After a long debate, my wife and I decided we were going to put our house on the market, but I had one condition. The condition was that we would accept cryptocurrency, such as Bitcoin, as a source of payment. My wife was somewhat hesitant at first, largely due to the volatility associated with cryptocurrencies, but ended up agreeing.
Before listing our house, we met with several real estate brokers and mentioned our openness to accepting cryptocurrencies for the sale of our house. Every broker had the same question – why?
Cryptocurrencies, such as Bitcoin, is a form of digital money that is designed to be secure and, in many cases, anonymous. Cryptocurrency relies on the power of the internet to guarantee its value and confirm transactions. Users on a network verify every transaction, and those transactions then become a matter of public record, which is known as the blockchain.
After some careful research and various conversations with real estate brokers, attorneys, and title insurance agents, I came up with the following recommendations for anyone seeking to accept cryptocurrency for a real estate transaction:
- Understand the Risks. Cryptocurrencies are highly volatile and risky. Make sure to work with a real estate attorney that has a solid understanding of how cryptocurrencies work. Any seller accepting cryptocurrency should be very familiar with the token or tokens they are willing to accept and should consider converting some of the tokens received back into fiat (U.S. dollars).
- It’s All About the Contract. One of the most important parts of the process is for the parties involved to agree on a price, type of cryptocurrency to be used, and closing date. This is when the parties will agree on a U.S. dollar (fiat) price as well as the cryptocurrency to be used (i.e. Bitcoin). According to Michael Tobin, a Miami real estate attorney with Tobin & Associates, P.A., it is vital that the purchase and sale contract be drafted by a skilled attorney in order to account for the risks of using cryptocurrency, such as volatility, and the process for transmitting payment. In addition, it is good practice that the contract has some sort of fluctuation limit in place during the closing period, which can be a few weeks.
- Understand the Law. Not every state accepts blockchain data and smart contracts. States such as New York and Arizona do and there is an expectation that more states will follow suit. Therefore, if you are in a state which has not legalized smart contracts, the sales contract will likely need to be reflected in U.S. dollars.
- Not Ready for Blockchain. There are currently some real estate blockchain start-ups currently working on pilot projects for recording deeds using blockchain, but it is not been widely used. As a result, the recording of the deed from a cryptocurrency real estate transaction will generally be required to be done locally through the appropriate county recording office.
- Be Prepared to Use Some Fiat. Most attorneys, real estate agents, and title insurance companies will not accept cryptocurrency. Accordingly, you will likely need to pay these individuals in fiat (U.S. dollars). You could always convert your bitcoin to fiat to pay these fees or just use U.S. dollars.
- Keeping the Transaction Private is Not Always Possible. One of the primary advantages of cryptocurrency is that transactions are secure and anonymous. In general, buyers of real estate who wish to remain anonymous tend to use an entity to make the real estate purchase, such as an LLC. However, under a recent FinCEN anti-money laundering initiative, title insurance companies will be required to report the identity of the natural persons behind shell companies, such as an LLC, who will be using all cash, likely also covering cryptocurrencies, which are over a certain amount (i.e. $3 million for Manhattan), and are in one of the several targeted geographical areas, such as Manhattan, Dade County, FL, Los Angeles County, CA, and several others. The monetary thresholds for each geographic area varies. The FinCEN order is set to run through September 16, 2018, but it has been extended several times before.
Overall the process for purchasing a home using cryptocurrency is not very different than using fiat. Although, this could change if the deed recording process ever moves to the blockcain. However, it is important that the parties involved work with their respective attorneys in order to make sure the sale and purchase contract effectively covers the risks involved and protects them from any cryptocurrency related volatility or transfer issues.