Background
How the real estate industry hasn't changed in 100 years and how new technologies are beginning to disrupt the transaction process.
The Problem
Until now, there has been no easy way to buy and sell real estate assets in a legally compliant way. In fact there is over 300 trillion dollars of real estate assets worldwide, yet there is no unified global marketplace for them. What if we could reimagine a real estate markets where buying and selling assets were as easy as executing a trade on the stock market? What if exchanging real estate was unified so one could trade different types of properties around the country all on the same platform?
While technologies have come out to advance trading technologies, none of these have been applied to real estate. Real estate transactions suffer from bottlenecks and inefficiencies, primarily stemming from the absence of standards for connecting and exchanging data. These inefficiencies continue on down to the funding layer, where money sits tied up in a property earning little to no return. Thus, an entire asset class exists with no ability to efficiently transact from listing to settlement.
Technology Today
"When you want to buy a piece of real estate, whether it's commercial or retail, wherever the current process is very inefficient, which is most places, a blockchain platform can make it better, faster and cheaper" - Eric Piscini
Until recently, blockchain was known more as the technology powering Bitcoin, which was designed as a peer-to-peer cash system. As blockchain technology advanced, smart contracts were created to enable transactions to be executed based on a set of conditions, meaning third-party requirements could be programmed right into the contract. This feature would allow for real estate operations like the purchase, sale, financing, to be automated, compliant, and execute seamlessly on a blockchain.
While advances in blockchain have led to the development of new cryptocurrencies and technologies, the real estate industry has remained largely untouched by technology. In fact, the process of conveyance (or transfer of ownership from one party to another) remains largely unchanged in the last 50 years.
My Research
My research began in 2018 when I first began to research purchasing a rental property. College seemed like the perfect opportunity to invest in real estate due to the ever increasing pool of renters (which would guarantee stable and secure income) and the ability to turn almost any home into an investment opportunity (as individual rooms could be rented out to roommates). I set out to find a home close to the university and after about a year of looking found one with a strong investment potential. I thought the hard part would be finding a home, but the headache was far from over.
I soon realized that the real work started in the closing process. The home was inspected, it's value was reassigned by the bank, my complete financial history was examined, and somehow this whole process seemed as if it would all crumble unless each deadline was met immediately. At the end of the process, I couldn't even tell you the names of everyone who was "involved" in the transaction. I couldn't wrap my head around why so many people were getting paid from this transaction and what value they actually added. I just knew investing in real estate could be easier.
I saw a flaw in the real estate transaction process. It was paper driven, slow to execute, and involved too many parties to count. I began to see the parallels between this system and the stock market. Income producing real estate, in a way, was a lot like companies that traded on the public markets. They ranged in size, returns, stability, location, age, and many other attributes. Years ago, stock traders flooded the floors of the stock exchanges with phones in hand and sending off paper notes for purchase orders. In real estate we still see that same in-person, slow, paper-driven process with an agent walking a buyer through an investment opportunity, hoping to close a deal.
As time went on, the technology for trading stocks got better, and I mean a lot better. Big banks began to pull brokers away from the stock exchanges as retail investors like you and me began to take more control of the process. Instead of buying and selling stocks through a broker, or even paying for the transaction fee, we are now opening Robinhood and buying anything we want. Instant transactions and no fees to buy and sell. Blockchain aims to completely change how real estate is transacted. It doesn't just make the process more efficient, it turns it into a whole different game.
That's the vision I have to real estate. Real estate will change from a manual, slow process, to an exchange like investment process like we see in the stock market. That's where this paper beings. This paper describes Realium, which is a fractional marketplace for real estate. This paper will go into the details behind blockchain technology and the creation of a real estate marketplace.
Research Questions
How could blockchain technology be implemented to improve real estate transactions? Is the blockchain sophisticated enough to replace the current system? Could a legally compliant marketplace be designed to transact real estate?
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