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blockchain real estate

Blockchains in Land Real Estate

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Blockchain in land real estate has not quite yet been accepted by business leaders. Misconceptions and misinformation have created an environment that is delaying adoption. While no technology is a universal perfect fit, we should look for situations that benefit from blockchain’s best features. We should take the time to understand blockchains in order to maximize their potential as an asset that can have positive impacts on business.

Understanding Blockchain

Think of blockchain technology as a ledger that is distributed to many parties. Just like a published book, the information recorded in the ledger is permanent, cannot be altered, and everyone who needs a copy of the ledger has one. If you want to change the information that has been published, you have to ensure changes are made to every copy of the book. In terms of a blockchain, the information is across the internet on various computers. The difficulty only increases as the number of books in circulation increase. Another point to note here is that high circulation publications are difficult to completely erase from history.

Just like any new technology, there is a vocabulary associated with blockchains. Breaking down the word blockchain, block being a log of stored data and chain referring to how the data links together, is a good place to start. Then you start hearing words like cryptocurrency, token, coins, and smart contracts, all of this can be overwhelming. For now though, the most important technical term to remember is the overall synonym for blockchain: distributed ledger. As a business leader, keep reminding yourself that blockchains are tamper-proof records with many copies.

ledger

Each party operates a copy of the blockchain. The blockchain is simply a reserved part of your computer disk. There are two competing ways information is distributed.

Method 1 – This one is called Byzantine Fault. When you record a new transaction, it is first sent out to all computers to make sure they have a copy that can receive the change. If a majority of the computers agree, your local copy is then changed and all others are alerted to the change.

Method 2 – This one is called Mining. When you record a new transaction, thousands of “miners” are notified. Each one tries to come up with mathematically unique representation of the transaction. The first person to come up with the solution earns part of the fee (every transaction requires a token). This is a tremendously wasteful exercise (from an electricity standpoint) and has been heavily criticized. It has resulted in mining farms operated by folks looking to create revenue.

I have been asked, “If blockchains are a record-keeping mechanism, what is wrong with using databases the way we do today?” My answer is that there is nothing wrong with what we do today. The industry has an enormous investment in documents so any suggestion that we should move millions of them into a blockchain is unrealistic. The effort would be a needless waste of time and storage capacity. However, using the book example, a better approach would be to record the location of a book and then to document any changes that have been made since its publication as new events are added.

The difference between a database and a blockchain is like the difference between a driver’s license and a driving record. Information on your driver’s license is subject to change over time. Your weight, address, and appearance (photo) are best stored in a database because they change over time. Now consider your driving record. It is a series of events that are not subject to change. In a database, the information stored there is subject to change. With a blockchain, the information is a permanent track record of events.

Blockchain in Real Estate

Short, time-based events are easy to record with a blockchain. Asset management activities generate excellent examples of events in commercial and residential real estate. Some of the activities that create events are:

  • inventory
  • maintenance activities
  • tax payments
  • improvements

Using blockchains, builders and developers can quickly identify who supplied materials, where they were used, and how they were handled. This is why many supply chain companies (especially food handlers) are adopting blockchains. Blockchains are good at asset management because they create trustworthy records. They create tamper- proof records and no special software, services, or procedures are needed to recover from catastrophic outages. Damaged computers simply reconnect to the network and recreate the lost information from other copies.

The Real Estate Standards Organization (RESO) has created a workgroup that thinks events are applicable beyond real estate brokerage. Events allow real estate professionals to easily exchange information between lending, public records, and insurance companies. The workgroup is not facilitating the exchange of underlying documents, simply a ledger of events (think of a timeline).

Caution Ahead

We should consider the impact of legislative and regulatory efforts to protect privacy on blockchains since they contain tamper-proof, permanent records. If information written to a blockchain can never be erased, personal information like account numbers, passwords, or contact information should not be recorded. The security community calls this kind of information Personally Identifying Information (PII) which has “the right to be forgotten,” according to GDPR. We can expect to see continued legislative and regulatory efforts to protect privacy, so it is important to keep this in mind when implementing blockchain technology in the industry.

