that ever happens, that would be a radical change from our current system.

  Ragnar Lifthrasir: Yes, and that's why I think once we can put those pieces together, that's when you'll get the hockey stick adoption. Progress happens by entrepreneurs, and so there are different entrepreneurs working on different aspects of the problem. There are entrepreneurs who are working on the currency, there are entrepreneurs working on title. It takes time for these different companies, these different investors, to build all those pieces up to where you could say, "We had these two, three, four, five companies that each have built this piece. Now let's all link them together," so it’s similar to the internet. First you had to digitize everything, but you needed email, you needed a website, you need a computer. Once all those things came together, everything is digital.

  Gregory Charlop: As you know, real estate is a very heavily regulated industry by the government. The government stores title. You have to have everything recorded with the government. The government has very powerful regulations about real estate contracts, and they regulate real estate agents. They really keep the real estate industry and the process of changing title under its thumb. How would a blockchain real estate transaction or a component of the blockchain real estate transaction jive with the strong government involvement with real estate? Would the title functions that the government now serves be replaced by blockchain or would it be folded into the government? How would the government and regulations interplay with all of this?

  Ragnar Lifthrasir: There are two variables here. It depends on which application of blockchain you're talking about, be it currency or escrow or title or something else. So first by application and second by the specific government or agency. For example, we could take each of those. Currency: there's nothing restricting anyone from using Bitcoin right now to buy, sell real estate, lease anything. There's nothing stopping people from doing that. You can use gold, euros, dollars, anything of value to trade for assets, so there's no government p
roblems there. You just have to comply with the existing laws. You can't commit fraud, things like that. If you go to escrow, again, nothing prohibits people from doing a smart contract. In terms of title, that's usually where people ask this question because the government is involved in title, and this is where you have to distinguish between conveyance of title and a recording of title.

  In the US we're on the deed system, so those are two separate steps. When you convey title, the government does not get involved. That's between the buyer and the seller—the transferor and transferee—and as long as they follow the requirements for what a deed is, address, owner, consideration, those sorts of things, then there's not any law prohibiting people from conveying their property with blockchain. They just fulfil the requirements for what a deed is. Now, in terms of recording, that's where the government gets involved. In most places, recording is not required, but people do it for many good reasons. In that case, we're not going to replace the government for that function, but you can still record a blockchain transaction and take it down to the government office to record it. Consequently, you could have a parallel title system for convenience sake that's on the blockchain that everyone uses to look up, but if it ever goes to court, people will refer to what they recorded down at the county courthouse.

  I just talked about the applications. It also depends on the country, because most countries outside the U.S. are not on the deed system, they're on the title system. So in those countries and most of Europe, the buyers and sellers don't convey property between themselves, they go down to the government land records and say, "Government employee, I am buying this property from so and so. Please change the record to reflect that change," so that's different. In that case, again, the government does get involved, so when you're talking about blockchain and government regulations, you have to distinguish applications. Is it money? Is it escrow? Is it title? Is it smart contract? And you have to consider which country you're in.

  Gregory Charlop: Alright, very good. How would someone who’s interested in blockchain learn more about it? What sources would you recommend—books, websites, blogs or online courses?

  Ragnar Lifthrasir: I would go to the International Blockchain Real Estate Association (IBREA). There we have a library of articles, we have events and we do webinars, etc. IBREA is the leading and only organization dedicated just to blockchain real estate education So that would be the first place to start.

  Gregory Charlop: Very good. Since you're obviously very savvy about new technology, other than blockchain, are there some other interesting technologies you see on the horizon that may dramatically affect real estate or that real estate agents may want to start looking out for now?

  Ragnar Lifthrasir: Yes. It's complimentary to blockchain and it's an important missing piece of blockchain -- distributed file storage. Instead of having data on a single server or even a cluster of servers owned by the same company, like Amazon or Dropbox, distributed file storage distributes files on independent nodes that are redundant. This will become very important with blockchain because blockchain isn't a database, it's a ledger, so blockchains don't store a lot of information, they just store transactions, basically, and some code. Since they're not great at storing large amounts of data, for blockchain to really be useful in real estate, which has so much data, you're going to rely on distributed file storage. So that would be the other technology people need to start looking into. Best example of that is something called IPFS or interplanetary file system.

  Chapter 6: Philanthropy and Real Estate

  Help your community (and your bank account)

  There’s one thing that will distinguish you from your competition more effectively than any Facebook advertisement or fancy logo. And at the same time, win the loyalty and admiration of your prospects, partners, clients, and colleagues. What is it?

  Social responsibility.

  Here’s a simple truth: people want something they can rally behind. We all want to feel good about what we’re doing. Our purpose must be greater than just making money and closing deals. We all have a yearning for meaning—a thirst for a higher cause.

