How Blockchain Technology Threatens the Middle Man in Real Estate

Mark Polelle
The automated workforce has been a thing ever since the first digital computer, which was known as ENIAC, came out in 1946. Long assembly lines have slowly been replaced by hefty machines that increase productivity and almost every step of the manufacturing process is now streamlined. Following this trend, it seems that blockchain is moving towards replacing a lot of middlemen from various industries. One of those is the complex world of real estate.

What is blockchain technology?

In the words of an expert on blockchain technology, Mark Polelle, this invention operates in form of a simple ledger that records transactions. What sets it apart, however, is the fact that it is a decentralized system where all the registered users will be able to witness the new blocks of transactions added to the network. Blockchain first gained momentum when Bitcoin started booming a few years ago. In 2017, with the unprecedented rise of cryptocurrencies, experts from various industries started asking questions that pertain to possible usage of blockchain in other fields. It did not take long for many individuals to find potential applicability to healthcare and even military. More importantly, some have noticed that the so-called “real estate middleman” is severely threatened by these developments.

Who is the real estate middleman?

Anyone who ever had to purchase or sell a home may probably be familiar with this concept. Essentially, real estate does not function in a way that allows people to simply gather their capital and purchase or sell a property. With complex paperwork and lot of offers to go through, most individuals hire real estate agents. These relationships tend to be contingency-based as the agent will only get paid after the property is sold. Commonly, their fees range anywhere from 3 to 6 percent of the cumulative selling price. Considering how high the cost of some homes is, that flat fee can turn into a semi-annual payment of an average working family.

Enter Blockchain

Although it is impossible to predict how fast these changes will affect the real estate, blockchain’s ledger of transactions could cut out the middleman and reduce costs significantly. The simple explanation to this can be given in a single word – access. As described in one of the most recent reports by Deloitte, one of the four biggest accounting firms in the world, what allows real estate agents to charge high fees is their input based on historical data. Meaning, they have access to thousands of previous transactions, records of sales in the area, complex algorithms to calculate potential selling prices, and more. With blockchain technology, everyone who is registered to the network would be able to gain this insight as all of the aforementioned information would be available to them. Thus, accessibility would completely undermine the bottom line of real estate agents’ function.

Real Scenario

An easy way to explain this is to describe what is a very common scenario in the real world. Consider, for example, a married couple that is attempting to sell a 3-bedroom house on the outskirts of Houston, Texas. Upon doing some research, they decide to hire a real estate agent that will help them find customers and set a proper selling price. After accepting the engagement, the real estate agent discloses that he will charge them 5 percent of the selling price. A few weeks later, this middleman finds the buyer who will pay $300,000. After agreeing to sell, the married couple now owes the real estate agent $15,000. With blockchain, these sellers could have researched the market on their own. That would have helped them set a selling price based on the same data that the agent utilized. Moreover, blockchain could have made it easy to connect with potential buyers. Final result? They would have saved $15,000 and a lot of time that it takes to hire an agent.

How realistic are these changes?

As noted by Mark Polelle, predicting anything related to such a volatile field is impossible. After all, blockchain technology has only been in the mainstream media for a little over a year. Most of the upcoming changes will be closely related to the way that cryptocurrencies are doing. Meaning, as long as Bitcoin is making headlines, one can expect blockchain technology to closely follow. Furthermore, if there is a sudden downturn that causes all of the crypto companies to go out of business, which is highly unlikely, blockchain technology will equally suffer. Nevertheless, many real estate agents who are stressing over the new technology that may undermine their services are in the right to do so. The only thing that may give them a peace of mind is the fact that, even if everything described here was to happen, these changes will need at least a few years to take effect.