Smart Contracts for Property/Cash Flow Management: a New Experience for Key CRE Parties
Property and cash flow management in CRE are synonymous with high costs in time and resources. CRE professionals often use disparate and antiquated systems to track payments and property maintenance costs, to report and plan.
Even more importantly, CRE professionals struggle to create a smooth, transparent and efficient workflow as they depend on a large number of parties to commit to their transactional obligations:
- property maintenance providers such as contractors, architects, designers, etc.;
- banks for financing or refinancing;
- independent auditors;
- title companies;
- government financial authorities regarding compliance checks.
In addition, to ensure a smooth CRE workflow, brokers update at least one ledger once the money is paid or received. They naturally depend on the other parties to transfer the money on time. Due to the large number of parties involved in a real estate transaction, this is not always the case and hence why frequent delays occur.
How will blockchain address these issues?
Smart Contracts will empower CRE professionals to automate and accelerate many aspects of property and cash flow management.
Smart contracts are self-executing contracts written in code. According to Vitalik Buterin, founder of Ethereum,
“… the program runs this code and at some point it automatically validates a condition and it automatically determines whether the asset should go to one person or back to the other person, or whether it should be immediately refunded to the person who sent it or some combination thereof.”
In terms of a CRE transaction, this is a potential breakthrough. For example, Smart Contracts can detail profile information, terms of the lease, frequency of payments and lease rate.
Based on this input, a Smart Contract will execute the terms of a contract and automatically make all the necessary payments, e.g:
- collect rent;
- pay contractors;
- pay maintenance costs, etc.
Upon contract expiration, the Smart Contract will pay the security deposit to the tenant based on conditions set forth by the parties involved (for example, provided that all repairs have been commissioned and completed beforehand).
In the future, blockchain and Smart Contracts will incorporate other aspects of property and cash flow management such as paying energy and water utility bills, parking, waste utility, etc.