Blockchain Technology and Disruption in Real Estate with Mark Lesswing and Todd Carpenter of NAR #567

Norris Bruce

Bruce Norris is an active investor, hard money lender, and real estate educator with over 30 years experience. Bruce has been involved in over 2,000 real estate transactions as a buyer, seller, builder and money partner.

Norris Bruce
December 1, 2017

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This week Aaron Norris is joined by two gentlemen from the National Association of Realtors to cover technology topics, and most importantly, blockchain and real estate. Mark Lesswing is Senior Vice President and Chief Technology Officer at the National Association of Realtors. Mark holds a Bachelor of Science degree in Industrial Engineering from Lehigh University and started programming robots just out of college. He’s worked in startups, turnarounds, and such brands as Sybase and Oracle. He has been with the National Association of Realtors for over a decade covering topics ranging from Blockchain technology to robotics.

Todd Carpenter is the Managing Director for Data Analytics for the National Association of Realtors. Tod leads the association’s efforts to build analytics tools that help the association make better business and advocacy decisions. Before his position at NAR, he was Sr. Manager of Industry Engagement for Trulia and has over 20+ years of experience in the real estate and mortgage industry.

Episode Highlights

What are four major characteristics that make up Blockchain?
What is the difference between Blockchain and Bitcoin?
How is their message regarding Blockchain being received in this technology-phobic industry?
What is private Blockchain versus a normal Blockchain?
With competition from other tech companies, is the current ecosystem best serving the community?
What is involved with smart contracts, especially as they apply to Blockchain?
What is NAR doing to lead the charge?

Episode Notes

Aaron asked them if they ever thought they would end up in real estate and how they ended up there. Mark said he never thought he would end up here in real estate. He went to college in the 70s, and they did not really have computer science back then so working with computers was really interesting for him. He went to school at Lehigh on the East Coast, and the only thing available at that time was robotics and machine control. After this, he went to work and the computers drew up with him. He followed through and kept up with everything on the business side until he ended up where he is today. He did a little stint with relational database vendors for a while. He totally backed into the NAR and real estate, so he does not consider himself to be from real estate.

Aaron has seen both of his white papers on Blockchain. When he wrote these back in 2016, who knew that prices were going to explode. On another note, Bitcoin has reached $11,000 and has since backed off. You have to look at technology differently from the traditional and relational database. We captured all the business problems and jammed it into the databases for so many years. He saw that Blockchain technology had a different purpose completely.

Aaron asked Todd next how he ended up at NAR. He said it was the exact opposite of Mark. His mom was a real estate agent, so early on he had experience with MLS. He followed her into the mortgage industry, and for a long time he was always frustrated by the mortgage industry because the technology that was available was always so far behind what was already happening. He started treating his own solutions, learned off the web and taught himself HTML. He would build his own website to service his customers.

Eventually, he went to work for a guy named Warren Myers out in San Jose who originated the very first mortgage online. He was in charge of Myers Internet, and they built websites and generated mortgage leads for the industry, which lead him to an interesting section of learning more about technology for a real estate and mortgage professional. He would often explain technology to real estate agents and companies. This is in his niche.

Aaron found the press released for Mark back in 2006. He started at NAR right after Facebook was created. Todd started with NAR in 2009. He left for about a year, but then came back and worked directly for Mark for the last four years. It’s crazy how quickly things have gone in the last ten years, and he can only think that the next five will happen a lot faster than most of us think it will. Todd just talked about the need to catch up. The industry has been a little bit lagging behind other industries, so you are not only feeling the effect of new technology but also the catch-up sect. Hopefully people feel that he and Todd are part of that.

Aaron said they are being very nice about the industry and technology. Aaron said he would describe it as the industry in general being techno phobic. There is either a sense that you do not care and will retire before it matters or the catch-up is so overwhelming. Some do not even have a Facebook business page, while others are talking about artificial intelligence. Mark said he has heard people use the word techno phobic a lot and has been blessed to meet a lot of people in the industry, more than those in the real estate industry. Techno phobia seems to refer to them being more focused on doing the deals, getting the commissions in, and living. They are not technologists.

It is not so much a phobia as much as it is a distraction since you have to keep up with it. The question is how you keep up with it without sacrificing your business. You cannot be an expert at everything, and it is moving quickly. They are dedicating this first show to Blockchain technology, and in the second show they will go more broad. With the technology coming into the space, there is so much opportunity to change how you, future development, and urban planning.

