Curbed reported in March that two condo units in the rental-to-condo conversion at 389 East 89th Street were in contract using Bitcoin and “believed to be the first real estate transactions in the city to be made in the decentralized digital currency.” The buyers in both transactions paid their Bitcoin to a third-party service, BitPay, which converted the cryptocurrency into dollars and transferred the dollars to developer Magnum Real Estate Group. In The New York Post, Magnum’s executive vice president Stuart Marton likened the transaction to a currency exchange. “They accept the Bitcoin,” he said, “and give us the dollars.”
Cryptocurrencies – digital, virtual forms of currency, generally used in online transactions – are starting to be used more widely. Bitcoin is arguably the most famous of these, regularly appearing in the news for its wildly fluctuating – and shockingly high – valuation. While Bitcoin and other cryptocurrencies have a reputation for being used in unsavory transactions, their growing popularity has brought them into more mainstream uses, including the buying of real estate. Can co-op and condo boards expect to see a flood of Bitcoin transactions in the near future? Attorney Shahriar Sedgh, a partner at Sedgh & Zuckerman who specializes in residential real estate and cryptocurrencies, doesn’t think so. “It’s still unlikely [that many transactions] would happen in the next next six to twelve months,” he says, primarily because of the more stringent requirements in a co-op or condo purchase. Part of the problem with a transaction done entirely in Bitcoin is that a great number of people have to be involved in the process.
“Everybody has their own representative at the closing,” says Sedgh, listing attorneys for the co-op, the buyer, and the seller; possibly a lender; and a title company. “In order to eliminate checks and more traditional currency,” Sedgh continues, “you have to have all these people accept Bitcoin, and right now [that’s hard]. If a buyer and seller agree to transfer Bitcoin but the buyer brings money for everybody else, that’s less of an issue.
Even though a Bitcoin-based transaction is possible, there are hurdles. “Boards and sellers don’t know, when they accept this cryptocurrency, how [they are] going to be taxed on it,” observes Sedgh. “What kind of regulations are looming that may affect the ability to sell or buy the cryptocurrency in the future? When I’m accepting dollars, I know the value is not going to fluctuate significantly between today and six or twelve months from now.” The valuation of Bitcoin, on the other hand, can change hourly.
That volatility is its own hazard. “The problem a seller has,” says Sedgh, “is that if I sign a contract today for 10 Bitcoin, and we need to wait 30 to 60 days before we can get to closing, how do I know how much that Bitcoin is going to be worth [then]?” Even worse, if the value of the Bitcoin drops drastically once the transaction is completed but before the conversion to dollars, the risk is entirely the seller’s.
Such risks might make boards want to swear off cryptocurrency transactions altogether. But is that smart? Supporters of cryptocurrencies are constantly pushing for legitimacy, and real estate transactions may be the way in. Sedgh believes that while regular buyers may not be making the switch soon, boards could be seeing more of these purchases in the next few years. “We’re going to see them more for investors who are a little bit more keen on risk,” he says, “who are little bit more immune to these issues.”