How a Real Estate Startup Pilot-Tested Its Blockchain Platform
01.10.2019

Propy offers real estate brokers digital listings and an online transaction platform, as well as a blockchain-based database for officials managing land records. CEO and founder Natalia Karayaneva talked with BREAKER about how the company chose where to test its product, what the reaction to the new platform has been, and the next steps for Propy. This interview has been edited lightly for length and clarity.

Natalia Karayaneva

How did you get into this business?
I’ve been a real estate developer for many years in Europe, constructing properties and selling them mainly to foreign buyers. Before I established the real estate development company, my first entrepreneurial adventure was actually a software company. We’ve seen a lot of real estate investors coming from different countries, willing to buy a property and experiencing a lot of pain and frustration about closing, fraud potential, selecting a property, and so on.

Three years ago I moved to Silicon Valley to start Propy. I met two cofounders and plenty of blockchain engineers. We came to the conclusion that actually this is the best technology to automate the real estate purchase process. We’ve developed three products that work independently: a listing platform, a transaction platform, and a blockchain title registry.

How does Propy work?
The listing platform allows sellers and agents to connect with buyers, even remote, overseas buyers. The transaction platform lets buyers, sellers, and their agents close a traditional real estate transaction entirely online. The title registry lets authorities record property ownership data on a blockchain.

Why put title records on a blockchain?
It’s fast, user-friendly, and secure against hackers.

Tell me about the pilot test.
We have three counties in Vermont recording title deeds on our platform parallel to their existing system. One of them has a paper-based registry, and the two others are electronically based registries. We visited Vermont earlier this year and afterwards I told my team, “No, no, absolutely no, this state and the people are so traditional, so conservative. We won’t have any success here.” They didn’t understand anything about blockchain. 
But Vermont actually was one of the first states to announce a blockchain-related law in 2016. The people there are aiming to be on the map of innovation. They started to work in this space five years ago, very early on. We met the governor of Vermont, Phil Scott, and a few local clerks. We convinced them to pilot it and make the first transactions. The first stage was to make a blockchain address connected to a title deed, and then the clerks got educated on what this link means, and what you can verify.

How is the pilot working out?
The technology is developing fast, and once they see they can be a part of something more efficient and innovative, they’re brave enough to try. If you imagine old ways of using a computer from the ’90s, that’s what their current system looks like. All these unfriendly icons and many, many clicks before you actually upload something. Every year they have to update their databases and take multiple backups.

They’ve given us feedback and thanks to that, we can develop the software further. The ultimate goal will be for those counties to transition from the old system to the new system, and not use our software as a parallel system. We’re hoping more counties try and buy our software this year.

The new title deed of the buyer is stored in an encrypted way on the Ethereum blockchain, giving security of ownership.

Why move transactions and listings to Propy?
For the transaction platform and the listing platform, we can simplify all the steps for the buyer and the seller and execute those steps in one platform. It’s automation of the whole process. That includes signing the offer, payment, and title recording. We normally have the buyer and seller, both agents, and the title or escrow agent on the platform. The new title deed of the buyer is stored in an encrypted way on the Ethereum blockchain, giving security of ownership. The printed title deed also includes the blockchain address, which means that in future customers can go on-chain and check all the transactions.

The buyer and the seller experience a fraud-free environment. At the moment, if the buyer wires the money to the wrong bank account, and this case is not covered by title insurance, the buyer has to go to court to try to restore those funds.

Most of the transactions we’ve done have been in the U.S. We did one transaction in Europe as well. The holiday season is usually slow; however, buyers are more active online and search for properties. We’ve seen inquiries increase quickly are we’re looking to convert those inquirers into transactions.

One transaction was cross-border. The buyer bought a property in Ukraine. We didn’t have agents involved there, but the interesting part was that the sale was conducted in cryptocurrency and we didn’t need escrow agents under the laws of the Ukrainian government. The funds were kept in a smart contract and they were released only after it was in our system and verified that the notary received the signatures from the sellers.

How do you convince brokers to give it a try?
We are very often invited to speak at events organized by the National Association of Realtors to educate agents on blockchain and cryptocurrency. Sometimes it’s been challenging to convince them.

We explain everything about our platform and that it is not necessary to actually know the blockchain to use a blockchain-enabled tool. Once they see the demo and understand it’s a traditional process, and everything has been brought in one place, they normally really want to jump in. The challenge is they they need to convince other participants—the buyer’s agent, the seller—to participate in the closing of the transaction in one place.

We provide a unique opportunity for them to become “crypto-certified agents.” They are excited about the new badge that they can put on their websites. We have an incentive program for such agents, so that they can receive a credit in Propy tokens and then spend those tokens on our platform for global exposure of their listings for marketing or for future transactions. They can share listings on their social accounts and receive Propy tokens. They can spend them and get better exposure on the listings.

One of our recent sales was in Daly City, California. The interesting part was that the seller was not that technically savvy, so the agent had to sit with the seller and show basic steps of the technology, like logging into a website, creating an account, doing an electronic signature.

At the end of the day when the transaction is done, everyone is happy to know they did an innovative thing. Often those transactions would be the first in their area, and they have this fancy title deed with a blockchain address in ink. They know this record now is immutable. It’s stored forever. It’s un-hackable.