Goodbye to the property middle man?
Our property industry has many “middle men” businesses that help get deals done and make a profit as a result.
Sometimes their role is very important and they provide a valuable and efficient service, and sometimes they are little more than a tax on doing property business.
These “middle men” businesses are set to be challenged profoundly as Blockchain technologies start to enter the market over the next five to 10 years.
A whole lot of hype is taking place around Blockchain at the moment, in particular how the Blockchain technology behind Bitcoin will revolutionise the way we do business, trust each other, and interact without middle men.
Blockchain is an immature technology, but it is rapidly building a critical mass of IT developers and venture capital investors and starting to impact the mainstream.
Blockchain introduces a business philosophy that challenges our business models and how we work together and deliver value. Some are saying it has the potential to revolutionise business and society as profoundly as the Internet did.
The industries most likely to feel the impact of Blockchain are those that either have monopolistic middle men that make disproportionately high profits for being a “trusted hub”, or those that are disparate and inefficient. Industries that are competitive and efficient such as retailing or logistics are the most secure from Blockchain disruption.
Some parts of the property industry are disparate and inefficient, particularly in how they operate between each other to provide service to consumers. Buyers, sellers, landlords and tenants are confronted with a diverse set of large, medium and small companies that they have to interact with, and often do the work to co-ordinate, simply to achieve a sale or tenancy. From large developers and Internet scale portals, to small conveyancing operations and sole operator building inspectors, interacting with and receiving service from the industry can be a challenge.
Poor co-ordination and lack of efficient communication provides opportunities for new companies to decrease friction and make a profit. 1Form, for example, streamlined the tenant application process and the tedious interaction of tenants with multiple rental agencies, and created a healthy business that has subsequently been bought by realestate.com.au.
Similarly, agency ranking portals have entered the market in force, largely to help sellers select agents, while charging agents a percentage of their commission in the process.
Blockchain as a platform allows for the rapid co-ordination of service providers efficiently through “smart contracts”, standardising interactions and doing what 1Form did for tenancies across many other interactions. We should expect Blockchain solutions to introduce efficiency and competition in how we select agents, how we market properties, how we fund and originate mortgages, how we select property service providers like plumbers, how we pay each other and how we ensure that property title is transferred with payment on settlement.
Early Blockchain implementations include a rental bond lodgement and payment service that removes the need for trust accounts and eliminates the tedious end of month reconciliation for property managers. On a Blockchain the bond payment is held in escrow and a “smart contract” allows for the release of the bond at the end of the tenancy should the landlord and the tenant agree. If they do not agree, the smart contract can manage the mediation process and allow a pre-defined mediator to apportion the bond refund. The smart contract is also used in monthly payments, with each month’s rental payment immediately apportioned by the smart contract first to service providers owed money (such as plumbers), then to the real estate agent for their fees, and finally with the balance paid to the landlord.
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