Legislative and regulatory actions intended to help consumers can actually end up hurting adoption. A review of actions at the state level published last year showed that blockchain definitions used in legislative language varied significantly between states. We should think about one of the main points in The High Cost of Good Intentions by John F. Cogan; government strives to act in the best interest of the citizens but ends up stopping innovation that is designed to help them. We should be working with local, state, and federal governments to make sure they understand the impacts of their actions.

blockchain

Still Learning

Earlier this year, I attended the 2019 National Land Conference hosted by the REALTORS® Land Institute (RLI) in Albuquerque, NM, to discuss blockchain technology. One of the challenges I noted was implementing blockchain technology at the county level. The decision-making process at over 3,000 counties slows down adoption significantly since millions of records would have to be transposed.

I was pleasantly surprised to find blockchain uses I had not yet considered. Possible uses for blockchains in land real estate include:

When they were first mentioned, I assumed the issues were similar to those faced in the County Recorder’s office. I came to realize the value of RLI.

We have established that blockchains are good at capturing small events. When a property changes owners, what is purchased can be the result of subdividing or combining tracts. Many county recording systems have difficulty combining properties. Blockchains are good at tracking splits and combinations because they are optimized to record event history.

Recording water rights are more complex because both surface water and groundwater need to be considered. However, as the population increases, simple first-in-time and first-in-right historical surface water rights are being challenged by legislation and regulation. These complexities make recording surface water rights with blockchains an ideal solution.

Groundwater record keeping can be more complex than a simple rule of capture situation. Drilling, natural erosion, and abuse of the aquifer are all conditions that can be detected with periodic testing.

Blockchains can be used to reference test results creating a tamper-proof, time- based record. Indigenous land rights are another area of land transfer that can impact development plans. Blockchain technology is ideally suited to create records that survive multiple transfers and do not need to be routinely researched.

I saved mineral rights for last because they are more complex than the aforementioned items. With water, there are two facets to consider: surface and groundwater. The courts still see disputes over the definition of what constitutes a mineral. Royalty agreements routinely include many parties and need to be researched before the transaction is closed. These complexities can be captured using blockchains.

The effort to record mineral rights with blockchains should avoid capturing old records. Instead, new research should be recorded from this point forward. Many of the records are very old and are needed for historical backup. Scanning and digitizing historical documents do not help the process of documenting mineral rights. Recording mineral rights agreements and interpretations in blockchains create tamper-proof records that many parties can reference electronically.

blockchain bitcoin crytocurrency

Cryptocurrency and Smart Contracts

Due to the well documented volatility of cryptocurrency, it is unlikely that we will see wide scale purchasing of property using cryptocurrency. The banks are not ready to lend this form of currency yet and commissions will probably not be paid this way. The number of cryptocurrency property transactions will never exceed today’s volume of 100% cash transactions.

This is a good time to clarify some blockchain jargon. Cryptocurrency denominations are typically called tokens or coins. Tokens must be purchased before use and are not typically interchangeable between applications. Buying and selling tokens is still a complex process, but the community is trying to simplify it. There have also been improvements to token interoperability between blockchains.

Compensating work is a much better application of cryptocurrency. Instead of closing the entire transaction, you can order just those services you would like to be performed electronically. Services can have conditions such as “do not execute during business hours,” or more complex rules, such as, “on the fourth day, transfer $1,000 to this system.” The logic that controls these kinds of services is called a smart contract. Smart contracts are not the same as legal contracts. A traditional legal contract is the outcome of negotiations and often contains attachments, addenda, and amendments related to the transaction. Smart contracts are not unique to a specific transaction. They can operate on a transaction but are not unique to the transaction. Smart contracts only represent conditional logic.

A good example of a smart contract can be found in fund disbursement. The hard part of designing smart contracts is capturing all of the options within a request. Imagine a vending machine that you can use to order transaction services. If the right number and type of tokens are inserted, you can select an in-stock item. The machine releases the item (i.e., the smart contract is executed). If those conditions are not met, the item (if there is one) is not released. The options you want can affect the number of tokens required to select the item.

Final Thoughts and Application

Do not ignore blockchains. Pretending they will not emerge will not stop them. You do not have to understand them at a technical level. Look for blockchains to emerge within business practices that need improvement, especially in the record-keeping area.

