By Mark Barrett and Karen Daily
Sponsored Partner Content by Ekko Title
For most of its ten year history, the digital currency Bitcoin has been
almost exclusively the choice of technology nerds and cybercriminals.
Toward the end of 2017 that changed when a Miami condominium
reportedly sold for 17.7 Bitcoin. It wasn’t the first real estate settlement
to feature the cryptocurrency but sellers in previous transactions
in California, Texas and New York, had converted their Bitcoin into
U.S. dollars during the proceedings. The Miami transaction appears to
be the first real estate transaction to close where cryptocurrency was
actually exchanged between the buyer and seller.
So the question: “Can I buy a house with bitcoin?” has been answered
and the answer is yes – as long as you can find a Seller willing to accept
the digital currency. But there are three significant factors that need to
be considered when handling a Bitcoin transaction.
Before discussing those considerations, let’s address this important
question first: What is Bitcoin? Bitcoin is an unregulated digital currency.
It is completely decentralized, and uses peer-to-peer technology
to facilitate payments. Depending on the size of the transaction,
the payment can be instant or take several minutes. Individuals using
bitcoins to buy or sell must have a public and private key. The public
key is available to the world, while the private key is used to authorize
the Bitcoin transaction.
Here are three considerations that you as a Realtor® need to be aware of
when working with a buyer who wants to purchase property using bitcoins.
1. Overcoming objections from either party to the concept
Since the concept of Bitcoin seems new to most people, there may be
some sellers and listing agents who cannot grasp the concept. They
may think that there is a scam being perpetrated upon them, when in
fact, that is not the case. As a buyer’s agent, you should be fully prepared
to counter these objections at the start. The key factor to keep in
mind is that a Bitcoin transaction in most instances will be treated as a
cash transaction. You should disclose to the other side that your client
will be paying with digital currency. This may mean tweaking the
standard contract to show that payment will be made with bitcoins.
You may also want to add language in the form of either an addendum
or in a specified location (i.e. paragraph 43 on NVAR contract)
to identify the particulars. You should ensure that your client is using
a reputable bitcoin service provider, i.e. Bitfinex, Coinbase, Bitpay, or
some other reputable currency exchange and storage platform. The
reason is that there are other entities who need to be paid in a real
estate settlement – i.e. the existing mortgage company, property tax
authority, Broker commissions, homeowner’s associations, etc. Those
entities do not yet accept payment via Bitcoin. Finally, you should
ensure that your buyer has some means available to provide a proof of
funds letter to satisfy the seller that the buyer has sufficient bitcoins to
purchase the property. For example, www.auraelifestyle.com is a London
bank that will provide a proof of funds letter for a buyer using bitcoins.
2. Understanding that Bitcoin is a volatile currency
Because Bitcoin is not printed, distributed, or controlled by a central
authority, its value fluctuates wildly and that makes it difficult for
parties to agree on a set valuation. For now, those Bitcoin sales seemingly
showing up everywhere are almost certainly Bitcoin converted
into cash used to buy the property. As previously mentioned, other
entities, i.e. government taxing authorities, mortgage companies, brokerages,
and so on, are currently unable to accept bitcoins as a form of
payment. And unfortunately, those entities must be paid at settlement.
A key practice point for a buyer’s agent is to ensure that your buyer is
aware that even if the seller accepts Bitcoin there will be parties to the
transaction who must be paid using a traditional currency including
the existing mortgage holder.
3. Being aware of scams
In part because of it’s beginnings, bitcoins can attract unsavory
characters. If you are a buyer’s agent accepting Bitcoin transactions,
it may be prudent to establish a system that will allow you to verify
the representations made by buyers claiming to have the ability to
purchase property using bitcoins or any other form of cryptocurrency.
In addition, although less likely at this point due to law enforcement
developing a means of identifying suspected criminals via the public
registry or blockchain, there is the possibility of money laundering
issues if you are a sellers agent, it is wise to educate yourself on Bitcoin
transactions and understand the points raised in this article to ensure
you are in a position to represent your client adequately and guide
them through what to expect, and what is currently possible.