It’s bought and sold in a similar manner to stocks on the stock market, and offers a new way to purchase real estate. The cryptocurrency was at first a currency for the fringe — used by those that wanted to bypass the pitfalls of traditional payment solutions, wanted to make a bet on the future of fintech, or wanted to make a statement against the fiat system, which was then embroiled in the aftermath of 2008’s Great Recession. Now, Bitcoin has entered the mainstream, frequenting the headlines of mainstream media outlets and becoming a part of the world’s vernacular.
There are lots of developments that occur in the cryptocurrency ecosystem. It’s therefore not surprising that the cryptocurrencies would find their way into one of the most lucrative markets in the world: real estate. Cryptocurrency is becoming a more widely accepted means of payment. It is now becoming possible to buy and sell with the digital currencies. However, governments around the world continue to view cryptocurrencies as property and not as currencies. The most prevalent form of cryptocurrency is Bitcoin. Bitcoin is also the term for the distributed ledger which records the Bitcoin token transactions. Bitcoin was the first blockchain in existence. Here are some FAQs to help educate yourself and your clients:
Cryptocurrency can be easily converted to US dollars by means of a global cryptocurrency payment service provider. It’s an app that allows cryptocurrency users to convert funds and send the funds directly to their bank as US dollars or to pay others in a similar way to PayPal.
When you have one party wanting to purchase a property with cryptocurrency, the funds will first need to be converted into US dollars. Once the funds are converted, the transaction can proceed as it traditionally does today.
This is still a rare occurrence. To date, only a handful of real estate transactions have taken place with only Bitcoin in the United States. If you have two people using cryptocurrency in a real estate transaction, you need their agreement that the method of payment is cryptocurrency. The transfer of funds can take as little as ten minutes via an app. Commissions to real estate agents would be paid either via cryptocurrency (if the agent also has cryptocurrency and wants to be paid in this way) or by converting the funds to dollars and proceeding with traditional payment methods.
If the funds have first been converted from cryptocurrency to dollars, the process is handled the same as it is today. When both the buyer and seller are using cryptocurrency, the title exchange is possible through blockchain technology. Escrow, however, can present challenges requiring setup with a payment processor to convert funds to dollars. Regulations for this process are not well established at the present time. Traditional documenting of all agreements, communication and elements of the transaction are essential for a real estate agent to protect yourself in the event of a real estate lawsuit.
Right now, mortgage lenders are not part of the cryptocurrency market. If buyers want or need a mortgage to purchase a property, they’ll need to convert their money to dollars and follow current practices in securing financing from a lender.
Cryptocurrency transactions are not reversible. The transaction can be processed within minutes and once it’s done, the sender cannot pull or retract the funds. Additionally, the cryptocurrency market is highly volatile, meaning that the value of a coin can fluctuate wildly. There is a possibility these fluctuations may cause dramatic changes in value, particularly at the point of conversion where one party needs to convert cryptocurrency to dollars. Buyer’s agents should ensure your clients understand the risks, because it’s possible that buyers may need to pay more at settlement. Likewise, seller’s agents need to inform their clients that the reverse could occur, sellers could end up with less money than they agreed to, due to fluctuations in the cryptocurrency market.
Since blockchain and cryptocurrency are in the early stages for the real estate market, it can’t cater for the complexities of mortgages or tax payoffs. And, both parties still need to pay transfer taxes, recordation costs, and title insurance with real dollars. As an agent, you need to know how to document these details in the written offer and sales documentation to ensure there are no misunderstandings. You want to avoid an unhappy buyer who disputes additional fees not outlined clearly in the contract.
While we are likely several years away from the widespread utilization of blockchain technology, real estate agents need to stay abreast of how it will eventually be used to list properties, transact payments, and transact documents and property deeds.
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