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Mar 2, 2018

‘Don’t do it’: Four things to know before buying real estate with bitcoin

Three major risks that come with using bitcoin in real estate transactions

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Despite recent swings in cryptocurrencies, real estate listings asking for bitcoin instead of traditional currencies have popped up across North America in recent months.

“It’s certainly becoming more popular,” Ryan DeLuca, professional standards advisor for the Real Estate Council of British Columbia, told BNN in an interview in January.   

Most recently, a Toronto-area home was listed for 34.62 bitcoin, which at the time of publishing, worked out to about $490,000. But the property hasn’t been scooped up since being posted Feb. 23. There are also listings in other parts of the province and country – and reports of properties selling for bitcoin in the U.S.  

Bitcoin has been on a wild ride over the last few months amid regulatory uncertainty. After as high as US$19,511 per coin in December, the cryptocurrency was trading at US10,852.87 as of 12:10 p.m. ET on Friday. 

Below, DeLuca and other professionals offer tips on what you should know before deciding to hop on the bitcoin-real estate bandwagon.

IT’S LEGAL

There’s currently no law against using bitcoin to buy property in Canada, but regulatory bodies like the Real Estate Council of Ontario (RECO), are looking into the use of cryptocurrencies in real estate transactions.

​“We are currently reviewing cryptocurrencies in real estate transactions in terms of their potential use under [the Real Estate and Brokers Act],” Joseph Richer, registrar at RECO, told BNN in an email.

RECO regulates salespeople, brokers and brokerages, but not buyers and sellers, so it doesn’t impose restrictions on how they choose to buy or sell property. However, Richer said “we caution buyers and sellers to take proactive steps to protect themselves by seeking legal advice specific to the use of a cryptocurrency when considering its use in a real estate transaction.”

Tannis Waugh, a Toronto-based real estate lawyer, said that while there’s no problem with using cryptocurrency to purchase real estate, other issues can arise.

“If both parties are agreeable, you can purchase property with anything –  even a sack of potatoes,” she told BNN via email. “The bigger issue is logistics.”

DIGITAL CURRENCIES CAN’T BE HELD IN TRUSTS

Digital currencies currently can’t be held in trust accounts, which can make transactions using bitcoin much riskier.

“Trust funds are heavily regulated (as they should be) but the regulatory framework has not caught up to the technology; we have rules in place that never contemplated the idea of cryptocurrency,” Waugh, who has had a cryptocurrency policy that addresses the payment of fees in place since the summer, explained.

“When you pay funds to your lawyer on a real estate transaction, you pay them in trust and the lawyer is required to hold them in a special trust account,” Waugh added. “If you agree to have your lawyer hold cryptocurrency outside of a trust account, there is a lack of oversight and accountability which generates more risk to the client.”

DeLuca said if there’s a deposit contemplated in the contract, the buyer and seller would have to negotiate for a third party to hold that deposit.

“That’s risky because in a trust account, the funds are protected should the deal collapse. If the deal were to collapse using a digital currency, the counter party to the transaction would have to be able to locate the other party and sue them to recover their funds.”

TAXATION MAY BE AN ISSUE  

There are uncertainties about how real estate transactions using bitcoin would work for taxation purposes.

“If you buy a property for 20 bitcoin, what is the purchase price that you insert in the transfer for land transfer tax? Furthermore, what if that 20 bitcoin drops to 18 bitcoin from the execution of the agreement to the closing date?  What value do you use for capital gains, if applicable?,” Waugh said.  

DeLuca said properties bought and sold using bitcoin in Canada will still be valued in Canadian dollars for tax purposes.

“So, if the value of the bitcoin skyrockets and the buyer has overpaid for the property, they’re not going to be able to re-sell that property when a buyer comes along and looks at the appraised value.”

IT’S NOT FOR EVERYONE

John Pasalis, president at Realosophy Realty, has advice for anyone looking to buy real estate using bitcoin: “don’t do it.”

“You have to be pretty savvy to do this,” he told BNN via email.  “What happens if bitcoin tanks or surges before closing – one of the two parties is going to feel like they got ripped off?  Yes, you can hedge against this risk; but again, you would have to be a pretty savvy person to do that.”

Waugh said the volatility of cryptocurrency is too extreme for her to recommend these kinds of transactions to clients.

“There are a lot more questions than answers,” she said. “Only time and policy development will address these.”