Daniel de la Vega is a Bitcoin believer. But his faith comes with a catch.
As president of One Sotheby’s International Realty, he had seen the potential of the cryptocurrency and others like it to shake up the real estate market.
But de la Vega’s research also gave him pause. Concerns over the currencies’ extreme volatility and vulnerability and the potential lack of transparency among cryptocurrency buyers have so far kept him on the sidelines.
“I’m open to it but I just don’t encourage it,” he said. “I believe it’s still very risky. I would just need to be surrounded by the right professionals.”
As of Tuesday, 1 Bitcoin was worth about $10,000. The cryptocurrency peaked in December at $19,500 and fell to about $9,000 in early January.
For Bitcoin investors, the residential real estate market offers some stability from the whiplash highs and lows. A property’s price gets locked in based on its value in dollars. Someone paying for the property in Bitcoin or other cryptocurrency would pay the amount at a precise date and time.
Bitcoin operates through a series of blocks of code known as blockchain that creates a record of every transaction and every access point. Keyholders, who each have a unique access code, can access a blockchain from virtually anywhere and can share important data with all parties in a transaction. But the system is also vulnerable to hacking, as seen most recently when the Japanese exchange Coincheck reported losing $530 million in cryptocurrency.
In the residential real estate world, though many brokers are excited about its potential, cryptocurrency has yet to enter the mainstream. In South Florida, cash remains king.
In all of Florida, there has been only one known Bitcoin-to-Bitcoin deal, which closed in late December. That was for a $275,000 Miami condo purchased by a Bitcoin entrepreneur.
William Kakon, who launched the international cryptocurrency real estate listing company Blockchain RE with his brother, Nathan, has been involved in three cryptocurrency deals in Florida. None of them was fully completed with cryptocurrency. He has worked on fully cryptocurrency deals abroad, however, using both Bitcoin and Ethereum, which is currently valued at more than $1,000.
To avoid engaging in shady deals, Blockchain RE uses “Anti-Money Laundering” and “Know Your Customer” software, both designed to determine the source of funds that are paying for a property.
“It’s a very, very simple process. A lot of people don’t really understand how it works,” he added.
But for every digital currency evangelist there is a skeptic.
Diego Arnaud, founder and CEO of DA Luxury Realty, said his clients, most of them with a net worth of more than $20 million, aren’t interested in the digital currency world. Volatility isn’t their biggest concern. “There’s a negative perception in cryptocurrency that [buyers] can’t be traced,” he said.
There are also statewide limitations. All three of the Florida deals that Kakon did involving digital coins were ultimately reflected in dollars, out of necessity.
While blockchain contracts are accepted as legal tender in states like New York and Arizona, that’s not yet the case for the Sunshine State. But a bill introduced in the Florida House of Representatives earlier this month could legalize blockchain data and smart contracts. It would validate signatures registered through a blockchain as part of the electronic record, according to the proposed legislation.
But just as difficult as negotiating state law can be getting real estate investors as comfortable with digital currency as they are with the dollar. Digital currency proponents maintain Bitcoin and similar exchanges are simple, fast and effective methods of payment.
The problem is, most consumers don’t know how they work.
Educating the public has been part of the job for Michel Triana, founder and CEO of Intelerit, a Fort Lauderdale-based predictive real estate analytics platform for U.S. investors. The vast majority of sellers still want payment in dollars, he said. For some portions of a deal, that may not change soon, Triana acknowledged.
That includes the title and escrow process, said Marlen Rodriguez, president of the HomePartners Title Services, an affiliate of the Keyes Company real estate firm. Major insurance underwriters only accept dollars, she said.
As long as buyers convert their Bitcoin or Ethereum to cash for the title and escrow process, there would be no problem.
Once the seller converts the digital currency to dollars to pay the title company, “there’s nothing unique about that transaction moving forward,” said Andrew Hinkes, a partner at the law firm Berger Singerman.
In very rare cases, a buyer and seller will agree to skip the title process.
But for de la Vega of One Sotheby’s, those kinds of transactions only reinforce his feeling that now isn’t the right time for cryptocurrency in the real estate world.
“It’s about the gray area,” he said. “I don’t know how these people have gotten Bitcoin, how it has been exchanged.”
Closing a real estate deal using digital currency can be a complicated process. Here are some important points to keep in mind along the way:
Surround yourself with real estate pros who are also fluent in cryptocurrency, particularly attorneys, said Ragnar Lifthrasir, founder of the blockchain real estate startup Velox.RE. Ask those same people if they own any digital coins.
“Anyone in real estate needs to get skin in the game. They need to own the coin themselves,” Lifthrasir said. “Until they’re comfortable using it themselves, they don’t know what they’re talking about.”
Agree on a price
The biggest step in the digital currency process is to agree on a price, then lock in a closing date and time. That’s when the dollar price will be agreed on in cryptocurrency. The purchase and sale agreement should include language about the risk involving cryptocurrency, said Hinkes of Berger Singerman.
Pay the necessary parties in dollars
Some attorneys, real estate agents, title and escrow agents will require you pay them in dollars. For that, you would need to convert your Bitcoin to dollars. Services like Bitpay or Changelly can convert the digital currency to cash.
What about title?
The seller may have liens on the property or an unpaid mortgage. If a seller has $500,000 left on his or her mortgage, they would convert that portion of cryptocurrency into dollars and pay the mortgage. “The title work is exactly the same,” Kakon said. But, he added, “you need somebody who really understands cryptocurrency.” Because most title and escrow companies aren’t set up to accept Bitcoin, “They just might not be sure,” added Lifthrasir.
Recording the deed
In the future, cryptocurrency supporters hope that recording deeds will be done with blockchain. The startup Propy recently launched a pilot program in Vermont to use blockchain technology to record real estate deals. Velox.RE created a similar program in Chicago’s Cook County.
Propy CEO Natalia Karayaneva said the technology could be replicated in South Florida. For now, deeds are recorded with each county’s property appraiser.