27 Mar End in sight for the property middle-men? – Greg Dickason (C.T.O – Core Logic Int.)
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 ten years.
A whole lot of hype is taking place around Blockchain at the moment, in particular on 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 interoperate 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.
Other early Blockchain implementations use the unchangeable nature of the Blockchain to track title transfers of property. Normally these are done on a private Blockchain where the public has no direct access, but Cook County in Chicago is testing property transfers on the public Bitcoin Blockchain, tracking properties and their ownership as special ‘coins’ that are appropriately tagged. As the Bitcoin network has so many participants it is very secure from being compromised.
A common theme in these implementations, and in implementations in other industries, is the introduction of industry-wide efficiencies in data management, identity management, a universally trusted platform and in the transaction process itself.
The implication for our fragmented property industry is the potential for rapid standardisation of the property development, property marketing, property sales and property management processes. Where 1Form standardised the rental application process we can expect much wider process standardisation in our industry should the blockchain gain traction as expected. The potential in five to ten years of being able to find, fund, acquire, rent and dispose of properties in a single transaction is high. We can expect novel ways of doing business and severe challenges to the middle men of the property industry.
Greg joined RP Data in 2010, when he took over the management of the group’s data product division. One of his early highlights was leading the team that delivered the services behind the popular CommBank Property Guide – an iPhone app that allows people to search property information anywhere and at any time. In addition, he patented the popular RP Data Media Maximiser product with a colleague, which correlates advertising spend to selling success for real estate agents – a first in Australia, and a first in the world.