The biggest factor that can stop the widespread adoption of blockchains is resistance to change. Business leaders have a fiduciary duty to manage the risk, which includes being wary of unintended consequences. Until the risks are known and at least partially mitigated, policies do not change. Business leaders still need more education about blockchains before they’ll be comfortable with adoption.

Thinking about how blockchain could benefit your real estate business? Practice looking for applications that need both permanent records and require access by many parties. Blockchains will probably enter the industry through applications in ways that most will not even know they are using them. For now, just stay aware and keep an eye out for potential uses in your business.

This article was originally published in the Summer 2019 Terra Firma magazine.

Mark Lesswing NLC19 speakerAbout the author: Mark Lesswing is a Blockchain Entrepreneur who holds a Bachelor of Science degree in Industrial Engineering from Lehigh University. He started programming robots just out of college and, in 1988, began working with object-oriented programming. Mark has worked for large database vendors such as Sybase (as a startup) and Oracle spending a summer in Europe setting up international operations. In 1992, he launched his own consultancy and was involved in corporate turnarounds. Mark joined the National Association of REALTORS® in 2001 and as the Chief Technology Officer was a tenacious advocate for data standards and innovation. He is a frequent speaker at major trade conferences and is listed in the International Who‘s Who of Information Technology and the National Register of Who’s Who in Executives and Professionals.

Cannabis

Concerning Cannabis

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In 2012, the citizens of Colorado voted decisively to become the first jurisdiction in the world to allow legal adult possession, use, growing, and retail sales of cannabis (marijuana). Colorado has had legal medical marijuana since 2000. The 2012 amendment to the Colorado Constitution (Amendment 64) also set forth retail marijuana sales rules, a taxing structure that provides for revenue to schools, public and youth education regarding cannabis, and the production of industrial hemp.

Colorado became ground zero for cannabis reform and many other states and municipalities have since been looking to Colorado for guidance and example. Colorado citizens, in greater numbers all the time, have supported this groundbreaking change and the legislature, regulators, and industry have been working diligently to construct a business and legal framework within which to operate.

Cannabis reform is also sweeping the nation. Thirty-three states and the District of Columbia currently have passed laws broadly legalizing marijuana in some form, and the 2018 Farm Bill set the framework for legal industrial hemp nationwide. This movement will continue and the Federal government will catch up or be forced to approve and adapt in time as reform states lead the way. The latest Gallup poll on cannabis shows 66% of all Americans across the board support full legalization of this ancient plant. Canada has had legal hemp since the 1990s, and last year they legalized marijuana nationwide.

hemp

Colorado has managed this matter pretty well by writing good laws, monitoring the law’s status and effects, and adjusting regulations as needed to mitigate unanticipated issues for regulation and law enforcement while addressing the needs of the ancient industry. The entire conversation has changed in our state – fewer talk of fears and pot jokes and more talk of business opportunity. In short order, legalization has brought about normalization. For example, in Denver proper, there are more dispensaries than Starbucks.

Retail cannabis sales in Colorado began in 2014. Last year, the adult use (recreational) sales alone topped $1.5 billion, with tax revenues of over $266 million in calendar year 2018. Since 2012, the cannabis industry has created over 2,500 new jobs in the state; jobs that are home grown (pun intended) and won’t be exported overseas.

Colorado studies have shown little impact to law enforcement due to adult use, declining use by youth under 21, increased tourism, and tax revenues in excess of predictions. Appropriately, marijuana is regulated by the Marijuana Enforcement Division of the Colorado Department of Revenue and industrial hemp is regulated by the Colorado Department of Agriculture.

Other states have recognized the futility and costs of cannabis prohibition and are beginning to realize that it is a product that is best regulated, taxed, and properly controlled rather than treated as a criminal matter. Idaho, Kansas, Iowa, Texas, Nebraska, Wisconsin, and South Dakota are the remaining states that have resisted cannabis reform and several of those are either reexamining their status or have citizen-driven initiatives attempting to modernize the regulations in their jurisdictions.

Current legal retail marijuana sales in the US are approximately $6 billion. With recent legalization in California and Michigan, those figures are expected to grow exponentially. The estimated total marijuana demand in the US (including black market) is $50-$55 billion, which is the potential under nationwide legalization. The hemp products industry is hovering around $620 million and is estimated to exceed $5 billion by 2020. Clearly, this is an exciting growth industry with much opportunity. There are numerous impacts of the changing laws to the real estate industry, including land brokers, and it is a billion plus dollar industry that should not be ignored.

