Real estate agents are becoming obsolete
Real estate transaction 2.0
New fintech technologies guarantee maximum flexibility and efficiency for the little things in life. But what about the big things in life like buying a house?
A wide variety of intermediaries are naturally involved in the purchase of real estate with a broker, notary, bank and lawyer. The crucial question, however, is whether someone has to pay in advance, and if so, who. In Austria, this risk - costly and time-consuming - is minimized by a wide variety of legal tools and by a trusteeship secured by insurance and the bar association. In countries like Italy, however, there is a high economic risk for the buyer and the seller, as either the buyer or the seller has to make an advance payment and in these cases there is the risk of a double sale. Despite the transaction process, which is considered to be legally secure and fast, and which is mainly due to the digital Austrian land register, there is room for improvement. The application of blockchain technology promises a cheaper, more efficient and even more secure treatise. This became known through the digital currency Bitcoin and is slowly being used in other areas.
The status quo in Austria
A real estate business in Austria currently runs as follows: Buyer and seller call in a lawyer or notary to draw up the contract and conclude a trust agreement with the contractor. This agreement guarantees that the payment of the purchase price from the escrow account to the seller's account will only be made if all conditions linked to the purchase agreement have been met. A ranking for the intended sale is entered in the land register after the contract has been concluded. On the basis of this, the feasibility of the owner position to be achieved can be determined taking into account the load situation. A trustee therefore applies to the land register to book the property right for the buyer only if the payment requirements associated with the purchase price have been met. In addition, the so-called self-calculation must have been carried out to determine the property transfer tax, registration fee and, in some cases, real estate income tax. The trustee guarantees to the tax office that the fees will be paid accordingly and then confirms the payment of these fees by entering a unique code from the “FinanzOnline” system in the application for accounting of the property right. If the right of ownership is entered correctly, the purchase price is ultimately paid out.
How blockchain is changing the real estate transaction
In distributed ledger technology (DLT, a technique in which transactions are recorded not only in a central register / instance, but in all copies of the register - so-called ledgers - among all parties involved, note) Entries in a database are verified and monitored by all participating parties using their computer systems. In the case of real estate transactions, it can be used in such a way that real estate owners can clearly identify themselves via a digital platform and have their properties displayed there, with the data being authentically taken from the land register . A property can be offered for sale on the platform with a click of the mouse and is therefore visible to all potential buyers. Interested parties can submit a digital offer for the property. Contractual conditions are concluded in so-called smart contracts between the parties and also specified in a data structure . Relevant parties get access to the respective smart contracts and can verify them. After all parties have agreed, a digital contract is drawn up and this event is confirmed by means of a block stamp, which in turn serves as the basis for booking in the land register. In principle, it would be conceivable to carry out transactions without a lawyer or a notary. The broker also becomes obsolete, since each party can offer the property to be sold itself within the network participants. By integrating the digital wallet into the platform, data for the financing of the property can be integrated.
The result is a faster, safer and far more cost-effective process with advantages for all parties involved. This technology makes property acquisition more transparent and efficient. The use of audio elements and other barrier-free technologies also enables visually impaired people easy and independent access to the real estate market. The already digitized Austrian land register offers a promising basis for the real estate transaction 2.0. From a legal point of view, minor changes are necessary in Austria in order to enable the digital acquisition or sale of a property.
A look beyond Austria's borders
In addition to the fact that the register is kept digital in Austria, the title certificates are also stored digitally and can be accessed by anyone. For real estate transactions, this already means that there is a high degree of transparency on the real estate market. Data protection concerns must be avoided because transparency in the real estate sector is preferred.
While the prerequisites for a completely digital real estate transaction in Austria are optimal, the picture in the neighboring countries of Switzerland and Germany is somewhat more differentiated. Switzerland does not have a central land register for the whole of Switzerland; rather, responsibility rests with the cantons. There is not always a single responsible land registry within the cantons; for example, there are several of them in the city of Zurich. In order for a digital real estate transaction to be possible nationwide, the first step would have to be to centralize the land register. The different cantonal legislations could also represent a hurdle in the transition to digital real estate transactions.
In Germany, too, the land registers are not administered centrally, but by the individual federal states. Another issue is that in Germany the land register may only be accessed if a legal interest can be proven.
Sweden is a true pioneer when it comes to the digital real estate business. Together with banks, start-ups and consultants, the Swedish land register set up a project group on the subject of real estate transactions with blockchain back in 2016. A live transaction was carried out last summer.
Especially countries with less mature land register systems could benefit from blockchain technology. In countries in which no entry in the register is absolutely necessary for the acquisition of a property, the acquisition of real estate can be digitized more easily. However, such countries also offer less legal certainty. Even countries in which there is a high level of distrust of land registers due to corruption, the blockchain with its unchangeable registration history offers great potential for increasing transparency. The development in Austria is particularly exciting, because there is an opportunity there to make a system digital in which entries in the land register are also digital. For reasons of acceptance in the population, it can be assumed that a system will prevail in which contracts that are concluded digitally and verified by means of block stamps are digitally certified by a notary and serve as the basis for entry in the land register. In the digital process, consulting services (e.g. from lawyers and brokers) can be purchased.
Contributors: Lena Brunner, Thomas Seeber, Matthias Lichtenthaler
Lena Brunner and Thomas Seeber are co-founders of Realest8 Technologies, a Viennese start-up working on a digital solution for real estate transactions. Thomas Seeber is also a lawyer at Kunz Wallentin Rechtsanwälte and is responsible for real estate and financing.
Matthias Lichtenthaler is Head of Digital Government & Innovation at the Federal Computing Center and works closely with Realest8 Technologies on interfaces and digital wallets.
Opinions expressed by Forbes Contributors are their own.
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