Just a few years ago, nearly everyone saw bitcoin as a niche or a pipe dream. Now, it’s gained recognition as a legitimate currency in many circles — more than 100,000 merchants across the globe accept bitcoin as payment today, and that number is snowballing.
You can buy a home — typically the largest purchase most consumers ever make — and other types of real estate with bitcoin. Here’s how Realtors can facilitate such a transaction.
History of bitcoin and real estate
Reports of real estate transactions using bitcoin go back to 2014. In March of that year, an unidentified buyer purchased a home in Bali for 800 bitcoins, which equaled around $500,000 at the time. (Today, 800 bitcoins equates to $5,092,756.)
Someone bought a house using bitcoin in the suburbs of Kansas City, Missouri, a few months later.
One of the largest bitcoin-based real estate transactions occurred in August 2014. A buyer bought a tract of land for 2,739 bitcoins, the equivalent of $1.6 million, in a luxury community in California’s North Lake Tahoe.
In these transactions, the buyer converted the bitcoins into U.S. dollars. They involved a liquidation of assets.
More recently, though, people have begun buying real estate just with bitcoin. The first known deal of this kind occurred in December 2017, when self-described “crypto evangelist” Ivan “Paychecks” Pacheco paid 17.741 bitcoin, the equivalent of $275,000, for a condo in Miami.
Writing a real estate offer with bitcoin
In some ways, buying a property with bitcoin is relatively straightforward. All you need is for the buyer and seller to agree to exchange the cryptocurrency for the property.
You can write a real estate offer using bitcoin in much the same way you would write one that uses U.S. dollars. Determine a price, a down payment and any stipulations to the deal.
Once the offer is accepted, you can make the transaction. If the buyer agreed to accept bitcoin outright, you don’t even need a third party. If they want to exchange the bitcoin for cash, you can use a service such as BitPay, which performs this exchange for you.
Unfortunately, financing options involving bitcoin are still few and far between. It’s difficult to find title insurance and escrow companies willing to work with cryptocurrencies as well. Some companies, though, such as Unchained Capital, offer bitcoin owners loans collateralized by the cryptocurrency.
Using bitcoin-backed loans instead of using bitcoin directly could help reduce the amount of tax the buyer would have to pay. The IRS considers cryptocurrencies a type of property, so transactions could be subject to hefty capital gains taxes. (The government is still working out how to handle crypto, so this could change in the coming years.)
Another important consideration in any bitcoin transaction is the volatility of the market. The price of the currency fluctuates rapidly, so the seller may want to close the deal quickly to avoid unexpected changes.
Luckily, because cryptocurrency transactions don’t require a third party, you can complete them very quickly.
You should also make sure your offer includes agreements on how the buyer and seller will settle any disputes that arise. Because bitcoin is so new and doesn’t require a central authority, there is little precedent for how to resolve disagreements.
Is buying real estate with bitcoin legal?
Some real estate agents might worry whether using bitcoin for a real estate transaction is legal. Bitcoin transactions between two consenting parties are lawful, as long as the parties involved don’t break any laws in the process of completing them.
Using such a new technology does come with some uncertainty, and you should pay careful attention to the evolving regulatory landscape surrounding cryptocurrency.
Federal and state lawmakers are currently weighing what to do about bitcoin. Be sure you thoroughly research and follow all legal requirements, both on the federal and state level. Pay particular attention to tax-related rules. To avoid running into trouble, only use crypto services that are established and trustworthy.
The future of bitcoin and real estate
The relationship between cryptocurrencies and real estate will continue to evolve. We may even see a future in which blockchain, the technology on which cryptocurrencies run, enables the use of smart contracts for title insurance and mortgages.
Bitcoin and its associated technologies are transforming the real estate market slowly but surely.
While you should take precautions when writing real estate offers with bitcoin because of the uncertainty surrounding it, getting started with this new technology now could put you on the forefront of the next big thing in real estate.
Kayla Matthews covers smart technology and future trends for websites like VentureBeat, Curbed and Motherboard. You can read more posts by Kayla on her personal tech blog: Productivity Bytes.