“Thirty-three states and the District of Columbia currently have passed laws broadly legalizing marijuana in some form, and the 2018 Farm Bill set the framework for legal industrial hemp nationwide.”

At some point, it is likely that we as real estate brokers in reform states will encounter a cannabis issue in the course of daily business. It could be an inspection issue for a home grow, a request for cannabis appropriate properties, warehouse or retail facilities, leases, hemp production farms and processing, or a myriad of other possibilities. Whether this poses a difficulty or an opportunity, you should be aware of the rules and regulations of the industry.

Hemp and marijuana are the same plant: cannabis sativa. The cannabis plant contains over 60 compounds known as cannabinoids which are unique to the plant. Hemp is a variety of cannabis sativa that contains less than 0.3% of delta-9 THC (tetrahydrocannabinol), the component of cannabis that produces the high from marijuana.

cannabis field

Hemp has been a historically important crop and was widely used in industry prior to being made effectively illegal under the Marihuana Tax Act of 1937 and rendered completely illegal under the Controlled Substances Act of 1971. Hemp has a long list of useful applications: fiber, cloth, paper, oils, plastics, lubricants, cosmetics, food products, bio-diesel and ethanol, insulation, and building materials. It has more than 25,000 documented uses, but will not produce a high.

Industrial hemp was first addressed in the 2014 Farm Bill, which allowed interested states to establish programs for research of propagation, growing, utilization, and marketing of hemp. The first seven states that chose to participate gained a head start in developing a robust hemp industry.

The 2018 Farm Bill, passed last December, made major changes to the law:

  • Defines hemp as any part of the cannabis plant containing 0.3% THC
  • Removes hemp, as defined, from the Controlled Substances Act
  • Provides that raising hemp will not impact participation in Farm Service Agency programs
  • Provides that hemp can be included in Federal Crop Insurance programs
  • Requires each state to propose a state plan or operate under Federal rules
  • Allows states to opt out of hemp production
  • Allows interstate transportation of hemp and hemp products

The passage of the new 2018 Farm Bill has really energized interest in the crop; however, full codification, rule writing, and promulgation and implementation of all elements of the new law will take time. Most Federal rules will not be complete until the 2020 crop year, and some issues like crop insurance could take longer. Some farmers have tried hemp production and have decided to wait until the rules are clear and the markets settle before planting again. Processors are still catching up with growers, leaving some farmers with a harvested crop with nowhere to go. I always advise a producer to secure the sale before planting the seed.

The hemp plant has about a third less moisture and nutrient requirements than corn and far less, if any, pesticides. It is an annual plant that grows rapidly to a height of 8 to 12 feet with large seed heads, a fibrous stalk, and tap root. About 40% of the plant material is returned to the soil, adding organic matter. Hemp is a dicot plant with a deep tap root that improves soil aeration and water permeability, particularly in compaction prone soils. The crop is harvested for seed (used as seed stock and a source of oils and food products), fiber (for cloth, paper pulp, rope, insulation, building materials), and production of CBD (cannabidiol), a non- psychoactive substance used medically to suppress seizures, reduce anxiety, pain relief, and other uses. The cannabis plant is resilient and grows well in several different soil types.

As commodity prices for traditional crops remain at 30-year lows, hemp is poised to be a viable, productive plant for continued agricultural production and has raised major interest from all sectors of the agriculture industry. Every hemp meeting for farmers that I have attended has been a standing room only crowd. Approximately 78,000 acres of hemp were grown in the US in 2018. Of that, 70% was grown for production of CBD; 10% for grain; 10% for fiber; and 10% for other uses or crop loss. Some states have opted out of hemp production so far, including Kansas, Nebraska, and Idaho. Over exuberant and uninformed law enforcement has caused several instances of hemp transporters being arrested and detained on marijuana charges. These arrests are examples of some of the rough spots that may occur during the transition to a legal cannabis economy.

I have developed a four-hour course entitled Cannabis Country that goes deeply into the topics addressed here plus an in-depth history of cannabis prohibition, the multitude of uses of the plant, phytocannabinoids, endocannabinoids, legislation, propagation, markets, and the future of cannabis in the US. Watch for it near you or contact me for information and scheduling.