Aaron asked Mark what his elevator pitch is on Blockchain when somebody asks him. He tells them that Blockchain is just a data storage technique and very akin to what you would have in databases and Excel spreadsheets. What is different about it is there is no central place to do it. It is distributed in many different spots. Instead of one database, you have many sources for the exact same data.

The real estate industry loves control, so Aaron wondered how that message is received. Mark said given the kind of technology you use, such as Bitcoin and other cryptocurrency, these are very much in the public way. You can also use Blockchain as an asset management play. Blockchain is about the assets and living in the life of the asset. If it was a printer, you would have a list of every time the cartridge was changed and the power went up and down every time you are rebooted. In the property, you would keep track of every time there was an improvement to the property and every time you paid your taxes. It is a different kind of tracking, but that is actually the difference. Instead of a central point of contact for all that, it is spread out on all the records and changes to the printer being stored on multiple devices. It is unchangeable, and that is one of the fascinating things about Blockchain.

In order to commit fraud in this space, you would basically have to trick all the different computers storing this information at one time to be able to accomplish some kind of change. There used to be security by business practice and tools. They would have a database of firewalls and all these exotic types of ways to keep security on your data. This way, there are copies of it and therefore it is the majority of those copies that all agree that becomes the concept of master. Instead of having all these techniques you do, store, and keep one copy secure, the security model is that you have so many.

We have distributed ledger, and there is not one point of contact. If somebody tried to hack it, then it would be all over the place. It is immutable information that is so hard to break, and there is a track record from the beginning of time with this asset. It is hard to change and completely transparent. However, it is transparent in that a lot of people can see it. This is also another concern. Aaron asked them if they had found an easy way for people to grasp the idea of transparency. One of the points of confusion that Aaron hears is if it is so transparent, why can’t we pinpoint who did it and hunt them down when ransomware comes into play.

In the cryptocurrency world, it is all in the public space. We have been in the model where you have a central copy. The question is how you get from central copy to the distributed copy in the public space. Well, there will be an intermediate here. In some technologies, particularly the one moving forward called Hyper Ledger, you can actually have a private network. Using Blockchain in a private network where you can control who is participating in the network. This is the first logical step that allows you to go from where you are today to more of a private network to get used to all the governance rules before opening it all up. There is a shift toward moving full public.

Aaron next went on to talk about how cryptocurrency is not Blockchain, but it is built on the Blockchain technology. Aaron thinks cryptocurrency has scared people away, being a currency that is out of control and will reach $1 million depending on who you discuss it with. There are so many points of view from many smart people regarding what they think will happen to it. At the end of the day, Blockchain and cryptocurrency are two completely different issues.

One of the things that has been talked a lot about is the smart contract. Aaron reached out to blockchain.info when he was doing research last year, and he was how there is so much bureaucracy in the field that it’s uncertain how it will work when you have NAR, the MBA, the Appraisal Institute, and others all needing to work together. Aaron spoke with someone who said it is a really good point and that bureaucracy is an issue. Where you will see this launched first is in third-world countries who don’t have anything about which to worry. They are going to just start recording, and it will prove themselves there and work its way back.

Aaron asked if there is some consortium in our field that are working together to establish protocols to where we can have a private blockchain and make smart contracts work for our industry and make it industrywide. However, there is not yet because each of the constituents have their own view of the world. Therefore, as they move data across them they move through the transactions. Therefore, you get very protective of that space. The title people are protective as well as the bankers, counties, and MLS. Everyone is protecting their space so much that there is no real good way to work together on this. We have to adopt it in order for Blockchain to work. You have to understand the long-term benefits too and that it is a work-in-progress.

Last year NAR had a very large country visit them. They already have affiliations with tens of other countries, not just the U.S. They were from South America and wanted him to do a presentation. How could they put up an MLS? This country was very underdeveloped, but digitally they can capture every structure in the country. Mark asked himself why anyone would want to follow the model NAR did and then go into the endgame. Once you go jump into something like a Blockchain, it goes all the way through to recording the transaction. After he finished the presentation, this is exactly where they started. The whole concept of third-world, underdeveloped countries going directly to Blockchain might actually be reality.

Aaron asked if the current ecosystem, as far as MLS, is serving the community best now that we competition like Zillow and other tech companies that are winning in the tech space. Aaron wondered if the MLS infrastructure is working. Mark’s view was that the infrastructure is there, but you have to look at the core mission. The core mission for some of these companies is actually to connect with the consumer themselves. The MLS is not this way. However, part of the MLS is not just the data itself, but also to make sure people get paid. This is Zillow does not do. It does work from this side for the brokers out there. Some of the technology is a little more dated, but unfortunately there is not a key business element available here in these new platforms to make sure you get paid. Therefore, these new platforms will probably get there since this is the nature of innovation. The MLSs would have to seriously look at this.

