Legalities Of Buying A House With Bitcoin
Bitcoin has gained popularity as a means of not only investing but also as a great way of buying physical goods. Buying a house with Bitcoin has become more popular over the years across the globe.
Buying a House With Bitcoin
There are aspects of the process of buying a house that still require cash. In the early days of cryptocurrency, proponents of the currency and people looking to get into the housing market used Bitcoin. Over time, more people have indicated interest to use Bitcoin to buy homes.
Banks usually take 2-3 days to make money available for purchases. With Bitcoin, you have the freedom to make instant transactions as your money is available instantly to spend as you want. Many consider this to be one of the major benefits of buying a house with Bitcoin. While there are great benefits, there are also great challenges.
A lot of people believe that Bitcoin is not mainstream, which may make it inappropriate as a means of buying and purchasing homes. If you were to try and sell or buy a home with someone who had no idea about Bitcoin, it could prove to be a damper on the sales process. The legality of making a purchase of the cryptocurrency can also present avoidable challenges for people who are new to the cryptocurrency.
Title Agencies and Escrow Agencies
Natalia Karayaneva, The CEO of real estate startup Propy, suggests that a lot of issues can come up when buying and selling real estate with cryptocurrency.
“The main issue we’ve experienced is exchanging large amounts because sellers, very often, want to get paid in fiat…When payment is crypto to crypto, large amounts have to be sent in smaller portions as transactions are not reversible. This is because sending large amounts of crypto is still a risky process e.g. if a hacker swaps a public address, the transaction is not reversible,”
A lot of title companies and escrow agencies do not want to attend to deals related to cryptocurrencies because of the risks involved. Professor of law at New York University, Andrew Hinkes pointed out that in the course of buying or selling real estate, most transactions come in searching title or obtaining title insurance. Title agencies usually handle this process. Most do not accept cryptocurrency as payment.
In many regions, cryptocurrency transactions remain a taxable event, even in real estate deals. Contrary to popular beliefs propagated by many investors, using Bitcoin does not always eliminate tax. Local tax laws can reveal much more than what meets the eye. It is important to consult with a tax advisor as it relates to the use of cryptocurrency in a real estate transaction. The use of cryptocurrencies can heighten the risks and tax obligations in many cases.
People using cryptocurrency to pay for goods or services may have to treat their purchase as a sale. As an example, one who trades Amazon shares for Microsoft shares would be participating in a taxable transaction, even if they did not withdraw money from their brokerage account.
Due Diligence and AML
An individual who receives cryptocurrency as payment for a house could face challenges in declaring the amounts to fiscal agencies. The anonymous nature of transactions with cryptocurrency such as Bitcoin means that it can be quite hard for those who are less tech-savvy to create adequate due diligence reports. Many people and institutions are still under the impression that renting/buying properties with cryptocurrencies is the choice of money launderers. These factors can put individuals in a position where they have to go to extra lengths to confirm the source of funds for a real estate transaction.
Individuals who use cryptocurrency to purchase a house may have to go through significant KYC/AML in order to move money from cryptocurrency to USD. This can prove to be more costly.
How Bitcoin Transactions are Similar to Real Estate Transactions
There are many reasons to be very cautious about using Bitcoin to buy a house. There are also many benefits. With time, lawmakers could realize the benefits and create laws to support transactions with Bitcoin. Lawmakers could recognize the similarities between a real estate transaction and Bitcoin transaction.
In many ways, each transfer of Bitcoin resembles a deed of real estate. This is because the “grantor” refers to the prior transaction under which they hold. Cryptography, a key aspect of Bitcoin allows users to replace legal names and handwritten signatures with public addresses and digital signatures.
As an illustration, an individual who makes a gift of real estate executes a deed. A description of the property is made along with a listing of legal name as grantee, and signing of paper before a notary. Conversely, people making transactions with Bitcoin, identify themselves using Bitcoin addresses which they use to make transfers between each other.
Contracts and Consideration
A purchase of a home involves the exchange of a home for what is legally termed as consideration. Typically, consideration is in the form of fiat currency. In many cases, the consideration could be Bitcoin and the transaction would be legal. For taxes and levies and taxes to be paid, consideration needs to be formally valued. Failure to do so could result in the transaction being viewed as part of a scheme to avoid tax payments.
Contracts governing the purchase of a home with Bitcoin may require a buyer to find a liquid exchange to change consistent amounts of cryptocurrency in a short space of time and give the
The volatile nature of bitcoin could leave a seller with less money than they wished for in the exchange of their home. The volatile nature of the cryptocurrency requires exchange and completion to occur simultaneously.
Failed transactions can result in losses. There is a high risk that the cryptocurrency sent may not be returned unless a seller chooses to return it. This could make it even harder or impossible for individuals to get recourse where a seller acts in a way that frustrates the contract.