This article was originally published in the Summer 2019 Terra Firma magazine.

Kirk Goble, ALCAbout the author: Kirk Goble, ALC, has been a Colorado licensed real estate broker since 1988 and founded The Bell 5 Land Company in 2000. He specializes in farm, ranch, land, and water brokerage. He is a member of the National Association of REALTORS®, The Greeley Area REALTOR® Association, and the REALTORS® Land Institute. Goble was awarded the Land REALTOR® of America by the REALTORS® Land Institute in 2013 and is a LANDU instructor for RLI.

All About Auctions

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Real estate auctions add a jolt of excitement to selling land. The energy! The adrenaline! The thrill of watching the clock tick down! Not only are auctions fun, it’s a great way to sell lots of land in a short amount of time.

If you are new to auctions, all the different types of them might be overwhelming. Here’s a quick breakdown of the different types of auctions.

  • Absolute: No minimum bids. The land is sold to the highest bigger, regardless of price. This type of auction is better for less expensive land where the owner is more relaxed on the price. Keep in mind though that since there is no safety net for the seller, you do run the risk of losing money.
  • Minimum-Bid: The lowest acceptable price for properties are pre-determined by the seller. This gives the seller a safety net that they don’t have in absolute auctions.
  • Multi-Par: Multiple parcels of land are combined in each lot. This type of auction is perfect for sellers who want to move vast quantities of land. Since it is more complicated, you will need knowledgeable staff.
  • One of the benefits of online auctions is that it can be done from home. An increasing number of auctions are moving online for the convenience (bid from your living room or on the road!) and cost-savings (don’t need to rent out a room for the event).
  • Reserve: In this auction type, the seller has the unique right to reject the highest bid. If you or your client is selling high-value land, this could be perfect. Some buyers don’t like these auctions because they don’t like the uncertainty of potentially being rejected for the property, even if they have the winning bid.
  • Sealed Bid: Sealed bid means all bids are confidential. This definitely takes some of the adrenaline out of the room but protects people’s financial security.

Now that we’ve covered the different types of auctions, here are some ways to have a great auction.

As A Buyer

Strong Wi-Fi

If your auction is online, a strong connection to Wi-Fi is key. Spotty Wi-Fi has lost people their bids on incredible lots. For example, if two people submit bids at the very last second of an online auction, the person with the faster internet wins. If Wi-Fi in your area is spotty, see if any cafes, restaurants, or libraries nearby offer free Wi-Fi.  

Set Limits Beforehand

In the heat of the moment, it is easy to bid more than you should have. A good way to prevent that is to plan out in advance how much land you need and how much you can afford to spend — and stick to it! Plan on a more conservative budget, but if there is a truly amazing plot of land that you know you can turn a profit on, don’t shy away from it. Skip out on a few other bids if that can secure you getting the lot of your dreams.

Do Your Homework

Of course, you’ve already looked up the price and acreage of the plots you are interested in, but did you do a title search? A title search is the best way to know the regulations and rules that come with a certain property.

If you can, drive by the property to get a closer look. Sometimes, you’ll be able to spot obvious problems that were glossed over in the description. If the property is states away, there is always Google Earth!

As A Seller

Get A Great Auctioneer

Auctioneers are the life and energy of any auction. Who doesn’t love their mind-bogglingly fast chants? If you’ve never been to a live auction before, watch some of our favorite chants to see what all the fuss is about. Find someone with great energy who can keep up!

Know What Makes A Property Good To Auction

Property that is in good condition in a desirable location is likely to get lots of bids. Keep a close eye on the market to see what land types are selling well in your area. Some people think that auctions can be a good place to get rid of properties that they haven’t sold in ages. This isn’t true. Buyers want to be excited about a property and feel like they are finding something new so they are less likely to bid on a property that they’ve seen before.

Work With An ALC

They aren’t called the best in the business for nothing! Not only do ALCs have extensive knowledge of multiple land types, there are many ALCs who specialize in land auctions. When using the Find A Land Consultant tool, be sure to go to the ‘Advanced Search’ feature and click ‘Auctions’ under ‘Service Specialties’.

