In this fifth post of our digital property market series, we dive into the world of creating and executing contracts. We examine how a lack of fully digital capabilities has resulted in the flawed and fragmented system we have today, and how smart contracts are poised to redefine transactional processes.
The most recurring theme throughout our digital property market series has to be the sedentary state of the industry. All too often we look on as it trundles along, going through the motions with a growing acceptance of the status quo. Transactions are painfully slow, unnecessarily stressful, and with little sign of immediate relief.
To make matters worse, transaction times are at their longest since records began, as long as 22 weeks, with the conveyancing process alone accounting for between 12 to 16 weeks. It’s hardly a surprise, given the number of parties involved in a complicated process with multiple pain points along the way. Never mind the fact that, on average, up to 130 documents and 300 messages and emails are generated between lawyers, clients and agents in just one typical transaction.
This is a symptom of a much wider malaise. The near total lack of transparency in the end-to-end process chips away at our foundation of trust, not just between parties but within the transaction process itself. However, what is broken can be rebuilt, through the use of smart contracts.
A smart contract, instead of being paper-based, is run on highly secure blockchain technology that can leverage its capabilities, such as being self-executing. This means that a particular outcome can be automatically programmed when a certain specific condition is met. For example, upon the fulfilment of the completion process - a smart contract could autonomously instruct the next steps to take place, including but not limited to insurances being triggered or updating HMLR.
Furthermore, because it’s stored on blockchain, every step from start to finish is documented and verified within the smart contract itself. Not only eliminating the possibility of human error but also helping to (re-)build trust and confidence in the process.
A process that typically takes weeks could instead take place in seconds.
Even at a cursory glance, it’s impossible to ignore the current patchwork of analogue and digital processes that coexist in the property market.
Back in 2020 the Council of Licensed Conveyancers predicted that the market was probably only a few short years away from a fully digital conveyancing system, one that promised faster transactions and a better experience for all those involved. Now it’s 2023 and…we’re still not there yet. Buying and selling property in the UK still involves a combination of analogue and digital processes and completion times are longer, with stress, frustration, friction, and risk on a similarly steep rise.
While some of those professionals involved in the home buying and selling process are using technology, there are still those who persist with the use of paper files and sending snail mail back and forth. Furthermore, the well explored fact that the professionals involved use different, and therefore siloed, systems mean there is no visibility over the whole process. Constant human intervention is needed to keep it on track, with each and every participant spending far too much of their time and money chasing, sharing and checking information.
The property market needs integrity to restore transparency and trust.
Today’s property market lacks integrated digital capabilities. Previously, creating and executing a contract required parties to physically meet. Verifying each other’s identities, reviewing the titles, counting the money, signing the contract, then swapping money for titles to complete the transaction - perhaps even closing the deal on the same day with a polite handshake.
The contrast in today’s digitised world transactions regularly experience problems with contract negotiation, creation and execution because each part of the conveyancing process is managed in a different space. The money is held in the bank’s system, the title deeds reside with the Land Registry, the legal contract is held in the lawyer’s case management system, and the buyer and seller have different identities for each system. This results in friction, lack of transparency, significant duplication, and the need for repetitive checking and validation of data and identities.
Smart contracts are the solution to this conundrum. These truly digital versions of legal agreements hold the information as data, not words or images, and can be programmed to execute according to agreed conditions.
Smart contracts are on the cusp of redefining property transactions as we know them. A leap towards a future where property transactions are not only faster and more efficient, but also inherently secure and trustworthy, operating seamlessly in a digital-first property market.
The potential of smart contracts is there for the taking with widespread support from the right industry bodies. The Master of Rolls has already stated that they are as valid in law as any other contract, and with this kind of ball rolling, we could soon see their use in property transactions one day. The Law Commission of England and Wales back in 2021 gave the green light for smart contracts to be used with confidence under English Law, meaning there is no barrier to their widespread adoption. Watch this space and we imagine things will begin to move that much quicker, that much sooner.