Using Cryptocurrency for Real Estate
The luxury of owning a second home in the beautiful mountains of Summit County is in high demand. Between Breckenridge, Frisco, and the surrounding towns, the continually increasing demand to be close to the outdoors and everything it has to offer is causing the real estate market to flourish.
In a typical strong real estate market in Summit County, the average home ends up selling about 2% short of its list price. To date in 2018, the average home in Summit County has sold at 8% above list price. This 10% increase since 2016 is quite significant and an average sale price of 8% above list price is very uncommon. (See more market trends here)
As technology continues to advance and allow for different ways of purchasing real estate, we have to consider the advantages to buying and selling homes using cryptocurrency, as we anticipate Summit County real estate to be included in the new trend.
It's not just a few listings here and there. According to Bitcoin Real Estate, the trend of buying real estate using Bitcoin is growing more and more and shows no indications of slowing down. Buying real estate with cryptocurrency is where a sizable chunk of the luxury real estate industry is heading, and you don’t want to be left behind.
WHY TO CONSIDER CRYPTOCURRENCY FOR REAL ESTATE
To understand how this could be helpful in real estate transactions, first, we must understand that Bitcoin is a type of cryptocurrency- or digital currency. Cryptocurrency allows transactions to occur person to person, without having to involve the government or any other intermediaries. This is essentially a decentralized system where individuals can control their money, and know what’s going on with complete transparency. Buying cryptocurrency is available to anyone, and anyone can see your previous transactions on the blockchain- an electronic ledger consisting of all individual cryptocurrency transactions.
For real estate, the advantages of blockchain technology can aid in the process of buying or selling a home more efficiently by streamlining the titling process and eliminating the need to shuffle documents to and from the county clerk's office. "Blockchain and cryptocurrencies really have the ability to change every aspect of real estate, from titles, lending, and to the brokerage itself," said Jim Merrion, a Boulder real estate agent.
Bitcoin transactions are irreversible, so once money has been sent it is a done deal. These transactions happen instantly and are confirmed quickly. Accessing someone else’s cryptocurrency is nearly impossible as only the owner of that particular private key can send the money.
So don’t worry, because hacking into a users account is not possible. Bitcoin addresses are said to be more secure than Fort Knox.
Where do real estate agents fit into this mix? Real Estate agents would serve as a neutral third party. If any questions arise they can refer to attorneys, and can also refer buyers and sellers to cryptocurrency experts.
HOW TO ACQUIRE AND USE CRYPTOCURRENCY
To enter the world of Bitcoin and initiate your first cryptocurrency transaction, you can utilize one of the many cryptocurrency exchanges (internet) or Bitcoin ATM’s (brick and mortar), where you can then convert your USD into Bitcoin or other cryptocurrencies. LocalBitcoins is a classified service where a seller can help you to get Bitcoins.
Another way to acquire cryptocurrency is to sell a product or service in exchange for Bitcoins. As I’m sure you’re aware, institutional banks need actual cash and thus regulations require cryptocurrencies to be liquidated before a purchase.
However, if a seller owns the home outright without a mortgage or lien, a peer-to-peer purchase can be made without turning the cryptocurrency coins into cash first. As of today, 1 bitcoin is worth $4400, but because the value of Bitcoin is constantly fluctuating and home prices are listed in USD and not Bitcoin, planning for potential price changes can be key in closing a real estate deal.
Given the dynamic nature of the cryptocurrency market, the buyer and/or seller may want to have plans in place to quickly trade USD for BTC (or vice versa) around closing time. This can eliminate, or at least drastically reduce the risk of fluctuations in the cryptocurrency market causing the buyer or seller to pay or receive a USD value for the home different from what was agreed upon.
Jaime Burke founder of Bitcoin Angels, the World’s largest professional network dedicated to blockchain says, “The reason people want to close so fast is that they don’t want to risk the volatility. It’s the buyer who hopes it doesn’t go up or down.” It really comes down to the question of volatility.
A home’s purchase price is listed in USD, not Bitcoin. If both the buyer and seller agree on the exchange, that price can then be converted in an all-Bitcoin deal. The risk in this is understanding who would potentially get shortchanged in that deal as it depends on the cryptocurrency’s price at the time of closing.
What to know as a seller
Using cryptocurrency raises a lot of questions, so first things first- a seller needs to have some sort of written proof that a buyer actually has the currency they say they do, (think of this as the preliminary step of getting the green light from the bank.) A seller should also look to understand the buyers' history with cryptocurrency to ensure that they know what they are doing.
Although using cryptocurrency in real estate transactions is growing more and more popular, doing your research to make sure the title company your working with will support cryptocurrency transactions is important, not all companies have made this available yet.
What to know as a buyer
Making sure you are comfortable engaging in a cryptocurrency transaction means you’ve done your research, you understand the implications of using cryptocurrency and you can provide your seller with all the appropriate information to prove your ability to fund the transaction.
As a buyer, you want to make sure the seller has experience in using cryptocurrency as well. As stated, once a transaction is made and money is sent, reversing it is impossible. It comes down to making sure you have the right professionals on your side with the expertise necessary to ensure a smooth transaction.
As with anything else, do your research and make sure you are making the right decision for your situation. Oh, and practice! Starting out with smaller exchanges will allow you to educate yourself on the ins and outs of digital currency before jumping into transactions where a mistake could be extremely costly, such as real estate.
Although using Bitcoin in real estate sounds intriguing, it’s not something you should engage in when purchasing your first home. However, since the Summit County housing market is mainly geared towards second and third homeowners, Bitcoin could be advantageous.
Furthermore, you may be able to make a down payment or purchase a house outright with Bitcoin, but you cannot use it to pay the mortgage. If you are unable to purchase real estate outright, using Bitcoin might not be the best route for you.
Cryptocurrency is the newest and hottest way to be able to buy and sell, and using it in real estate is no exception. While there are benefits to using digital currency in the real estate market, it is also very important that buyers and sellers do their research to protect themselves. Cryptocurrency is relatively new to the real estate world and should be treated with caution. Do your homework and understand what you are getting yourself into!
Welcome to the Summit County neighborhood, crypto-enthusiasts. Contact me if you have any questions about using cryptocurrency for the purchase of property in Breckenridge and surrounding areas.