Real estate auctions are amazing places to sell land and network with other professionals in the land business. Get your bidding paddles ready and have a great auction!

 

About the Author: Laura Barker is the Membership and Communications Specialist for the REALTORS® Land Institute. She graduated from Clark University in May 2017 and has been with RLI since October 2017.

Working with Efficiency on the Road

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How much time do you spend in your vehicle during the work week? What about the average amount of time you spend in your vehicle during a growing season? Don’t forget the commute to and from work. If you tally it up, you might be shocked or perhaps a little horrified at the answer. Then comes the next level of questioning: What do you do with yourself during that time? Are you prepared for what might be waiting for you on a dusty dirt road?

These latter questions were posed during a recent ALC-to-ALC teleconference that I co-hosted with Jeramy Stephens, ALC, from National Land Reality out of Stuttgart, Arkansas. These questions lead us many different places but for me personally, it comes down to efficiency. I have a thirty-five minute drive to and from work on top of wherever my job takes me during the business day. I have been intentional about developing habits that allow me to be productive during this time. This seventy minute minimum of car time has become a valuable part of my work day. Here are some tips that might help you achieve greater efficiency:

  1. Get started on the go. If you have support staff, then I recommend a Dictaphone or other recording technology. I try to dictate at least 2-3 emails/letters every morning on my way to work. These communications can range from crop reports to land inquiries – you name it. Just this very morning I dictated a letter highlighting crop inputs that need reimbursed at an upcoming closing, contacted a neighbor about a property for sale and sent a “feeler” to an owner in Missouri who has underutilized land near a management account of ours in Greene County, Illinois. Each of these things needed to be done. Why not do them while I am sitting in the car?
  2. Plan calls accordingly. We all obviously spend a lot of time on the phone in order to do our jobs well. Some calls need to be made while sitting at the desk so we can access folders, spreadsheets and computers, but there are also calls that can be made anytime, anywhere. I categorize my calls. If I don’t need to reference something at my desk, I save it for when I am in transit going home, to a closing or checking on crops across West Central Illinois.
  3. Be prepared and communicate with your co-workers. If I am going to be scouting farms in Morgan, Scott and Greene counties, then I make sure I have all three of those plat books with me, either in paper or electronically. You never know when you might get a call to check something out while already on the road. If I am going to a county seat, I always ask my co-workers if they need anything while I am there. If I spent all morning near Carlinville, Illinois (1 hour away) it would be discouraging to get back to the office and hear Dad say, “Not sure when you’re going to Carlinville, but the next time you’re there I need something from the courthouse.” Kill multiple birds with one stone and help each other limit needless travel.
  4. De-Compress. This might sound contradictory to previous points, but we all reach a point on certain days where we are fried. We are tired and desperate to chill out a bit. I use the “Pocket Cast” app to download my preferred podcasts. It allows me to quickly filter and download podcasts that interest me. I can go from economics to sports to my own personal nerdy interests with the click of a button (nerdy interests shall go unnamed). As much as I love podcasts and music, I also find it reinvigorating from time to time to simply turn everything off and sit in the silence. Silence is hard to come by at work and I certainly don’t get it at home with sons ages one and six!

Jeramy did a great job on the ALC teleconference call highlighting certain technology he uses to stay plugged in and there is a wealth of articles out there on smartphone apps that help in all sorts of ways. He also mentioned his truck being a traveling convenience store full of emergency and convenient items. He spoke on it better than I can write so I highly recommend you take some time and listen to the recording which can be heard here.

The long story short is that we as professionals in the land industry are on the road a lot. We can’t afford to mindlessly hit seek on the radio over and over. Tweak your tasks that need done to fit your travel schedule. You can get more done and become more efficient in the process. Be prepared. Take the time to think through your day before jumping in the car or truck. Do the preparation that has you ready to tackle the day and adapt on the fly. Do it safely and do it efficiently.

Luke Worrell, ALCContributor Luke Worrell, ALC, Worrell Land Services
Luke Worrell, ALC, is a Broker and Accredited Farm Manager in Jacksonville, IL.  He specializes in agricultural real estate and land management in west central Illinois.  Luke enjoys all things sports and traveling.  He resides in Springfield, IL with his wife Allison and two sons Kale and Benson.