Understanding Digital Currency and Closing Deals with Cryptocurrency
Mary Prenon | March 21, 2022
Amy Chorew, a Connecticut Realtor and President of Curated Learning, first heard about cryptocurrency back in 2017 while having her hair styled. “My hairdresser was talking about buying a condo and cashing out $50,000 in cryptocurrency as part of the down payment. All I could say at that time was ‘what’s that?’” she admitted.
Fast forward five years and now cryptocurrency is slowly inching into real estate transactions, with some potential homebuyers using virtual currencies like Bitcoin and Ethereum to purchase the home of their dreams or even commercial buildings.
Chorew recently presented “Cryptocurrency, the Future of Real Estate” at one of HGAR’s first live events for the Empire Chapter of the Women’s Council of Realtors. The March 15th presentation drew almost 100 Realtors to HGAR’s White Plains headquarters.
Cryptocurrency is described by Wikipedia as a digital type of currency designed to work as a medium of exchange through a computer network and secured by encryption methods.
A cryptocurrency is a tradable digital asset or digital form of money, built on blockchain technology, that exists only online. There are currently more than a thousand different cryptocurrencies in the world, and Bitcoin, first released in 2009, is one of the most popular.
Cryptocurrency does not exist in physical form like paper money or coins, is unregulated and currently not issued by a central authority like a bank. However, President Biden’s recently signed executive order is calling on government agencies to study cryptocurrencies and develop a government-wide approach to regulating digital assets to protect consumers.
So how do you purchase cryptocurrency? Chorew explains that getting started requires a credit card or direct deposit purchase to set up your “crypto wallet” that will hold all your digital currency. “The amount of crypto can fluctuate like the stock market, but there are also stable crypto coins that are redeemable on a one-to-one basis for the U.S. dollar,” she said.
While Bitcoin is the most well-known, Chorew notes that many real estate transactions are done with Ethereum, another digital currency.
Chorew compares the cryptocurrency craze with people’s initial reactions to social media almost 20 years ago. “I remember it was 2004 and I was almost laughed out of the room at a conference when I started talking about the impact of social media on real estate transactions,” Chorew revealed. “It was just like predicting how the Internet would replace the old real estate listing books. The important thing is that even with the use cryptocurrency now, the real estate agent is still a vital part of the transaction.”
So, what’s the advantage of using cryptocurrency for real estate transactions? According to Chorew, there’s a lot less fraud because of the stability of the blockchain technology—a system of recording data that makes it almost impossible to change or hack. “It’s also easier to do business using cryptocurrency and blockchains,” explained Chorew. “Because everything is decentralized, the individual serves as the bank. For global transactions, it’s borderless, making international real estate deals faster and safe.”
While cryptocurrency may fluctuate, Chorew notes, it doesn’t affect the value of a property. The most common way to buy a home with cryptocurrency is to convert it into U.S. dollars at an agreed exchange rate, or in some cases, home sellers will accept the crypto exchange.
David Conroy, Director of Emerging Technology for the National Association of Realtors, has been involved with this emerging technology since 2013. “In most cases, a real estate deal involving cryptocurrency will use a third party, such as BitPay, where the buyer can exchange the crypto for cash,” he explained. “Buyers can then use that as a down payment, or as an entire cash payment. In some cases, the home seller may even accept a cryptocurrency payment in lieu of cash.”
In addition to purchases, accepting rent, escrow, or down payments in cryptocurrency could reduce settlement time to seconds instead of days, eliminate the needs for wires, while only costing pennies in transaction fees even with international buyers, Conroy added.
The blockchain technology on which cryptocurrency exists can also serve as the single source of truth for a property or a transaction. “Imagine a verifiable record of a property’s past ownership. This could enable the parties to a deal, who generally don’t know each other, to trust that the seller has true ownership of that property and see without any question that there are not any claims against it,” he explained.
Conroy noted that most of the domestic crypto transactions are currently concentrated among very high-end residential properties in California’s Silicon Valley and Miami. “Right now, we’re not seeing this used in a lot of commercial real estate purchases, but that of course could change in the future,” he added.
In the meantime, NAR is preparing to launch a Presidential Advisory Group to research the impact of cryptocurrency on the real estate industry. “Despite the number of opportunities, it will likely still be years before we see blockchain enter the organized real estate industry here in the U.S.,” Conroy surmised. “The technology is still gaining maturity.”
Chorew agrees but remains optimistic about its future use in real estate. “We’re still in the wild west with cryptocurrency right now,” she acknowledged. “However, trends do tend to become standards, and I believe in the very near future we’ll begin to see cryptocurrencies in real estate transactions becoming part of the norm, instead of something new.”