Window to the Law: Cryptocurrency Best Practices — Transcript

Using cryptocurrency to purchase to real estate may be mystifying to many REALTORS®, but it is increasingly likely that you will encounter a client planning to use cryptocurrency.

Cryptocurrency is a digital payment system that uses encryption to secure and verify transactions, instead of relying on a centralized authority, like banks. Despite recent volatility in the value of cryptocurrencies, the public failure of many crypto firms and the decade-old predictions of imminent collapse, cryptocurrencies appear to here to stay. In 2023, more than 420 million people worldwide own cryptocurrency.

The dramatic volatility in cryptocurrency markets poses significant risks to both sellers and buyers when one party, usually the buyer, uses cryptocurrency in a real estate transaction.

• It may be difficult to ratify a contract in the first place, as sellers may be wary of buyers using cryptocurrency and standardized contract forms may not adequately reflect the transaction’s unique performance requirements.
• Cryptocurrency could depreciate in value between the contract and settlement date, leaving the buyer unable to close.
• Converting to cryptocurrency to cash may take longer than anticipated, causing a delay in settlement.
• Many banks, lenders and title companies are not familiar with the specific requirements for completing a cryptocurrency transaction.

Despite these potential issues, there are many things you can do to assist your clients in getting the contract ratified and closed on time.

Listing agents can protect their seller clients by:

• Requesting proof of cash funds or a lender letter with the offer, demonstrating that the buyer can complete the purchase without cryptocurrency, if necessary.
• Negotiating a larger cash earnest money deposit as a sign of the buyers’ good faith.

Buyer representatives can protect their clients by:

• Advising them to convert cryptocurrency to cash prior to submitting an offer or ratifying the contract, avoiding currency depreciation and increasing the likelihood of offer acceptance.
• Connecting the buyer with banks, lenders, attorneys and title companies knowledgeable about cryptocurrency to facilitate a smooth closing.

Because standard forms don’t typically address cryptocurrency, encourage clients to consult counsel to draft specific contract contingencies addressing cryptocurrency. For example:

• The seller may void the contract or declare the buyer in default if the buyer fails to convert cryptocurrency to cash within specified period of time post-ratification. OR
• The buyer may void the contract if a specific cryptocurrency depreciates below minimum value, leaving the buyer unable to complete the purchase.

REALTORS® are experts, and by following these best practices, your expertise and knowledge about cryptocurrency will help your clients navigate the unique issues cryptocurrency poses while accomplishing your clients’ primary goal: completing the sale.