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How to Protect Your Clients in a Crypto Transaction

Monday, August 28, 2023   /   by Richard Eimers

How to Protect Your Clients in a Crypto Transaction

Digital forms of currency can pose significant risks to both buyers and sellers. Know the safeguards to put in place in case cryptocurrency is ever used in one of your transactions.

While it’s still rare that buyers use a form of digital currency to purchase real estate, it’s happening in some areas of the country and could become more widespread in the future. Cryptocurrency is a digital payment that uses encryption to secure and verify transactions, allowing purchasers to bypass a bank. Transactions are stored in a digital ledger called a blockchain.

“Despite recent volatility in the value of cryptocurrencies, the public failure of many crypto firms, and the decade-old predictions of imminent collapse, cryptocurrencies appear to be here to stay,” Matt Troiani, senior counsel and director of legal affairs at the National Association of REALTORS®, says in the latest “Window to the Law” video. More than 420 million people worldwide own cryptocurrency, Troiani adds.

Nearly a quarter of real estate professionals predicted that blockchain, crypto and smart contracts will play an impactful role in real estate over the next two years, according to NAR’s 2022 Technology Survey.

But the volatility of cryptocurrency can pose risks in a real estate transaction. Troiani cautions that standardized contract forms to purchase real estate do not adequately reflect transaction requirements when crypto is being used. A main concern with cryptocurrency is that it could depreciate in value between the contract and settlement dates. Home buyers who decide to convert cryptocurrency to cash also could face settlement delays, Troiani adds.

Despite the potential obstacles, Troiani says real estate pros can take several actions to assist and protect their sellers in crypto transactions, such as requesting proof of cash funds or providing a lender letter along with the offer that demonstrates the buyer could complete the purchase without cryptocurrency if necessary. Also, listing agents might negotiate a larger earnest deposit from the buyer as a sign of good faith when purchasing the home.

On the other side of the transaction, buyer’s agents can protect their clients by advising them to convert cryptocurrency to cash prior to submitting an offer or ratifying the contract to avoid a seller’s concerns about currency depreciation prior to closing, Troiani suggests. He also urges real estate pros to connect the buyer with banks, lenders, attorneys and title companies who have knowledge about cryptocurrency in real estate to help ensure a smooth closing.

Source: National Association of Realtors

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Beach Road Realty
Richard Eimers
17 Roundwood Drive
Inlet Beach, FL

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