Buying or Selling Property with Bitcoin: What are the Risks?
Q: My seller client wants to invite offers for their property in bitcoin. Is this legal?
A: There is no law prohibiting the use of digital currencies for the purchase or sale of real estate in BC, meaning there’s nothing stopping a consumer from buying or selling a property using bitcoin.
However, there are risks to using digital currencies like bitcoin. If you have clients who are considering buying or selling with a digital currency, you should advise them to get expert legal or accounting advice to ensure they are well-informed about these risks.
All licensees have a duty to protect their client’s best interests and should ensure that where there are additional risks in a transaction, such as with the use of digital currency, they take extra time to provide clear advice and document that advice with the transaction.
Here are some of the issues that real estate consumers should be made aware of:
Digital currency can’t be held in trust
Digital currency can’t be legally held in a trust account in Canada, because they exist outside the purview of banks and governments. Brokerages can’t receive a bitcoin deposit and hold it in a trust account.
The buyer and the seller would need to negotiate for a third party to hold the deposit, which brings an increased level of risk. In a trust account, the funds are protected should the deal collapse. If the deal were to collapse using a digital currency, your client may have to find the other party and sue them to recover the deposit.
Increased risk of money laundering
While bitcoins can be used legitimately for many purposes, there are also significant risks associated with them, including the risk that the currency may be used to disguise the source of money derived from criminal activities – commonly known as money laundering. For more information, read Bitcoins and the Risks of Real Estate Fraud: 3 Facts You Need to Know.
Currency levels are hard to predict
Swings in digital currencies can happen very quickly. Your client might enter into a Contract of Purchase and Sale for a set number of bitcoin and find by the time the transaction closes that the value of those bitcoins has changed drastically – possibly to your client’s advantage, or possibly to their disadvantage.
It’s important before assisting your clients in a digital currency transaction that you understand how to mitigate or eliminate the risks in any contract or negotiation.
Consumers should get expert advice
If your client is considering using digital currency, you should recommend they get expert legal advice to understand the risks, and to safely navigate the transaction. Because of the volatility, risks and complications associated with using digital currency, advise your client to seek out all information he or she needs to make an informed decision.
Do you have suggestions for future You Asked Us articles? Send your questions to [email protected].