Having been in the rental market all my life, I’ve had to hand over a huge amount of money as a security deposit to landlords many times. In many major cities around the globe, it’s common for landlords to charge triple monthly rent upfront as a security deposit.
While the security deposit is refundable in most cases, the main problem is that it is challenging to come up with the rent, security deposit and the application screening fee all in one go. Which also requires the tenants to trust that the landlord will be honest when its time to return the security deposit. Many disputes occur between the landlords and tenants, and this shows just how crucial it is to have a solid contract between both parties when entering the rental market.
In addition to the security deposits, the current market has another glaring flaw that needs to be addressed immediately – third parties adding extra costs to an already expensive process. In a traditional apartment rental scenario; the landlord and tenant are usually connected through a third party – a rental agency or online rental listing website (i.e. Craigslist). Most property owners ignore qualified tenants until they go through a broker. Brokers charge about 15% of the annual rent. The lack of trust between landlords and tenants leads to issues such as lease agreement, nagging over repairs of damaged properties, eviction, and lack tenants rights. In some cases, real estate agents harass and pester tenants. Some demand excessive renewal fees when tenants seek their help to renew their contracts with the landlord. In fact, agents squeeze out as many dollars from their clients as they can.
So, what about the new graduate from Ukraine who relocated to New York to find a new job? In the U.S, an average bedroom apartment costs $2,000. The rent fee sums up to $10,000 after adding security deposit, application screening fee, and third-party commissions. To make matters worse, some landlords only accept bank transfer. The upfront fee hardens the process for qualified tenants to obtain an apartment. Also, tenants are required to scan ID documents, fill-out paper applications and wait for the landlord before moving in.
How buyers fall prone to real estate scams
Just as discussed above, the real estate market is prone to fraudulent practices. There are many cases of real estate scams on the internet. Last year a guy was caught selling a property to multiple buyers through fake signature and document.
Home buyers could fall into the trap of transferring funds to fraudsters or even buy a home that doesn’t exist. The scammer only needs to create a home-for-rent ad with the photos of a vacant home listed for sale. They won’t allow the buyer to see the house until they pay the full rental fee. The scammer will come up with many reasons why the buyer must transfer funds to him before ever seeing the house.
Moving companies also scam their clients by seizing their properties and asking them to pay a considerable sum of money to recover the properties. In this scenario, the moving company holds the buyer’s belongings hostage until they pay a huge amount of money.
The solution to the current rental market
Is there a solution to the challenges facing the digital rental process? What if there is a way to digitalise the entire rental process? Enter Rentberry, a decentralised blockchain platform intended to change the long-term rental landscape forever. They aim to create a rental marketplace that allows users to search for an apartment and it uses smart-contracts for landlords and tenants to interact directly without the need for a middleman.
Rentberry uses smart-contracts – based on the blockchain – to foster the trust between tenants and landlords. They also minimise security deposit by allowing tenants to crowdfund their rent via tokenisation. Smart-contracts are digital contracts embedded with if / then statements and executed without any involvement of an intermediary.
To standardise the process, Rentberry platform will host e-docs and e-contracts application process through the decentralised platform. Rentberry has taken this further by incorporating a review system for tenants to rate landlords – a landlord scoring system based upon publicly available information.
So, what is the blockchain?
The blockchain is mostly known as the backbone of Bitcoin, but in reality, it has the potential to disrupt nearly every industry in some way. There are still hurdles to overcome before see it’s full transformative impact, but it promises a great future to say the least.
A blockchain is a distributed ledger – a database – that contains an ever-growing list of records in a block that is secured from tampering and revision. The blockchain is replacing the current centralised database structure with a decentralised model where the data is maintained by thousands of computers around the world. The first blockchain was developed back in 2009 as a core component of the cryptocurrency Bitcoin, and it serves as a public ledger that records and stores all transactions made using the digital currency.
Long story short, the blockchain serves as a public and transparent ledger that allows people to transact without any need to know or trust each other, in addition, it allows for money to be pre-programmed for accounts through “smart-contracts” to send payments almost instantly.
The rental market, which heavily relies on contracts, would benefit heavily from the blockchain’s stable structure. The most important benefit of such platforms is neither tenants or lenders have to worry about security and fraud because the smart contracts make sure that all terms are met down to the last detail.
With the latest surge in the popularity of the blockchain, thanks to Bitcoin, a decentralised approach for most of the major industries are getting ever-closer. With the decentralised approach to the rental market tenants and landlords have immediate access to necessary information and funds at their fingertips. Facebook’s Mark Zuckerberg has mentioned his interest in the blockchain and said that he would study the blockchain to see how they could best use them in their services. Decentralization is becoming the centre of every business, and the long-term rental market is the next in the line.