Blockchain is delivering sustainable solutions to the tough challenges in the real estate industry through smart contracts, digital identity, and other innovations. In this blog, we will discuss how Blockchain is streamlining the complex, multi-layered process of commercial real estate transaction management.
Blockchain in Commercial real estate transaction management: Top use cases
The commercial real estate transaction process is lengthy and complex due to multiple middlemen and endless paperwork.
However, Blockchain can optimize commercial real estate transaction management by digitalizing various steps of the transaction process.
Hence, with blockchain, commercial real estate transaction management becomes faster, secure, accurate, transparent, and low-cost.
Let’s look at the various use cases of blockchain in commercial real estate transaction management.
1. Due Diligence
Due diligence in commercial property transactions verifies a property’s history of ownership, maintenance, cash flow, occupancy, etc.
However, this is a manual process that depends on multiple third-party service providers.
But, Blockchain makes commercial real estate investing pipeline management easier. It stores the digital identity of a property and its current and historical record.
It digitalizes the physical, financial, and legal records of the property in the blockchain ledger. And, it also securely stores the entire verification process and distributes it on a single platform.
Besides, each stakeholder can use smart contracts to sign, verify, and share official documents with their unique digital identity.
Thus, all the parties can access and view these documents which make commercial real estate investment management transparent.
Further, Blockchain-based digital identities also confirm the financial and legal status of the property, tenant profile, occupancy/vacancy, etc.
And, every participant in the network can access and validate the record, including the financial advisors. Therefore, it removes the need for third-party intermediaries, speeding up the process.
2. Property Management
Blockchain-based smart contracts automate commercial property management.
The distributed ledger transforms physical lease contracts into digital smart tenancy contracts.
So, smart contracts optimize the entire flow of property management ranging from lease agreement signing, payment automation to maintenance clauses.
Moreover, the digital protocols of the smart contracts bind the stakeholders to close deals according to their terms.
Also, the parties sign mutual agreements regarding rent collection, mortgage, maintenance, etc. Based on the bonds, the smart contract automatically triggers lease payments.
When the lease is terminated, the contract adjusts damage repair charges (if any). And, it pays back the security deposit to the tenant.
Thus, such legally binding contracts simplify commercial property management and restore instant payment flows.
3. Payment Processing
For loan applications and mortgages, blockchain-based digital identities speed up due diligence and financial verification.
So, this quickens the mortgage and loan approval time.
Further, smart contracts are the immutable and secure database of every transaction record. Here, the buyer could trace audit trails and mortgage payments in real-time.
Blockchain also provides a common, shared network where cross-border transactions can take place without any foreign intermediary.
The common distributed ledger shares various information such as sender and receiver details, foreign exchange rates, delivery time, etc.
And, every participating node can access this information.
As a result, faster processing and fund transfer can occur without any settlement risk and/or fraud.
4. Property Title Management
Land title records in the commercial real estate industry are still paper-based. And, any error also causes title fraud and stops the property title transfer.
As a result, property owners have to pay huge fees to verify the genuineness of the documents.
Buyers, on the other hand, require title insurance while buying a property which increases the property purchase cost.
According to the American Land Title Association, nearly all real estate transactions contain at least one title error.
Further, Ibid reports that in 25 percent of transactions, title professionals charge high fees to fix title defects.
Also, Kyle Torpey, a seasoned bitcoin journalist estimates that nearly $1 billion is spent annually to fix title fraud.
Therefore, Blockchain-based digital identities store property title details, which are immutable without a consensus among the participants.
Besides, the tamper-proof and encrypted nature of the blockchain network further reduces the risk of any fraud.
As a result, a commercial real estate deal pipeline can work without any third-party and additional charges for property title transfer.
The Lilypads Bottomline (105)
Blockchain is making commercial real estate deal management more efficient
Blockchain is rapidly transforming commercial real estate deal management with various innovations.
Especially after COVID-19, the commercial real estate industry is adopting Blockchain technology to continue being a profitable industry. Therefore, the active usage of Smart Contracts, Digital Identities, and other aspects of Blockchain will truly help in making commercial real estate deal management more transparent and dynamic.