Have you been studying up on bitcoin and paying close attention to its value? Are you interested in learning and understanding what it takes to use crypto-currency to buy or sell property and how such transactions are handled on the legal side? Then you are in the right place. If you’re not sure what bitcoin is, essentially it is a digital currency stored in a computer. It can be sent and received from one party to another and ALL bitcoin transactions are permanently recorded on a shared viewing site online, a ledger known as the blockchain.
The phenomenal growth in bitcoin’s valuation has made it worthwhile to cash out and grab some coveted real estate property. As a crypto-investor, maybe you want to divest some of these recent gains. Furthermore, bitcoin is especially useful for foreign investors who want to invest in the U.S. and cannot otherwise do so because of their home country’s capital control rules.
Whether you are a Buyer or Seller, rest assured. Solid legal frameworks are in place to utilize bitcoin. The risks are real, however, and safeguards need to be properly implemented. Take for instance the following Buy/Sell scenarios:
From the Buyer’s perspective, on the day of signing the Contract of Sale, your bitcoin is worth a cool $10mil. No problem right? Well, what happens by the time you actually close? What IF your bitcoin valuation has retracted several millions of dollars and you no longer have enough to close the deal? What do you do then (think CBOE/CME futures contracts to hedge against this, but that is a topic for another day)? Futures are a contracts to buy or sell an asset at a specific date for a specific price.
From the Seller’s perspective, how can you really trust that the Buyer will really have enough bitcoin to complete the transaction? How can you be protected? Should the agreed to sale price be in fixed USD (ie. $5mil)? Fixed bitcoin (ie. 5000 BTC)? Will/can your attorney hold the deposit escrow in USD or BTC? Should you accept Bitcoin as the 10% deposit on contract? Or should you insist that bitcoin deposit to be converted to USD?
Bitcoin Conversion Transactions
So let’s get on with it. The conversion transaction: The parties can agree on a fixed price in dollars and the bitcoins are converted to USD on the day of the closing. The Buyer’s bitcoins are then converted to cash by a third party, like BitPay, which can then be given to the seller. Buyers therefore assume all the risk. Another way is to transfer the bitcoins to the seller’s bitcoin wallet, and the seller then converts. This is riskier for the Seller. The bitcoin conversion transaction can be structured either way depending on how and what the parties have agreed on.
Straight Bitcoin Transactions
Real estate deals can also be closed using strictly bitcoin – no conversion to USD takes place. This would be dependent on the Seller choosing to accept the bitcoin AND keep the bitcoin. These Seller’s are willing to take on the risk of highly volatilve nature of bitcoin and the extreme fluctuations to which its day to day value is prone. The Seller can take the same risk mitigation steps as the buyer would by placing futures contracts to lock in for several months whatever bitcoin is valued at when a sales contract is executed by the parties.
A major benefit of bitcoin-based real estate transactions (as opposed to traditional lender-based mortgage or cash transactions) is a very truncated time frame of the closing window. In a traditional real estate sale, once the buyer and seller sign a contract on a price and terms, it can typically take up to and beyond a ninety (90) day window to reach the closing table, mostly to resolve banking and financial matters as well as any physical and/or title issues with the property. Using bitcoin as the purchase currency, you’re getting as close as possible as you can get to a straight cash deal. With a bitcoin transaction, the deal can be wrapped up as soon as title is clear to close (CTC).
Ultimately, the problem with buying or selling real estate with bitcoin currently, or any other crypto-currency, are the massive fluctuations in value on a day-to-day, and even hour-to-hour, basis. What seems like a fair exchange rate at the time, can seem like a homerun or total bust at a later date. Certain Sellers may WANT to contract at a fixed bitcoin purchase price. Certain Buyers may WANT to contract at a fixed USD. And vice-versa. These are things which can be negotiated and stipulated in the terms of the Contract of Sale and Rider.
Although bitcoin real estate transactions are very new, the bottom line is that these types of transactions should not scare off anyone. We can make them happen for you and help you implement the necessary safeguards whether you are the Buyer or the Seller.
If you have any questions regarding using/accepting bitcoin for real estate transactions, don’t hesitate to contact us for assistance.
This document/post/article is not to be considered as legal advice. Content and information contained herein is subject to changes, modifications, and may contain inaccuracies or out-of-date information. As with any legal matter or other matters of importance, consultation with an attorney or professional is the best course of action.