Cryptocurrencies such as Bitcoin and others have gotten a lot of press lately. And across North America, there are cases popping up of real estate being listed for sale and asking for cryptocurrency as payment. Recently, there was a home in the Toronto area that was listed for 34.62 bitcoin (a value of about $490,000 at the time of publishing). But buyers have been reluctant to purchase using cryptocurrency.
Some of the hesitancy no doubt comes from the comfort level (or lack thereof) that people have with cryptocurrency in general. There is also the volatility to consider. Bitcoin reached a high of US$19,511 per coin in December of last year and by March, it was down to US$10,852 per coin.
So what should you know before selling property for or purchasing property with cryptocurrency? Here are a few things you need to know.
It is legal
One of the first questions that people have about this issue is whether it is even legal. It is. There is no law against using bitcoin or any other type of cryptocurrency in Canada to make a real estate transaction.
The Real Estate Council of Ontario (RECO) is currently looking into real estate transactions using cryptocurrency. RECO regulates brokers and sales agents, and not buyers and sellers so it will not restrict how buyers and sellers choose to conduct their transactions. It does however recommend that buyers and sellers seek legal advice to make sure that they are protected in a cryptocurrency transaction.
You cannot hold a digital currency in a trust
Using bitcoin in a real estate transaction is inherently riskier than a cash transaction for the reason that cryptocurrencies cannot be held in a trust.
In a cash real estate transaction, the buyer usually pays the funds to their lawyer who holds the cash in a trust for them until the deal goes through. Since trusts are heavily regulated, there is a lot of oversight and assurance that the buyer will receive their money back should the deal fall through.
This is not the case with cryptocurrency as the laws have not yet caught up with technology. If the deal were to collapse in a cryptocurrency transaction, the buyer may find themselves in the position of having to sue to recover their funds.
Taxation may be an issue
There is some question as to how taxation would work on real estate transactions that were conducted with digital currency. For example, how do you calculate the land transfer tax into Canadian dollars if you paid with bitcoin? Or if bitcoin skyrockets – or tanks – how will that affect the appraisal value?
Contact me today
Real estate transactions using cryptocurrencies come with some unique risks, so it is important to work with a broker that knows how to hedge against these risks. If digital currency real estate transactions are something you would like to investigate further, I invite you to contact me today. We can arrange a consultation to see if this is right for you.