East MB Home Bought with Bitcoin

By Dave Fratello | February 28th, 2017

In a first, a Manhattan Beach home buyer has purchased a home using Bitcoin.

1400 21st Street Manhattan Beach CAThe home was 1400 21st (5br/5ba, 4550 sqft.) in East Manhattan Beach, new construction on a corner lot.

The final sale price of $3.225M was about 8% off the start price of $3.499M from June 2016. (The listing was rebooted in Sept. 2016 with a fresh new MLS # along with a reset on the start price to $3.349M.)

So the buyer got something of a deal, with a price that falls right in the middle among recent new construction sales in East Manhattan.

And the buyer did this with the power of an all-cash purchase... except that the initial offer did not show $3M+ cash at all.

You know that if you are going to write an all-cash offer, you need to show proof of funds available for the purchase. ("Show me the money.")

This buyer, instead, showed a bunch of digits on a screen.

It was Bitcoin, the mysterious/important independent online currency.

To which the sellers and their agents initially replied, approximately, "Huh?!?"

As a sophisticated MB Confidential reader, you probably know that Bitcoin is a digital currency in which encryption techniques are used to regulate the generation of units of currency and to verify the transfer of funds, operating independently of a central bank.

No, we don't know what that means, either, we just copied from something online.

But you probably have just about the same vague understanding of Bitcoin as those sellers had when presented with a multi-million-dollar offer for their property. They suddenly had to study up on the crypto-currency, because maybe they were going to own a bunch of it.

The proof of funds that the sellers got to see was not some printed or online statement in any conventional sense. The buyer showed them a mobile device, opened up a Bitcoin "cyberwallet" app, and displayed the balance in the account there.

So. Many. Questions.

The sellers could have taken up the buyer on the idea of simply opening their own Bitcoin account and accepting a transfer of a certain amount of the digital currency. But why literally accept Bitcoin for the purchase of the home, not really knowing what it is or where it's going?

In the end, the sellers did what any sensible person would have done in that situation. Whether a buyer's funds were in Euros, publicly traded stocks, casino chips or the mythical eCoin from Mr. Robot, you would ask that the funds be converted into the local currency with which you are most familiar: in this case, U.S. dollars.

The sellers' request to convert the Bitcoin would put the buyer on the spot a bit. The buyer would have to endure possible fluctuations in the value of Bitcoin while handling the details of a conversion. (A process that we also really don't understand.) One way or the other, the buyer was responsible for paying $3.225M at the end of the stated escrow period. If the crypto-currency's value went down, too bad... the buyer would have to put in more.

There was also the tricky matter of finding (1) an intermediary to handle the Bitcoin conversion, (2) an escrow firm that would handle the unusual transaction and (3) a title company that could bless the sale, being satisfied as to the source of funds.

Alas, that sensible demand by the seller to convert the currency to dollars worked out a bit differently. 

The buyer may have "endured" the risk inherent in Bitcoin's fluctuating value, but in fact, the buyer scored. Bigly.

After beginning the conversion process, putting aside a certain amount of Bitcoin for sale into U.S. dollars, the buyer benefited from a very rapid 25% increase in Bitcoin's value (from about $750 to $1,000).

At the time of the purchase agreement, the buyer needed to use about 4,300 Bitcoin to buy the house. On the day of the money transfer, the buyer needed to send only about 3,300 Bitcoin to a special account created by the intermediary for the seller. The seller did receive all the money promised. But suddenly, the buyer had $1M more left in the Bitcoin account, an unexpected windfall.

According to one report, the buyer went off and bought a Lamborghini to celebrate, thereby proving he's a regular guy. (Finally, a part of this story that anyone can understand.) And he went to a dealership that accepts Bitcoin. (Oops, another part we don't understand.)

This Manhattan Beach home sale appears to be a record purchase of California real estate using Bitcoin. One of the agents involved in the Manhattan Beach sale wrote on his blog that the highest prior Bitcoin property sale in the state appeared to be a $1.6M purchase of land in Lake Tahoe about two years ago.

Meantime, the sellers might be thinking something like: "Darn! Had we taken the Bitcoin after all, we'd have the new Lamborghini."

Maybe. Or Mr. Robot might have all their money by now.

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