  Here’s how to achieve it.

  Have a mission. Work for your community. Dedicate yourself to improving society. Care about something larger than yourself and build that into the fabric of your business. When your goal is more than just your bottom line, your good deeds will magically boost your community, self-esteem, and bank account.

  As Simon Sinek illustrated in his classic book Start With Why, people don’t buy what you do, they buy why you do it. Statistics, graphs, and glossy brochures will not create passion or loyalty. Caring about your community will. Your prospects, clients, and colleagues will see the why behind the what. They’ll see the dedication behind the deeds. And, they will respond!

  For example, imagine that you’re a real estate agent in Austin. Like all other agents, you work hard, hustle for business, and give your best to your clients. You do the usual internet marketing, social events, and occasional speeches. You’re good at what you do and you genuinely love real estate.

  But, unlike other agents, you’re actively involved in your local Habitat for Humanity chapter. You don’t just spend a day there over the holidays. You are actively involved. When you’re not buying and selling homes, you’re helping to build homes for the disadvantaged.

  In fact, you’re so committed to the cause, you regularly promote Habitat to your peers, employees, your kid’s teachers, your hairstylist, your accountant, and your dentist. You mention Habitat to anyone who will listen. You’re a true-believer.

  Every other month, you organize volunteer days for Habitat. You round up past clients and your entire social network for a cause. Last month, you traveled to the homes of cash-strapped seniors to help out with painting and minor repairs. You and your volunteers improved the lives of those elderly homeowners. You did the chores necessary to help seniors stay in their homes - chores they couldn’t do themselves. You and your network made a difference.

  When you come home in the evening and reflect on your day, you feel good. You know that your day had purpose.

  The next day at work, your secretary is excited about yesterday’s volunteer day, and she can’t wait for the next one. Your dedication inspired her and her husband to join Habitat as volunteers and they’ll help organize the next event.

  You never mention your volunteer work in your advertisements. But everyone knows.

  The community respects you and your good deeds. The next time someone in your town is looking to buy or sell a home, who do you think they’ll choose as their real estate agent? You.

  Most importantly, you’ll have the satisfaction of a life with purpose.

  Leading social entrepreneur David Ament had this to say about the right way to run a business: “It's beyond being profit-focused at all costs and, instead, creating true wealth and true riches in your lifestyle. You get up in the morning, and it's not just, ‘let's make another buck.’ It's a matter of, ‘let's change some lives.’ How can we make some money and change lives? The more money we make, the more money we get to put back into our social cause—something that we care about.” Click here to go to the full interview with David Ament.

  This generation cares

  The demographics of real estate customers are changing. Millennials already represent the largest share of homebuyers, and their numbers will keep growing. It is estimated that by 2025, Millennials will represent 75 percent of the American workforce![58] If you want to crush it in the real estate market, you must appeal to this demographic.[59]

  It is certainly true that folks from all generations care deeply about society and community. However, Millennials merge social causes and economic/buying decisions more than previous generations. Consider these findings from the 2015 Cone Communications Millennial CSR Study:[60]

  ● 87 percent are more willing to purchase a product with social or environmental benefit.

  ● 82 percent will talk to fam
ily and friends about corporate social responsibility.

  ● 62 percent will take a pay cut to work for a company they consider socially responsible.

  ● 70 percent are willing to pay more for a product they consider socially responsible.

  If that isn’t enough, here are a few more eye-popping stats:

  ● 81 percent of Millennials expect their favorite companies to publicly commit to good corporate citizenship.[61]

  ● Millennials want companies to involve customers in their good works.[62] That means you!

  The simple truth is that Millennials (and most people) want to feel like they’re doing some good for the world. They want to help the planet and the less fortunate. So they are increasingly willing to put their money where their ideals are.

  TOMS Shoes is a classic example of corporate responsibility winning over the hearts (and wallets) of their customers. Their founder, Blake Mycoskie, noticed on a trip to Argentina that many children had no shoes. So, he founded a company that donated a free pair of shoes for each pair purchased. So far, TOMS has given away more than 10 million pairs of shoes![63] They started from scratch to become a major player in the shoe market—and they’ve helped many people along the way.

  Look around. Today’s corporate landscape is teeming with examples of companies founded around a social cause. Whole Foods and Warby Parker are two retail giants with social good baked into their DNA.[64] In a world littered with clone companies, these businesses stand out. Their dedication to social causes benefits their reputation, sales, and employee loyalty. They’re doing good for the world AND their bottom lines. They don’t have to compete by price and features. They can name their own price because their loyal customers believe in their mission. Would Whole Foods customers switch to Walmart if they knew that Walmart’s apples cost 20 percent less? Not a chance!