Todd added that the experience when you go onto any of these national portals is only good because of the MLS. The MLS and governance system has assured that most of that data is correct and up to date. The MLS is making sure agents update their information all the time and provides the data entry point for all the brokerages and real estate agents to supply that. The MLS then sends that data off to those portals. If you ask any of those portals the place where they want to get that data the most, it is from that MLS. You can look at it and see if they are attracting a huge amount of traffic online and getting a lot of consumer eyeballs. However, it is the hard work of the real estate agent, brokerage, and MLS in marketing those properties that makes the sites look so good. If you want to see the difference of what it looks like without the MLS, you can just switch to real estate on Craigslist. This is basically the difference.

They next went on to talk about smart contracts as they apply to Blockchain. A smart contract is the ability for software to live on the Blockchain, consents a condition, and executes something. It does have to mean contract in the broader sense of selling a house. However, it actually means something very small where when one thing happens, you need to quickly send an email and make a notification. It involves small, micro type of events. He thinks with smart contracts, the best way to get started is to look at these micro type of events before going for something very ambitious. This could include signing over $80,000 in a bank loan due to a Blockchain contract. The complexities of this are enormous. A contact is nothing more than a piece of software anyway, so capturing it at this point may be very difficult. We need to learn what this means, and we will as we start looking for small things.

Aaron was not thinking big enough. He was thinking of one being in a county recorder’s office and somehow starting to find the money to scan in all the different records. That way, when somebody comes up to him and asks if a bedroom can be added and everything is being recorded, this is much bigger. We are talking about triggering emails and different activities and workflows based on what happens within that document.

Aaron asked if it is possible that our industry will get together in the next five years and make this a priority. However, this is really good question. There is so much more discussion than even a year ago, which is encouraging. It is getting eyeballed and getting good notice, although there is a still a lot of education to go here regarding what it means and what it doesn’t. This could make great strides in five years, but we have to work together in order for other industries to be able to do that. It’s not really certain where the other industries are in their understanding of technology. However, 2018 is going to be a big year.

The Norris Group interviewed MERS back when they were in front of Congress testifying and talking about whether their program was even relevant and if all these lawsuits were going to end up not doing well in court. In fact, they did not have the right to foreclose. Immediately when Aaron started thinking of smart contracts, he wondered if MERS was working on it. They just seemed like they would be the natural go to in the industry, although he never heard back from them.

Aaron wondered if anyone besides NAR is taking the charge that seems to be working on this space. Mark said he is one of the few CTOs who still writes software; and having worked on projects with the big Blockchain vendors, he gets to talk to other developers. He does not believe there is much going on in the other sectors as we go downstream toward the country recorder’s office. People are thinking and writing about it, but they are not really doing it yet. Otherwise, you would be seeing a lot more popping up in regards to what people have discovered. However, this is something we need to get going. Todd added that if you watch the new sources, you will see a lot of consultants talking about the possibilities. However, they are very early in this.

Aaron asked what could be possible in a utopian world regarding what real estate agents and investors would understand? They said what it could mean in that world would be better data and faster access to data if you are on the buying and selling side. These would be your brokers. This information would be nearly instantaneous. The fact that as the process moves forward into the closing process, it is possible that it could end up being a 30-40% savings in calendar time to the final close. In today’s world, you have to do so much with databases. In the Blockchain world, it is just there and moving through it. When you get down to the recording part of it and move the asset itself, all the data will just be there to move. It is about speed and accuracy.

Aaron envisions a perfect world where all the industry associations decide on a data set. Everyone would be working on a board together and gathering all the data they need and pull it from the files they need. From listing to offer to recording, everybody from real estate agent’s office to the county recorder’s office has everything they need, and it is all in this permanent Blockchain. This is the utopia Aaron envisions. Mark and Todd said this is almost right. They do not believe the data will actually move into the Blockchain, but rather the Blockchain will point out to the data sources of the events themselves in time. At this point, if you file for your loan, the entire loan request would not be forth watching. The fact that you asked for it, and who you ask for it from would be like looking at ancestry.com. You would need to know where to find all the information in the Blockchain, but not necessarily all the data itself.