The current state of buying and selling real estate is broken. Deals can take months to close, you’re forced to work with multiple third parties, and it can often costs you tens of thousands in fees. On top of that, many counties in the US require you to sign over the deed of the house in person. In person! In a world where you can buy a Tesla on your phone in minutes, why is the real estate industry still operating as if it’s stuck in the ‘90s.
Let’s break down what the average person’s experience looks like today when selling a home.
Typically, a seller works with a real estate agent to put their home up for sale via a for sale sign and/or a third party real estate marketplace. Potential buyers who are interested in the home, then reach out to the seller and put up an offer close to the original asking price. Negotiations between the buyer and seller can take weeks as offers and counter offers are made via their agent. The seller then chooses which offer they’d like to accept. After a buyer is selected, a contract is enacted stating that the buyer has ~30 days of exclusivity to do their due diligence on the home. This includes working with third parties to complete the following: a home inspection, a home appraisal, title review, property survey, reviewing seller disclosures etc. If any issues are flagged with the home, the seller either fixes them or the buyer can walk away and the seller has to start that process all over again. If that isn’t enough, most homes are bought with funds borrowed from the bank. If the bank’s appraisal on the home comes back lower than the buyer hoped for, the buyer may not have enough funds to buy the home they agreed to purchase. In that case, even after a month of due diligence, the deal can still fall through!
The iBuyer Revelation
iBuying solutions were one of the first that tried shaking up the status quo. Companies like Opendoor, Offerpad and Zillow (RIP), paved the way forward for what the ideal home buying and selling experience could look like without having to wait months to sell your property or being forced to work with multiple 3rd parties to conduct different levels of due diligence on your behalf. While these companies were successful in cutting the number of days in the home transaction process from months to days, these companies take on a tremendous amount of risk. iBuyers, at their most fundamental level, are just home flippers and that carries risk. They make money from buying your home today (at a reduced price, which you are happy to pay because of the speed at which you can sell your home) and either fix up your place or immediately put it up for sale with the hope of reselling the house at a higher price.
This model can prove to be successful if you run lean operations and value homes accurately. But, we’ve also seen that it can also backfire tremendously if the company begins to overpay for the homes (Zillow 👀). In general, as iBuyers do more deal flow, they get improved data on home prices which allows them to make more educated, accurate offers on your home — further cementing the probability of their success. As a homeowner, you assume that iBuyers are pricing your home accurately, and you’ll often accept the “fair market” offer they give for your house. What’s scary about iBuyer’s success over time is that the model threatens to take away price and information transparency from homeowners. These platforms keep all this home data to themselves and are incentivized to do so since they’ll be able to best dictate home prices and offers. Unfortunately for homeowners, there’s no public database where you can check to see how historical real estate prices have trended in your area. Even Zillow, the marketplace you’d first think of to have this data, removes historical sales data on homes after a certain period of time has passed and will send you a cease and desist order if you try to scrape that information yourself off their website.
With real estate being one of the most decentralized ecosystems in the world, it doesn’t make sense to allow institutional players or iBuyers to become gatekeepers to what should be public information. Real estate is an industry that has been plagued by price and information asymmetry since the dawn of time. This gap in knowledge allows certain players like private equity firms, iBuyers, and large institutions to be better positioned and have more leverage than your average homeowner. We shouldn’t allow institutions to continue widening that gap and profiting off of it for themselves. Everyone should have equal access to information on a home including: historical sales price, previous inspection reports, title liens on the property etc.
The Digital Future of Real Estate
Blockchain technology aims to bring the next wave of real estate innovation that will allow for homes to be sold entirely online, with transactions verifiable via public ledger. Real estate transactions done via the blockchain allow for true price and information transparency, as home transactions can be done entirely online via smart contracts and verifiable directly on-chain. You can’t send a cease or desist letter for data that’s on-chain and available for everyone to see. One of the most popular use cases being built on top of blockchain technology right now are non-fungible tokens (NFTs).
Why is real estate ownership represented via NFTs the future? Unlike with most physical assets, real estate transactions don’t require any physical interaction with the property, only the records around it. When you buy or rent/lease a home, condo, apartment, office or land or pay your taxes, you don’t physically move or do anything with the property as you would with your car or a collectible. The fact that real estate transactions for the most part only involve changing of records and not transfer of the physical asset itself makes them a natural fit for NFTs. Keep in mind NFTs don’t replace everything currently required for real estate transactions (e.g. taxes, deed transfers, etc.) but it offers a way to skip many of the steps that made the whole process difficult in the past. We’re not far off from a world in which an online decentralized exchange can exist that allows people to buy, sell and own fractional shares in their home.
Imagine having the ability to browse homes similar to what you already do on Zillow; but, instead of being forced to reach out to a real estate agent and take the experience offline, you could buy fractional shares of your favorite home completely online using your crypto wallet. If you want to see additional details of the home, you’d be able to look through the latest inspection reports, appraisals, title inspection report, completely online, on-chain, without needing to reach out to a third party to do that on your behalf. That’s the experience we’re building at Homebase. We believe that people should be able to buy and sell real estate entirely online, with ownership represented via NFTs.
For too long the real estate industry has thrived on siloing information, kept the barriers of entry high and transacting as if it’s stuck in the ’90s. Homebase is trying to change that model and redefine how communities buy, sell and own real estate.
Domingo, Homebase Co-founder
