How blockchain is going to change the way we rent
Renting marketplace is notoriously controversial. It is uneven and fragmented. In a nutshell, it consists of a multitude of niche markets with different rules. The state laws can significantly vary, while different municipalities impose additional regulations and policies. Renting is a fertile ground for fraud, since there is no uniform database and data have to be transferred between different systems.
There is no clear mechanism for determining the property ownership since county registries operate under archaic guidelines. Reporting a delinquent tenant can be burdensome, and only a few big landlords do that on a regular basis. Security deposits is also a significant problem for the industry. It put considerable weight on the tenant, while the money remains frozen on the bank account for the duration of the lease. All those issues can be effectively solved through the implementation of the blockchain-based technologies.
There is an enormous informational asymmetry between real estate agents and regular customers. In certain cities, real estate agencies control the majority of the rental inventory and therefore have the power to set their price. Real estate agents and brokers remain the point of contact between the tenants and landlords. They maintain a monopoly. As a result, they maintain high commissions and fees. The omnipresent middleman is only half of the problem. There is no transparent marketplace, where tenants can negotiate with the landlords. Most of the long-term negotiations happen behind the closed doors via under the table bidding. A potential tenant who applies for the property is not aware how many other parties are interested in this property. This arrangement makes tenants place the highest-possible bid.
It might seem that this situation is beneficial for the landlord, but it is not so obvious. In this crippled market, landlords have a hard time determining the real value of their rental. They inflate the price, and as a result, have extended vacancies and low turnout. Rentberry provides a blockchain-based solution to this degrading asymmetry- a custom offer feature. It allows potential tenants to offer their price for the rental, review how many people applied for this property, and negotiate the terms with the landlord. One might think that this auctioning technology will ultimately increase the prices and harm the tenants. Don’t be tricked by this logical fallacy. The free access to the information can bring this distorted market to equilibrium and make prices reasonable. Though the custom offer feature landlord can access not only the size of the bid but the tenant’s credibility and background. A tenant with a good record and a good credit score can perform on the auction better and get a cheaper rental.
Most of the renting businesses, property management, and small landlords still operate on the paper-based records. Most of the country recorders of the deeds still does not have a digital system to keep track of the files. They rely on the notarized documents and honesty. As a result, even real estate professional get tricked and authorize the deals based on the fake ownership records. It poses a significant threat to the rental industry. Tenants can sign the lease and pay the first installment to a con artist who posed as a real owner. There is no legitimate way to know for sure.
This problem can be solved once and for all with a blockchain-based land registry. The pilot project of such a system is already operating in Sweden. The land registry system includes two encrypted keys. The public key is assigned to the property with a unique identifier stored on the blockchain. The private key is also encrypted and assigned to the owner of the property. Such a system will prohibit any transfers if the two keys do not match and effectively prevent any unauthorized deals. This arrangement is valuable for renting since it would enable tenants to determine the actual owner of the property. Hopefully, this system will soon be implemented in one of the best cities for blockchain startups.
The modern practice of security deposits is the enormous burden for tenants and the headache for landlords. It has to be placed in the bank for the entire duration of the lease, and cannot be utilized in any other way. It is a big win for the banks and the bitter loss for the real estate industry. Security deposit is an enormous under-utilized capacity of the renting sector. Rentberry has a trick down the sleeve to untangle this problem.
Their solution is crowdsourcing the security deposit. The tenant needs to pay only a small one-time feel for the entire duration of the lease, while the interested parties can contribute to the security deposit and collect the interest after the contract ends. It is a win-win situation. A tenant does have to worry about gathering the necessary amount for the security, while the landlord does not have to obsess over paperwork and banking. At the same time money that was previously locked in the bank accounts is unfrozen and can be put to use.