NFTs have entered the real estate market. And the Real Estate Tech and Fin Tech conversations. For most, it’s even unclear what NFTs are, or how they are created, let alone what their impact on the real estate industry might be. Are NFTs to become the standard mechanism for buying and selling property, and should agents worry?
What most people know of NFTs are spectacularized examples of digital collectibles trading for outlandish prices with increasing frequency and popularity (especially when involving celebrities). A Japanese rainbow-powered, pop-tart kitty (the Nyan Cat) selling for nearly $600,000. Ten thousand iterations of an apathetic monkey (called Bored Ape), selling for as much as $2.85M. The sector is hot and moving faster than EVs. According to BNP Paribas, in 2021 the total value of all NFT transactions worldwide jumped 21,350% to more than $17 billion, from “only” $82.5 million in 2020.
The du jour trend of digital “art” traded on a digital exchange sort of makes sense. But trading a physical thing, and in this case the most important physical asset that consumers might ever purchase, doesn’t compute. Spectacular cognitive dissonance.
HOW CAN REAL ESTATE BECOME AN NFT?
A year ago, TechCrunch founder Michael Arrington sold his apartment in Kiev, Ukraine using an NFT for 93 Ether (ETH), or roughly $93,000. This year, a five-bedroom, three-and-half-bath home located near Tampa Florida home, was purchased for ETH worth approximately $650,000. So far, NFTs have been used to purchase and lease everything from apartments and mansions to office buildings and hotels.
Let’s step back and walk it through. NFTs are Non-Fungible Tokens, a new type of digital asset that is minted, and stored, on a blockchain. What is a blockchain? In simple terms, a blockchain is a digital ledger. When you “mint” an NFT, you are buying a piece of code that lives on the blockchain (specifically the Ethereum Blockchain). This code can be anything you want, but it must be unique. You are essentially creating a new smart contract on the Ethereum network that defines the NFT. This smart contract can be used for digital collectibles, gaming tokens, or the ownership rights for real estate.
WHY NFTS MAY APPEAR BETTER-LOOKING THAN OLD-FASHIONED TRANSACTIONS
Besides being trendy, buying and selling real estate as an NFT seems a safe and efficient way to transfer ownership of property. Once an NFT is minted, the code is immutable and cannot be altered. The transaction is verified by computers around the world called “miners.” This makes NFTs tamper-proof and secure, preventing real estate fraud or theft. The smart contracts that power NFTs can automate many of the tasks traditionally performed by the intermediaries of a real estate purchases, reducing time and cost. The NFT can include all relevant documents, such as the title deed, which can be verified and transferred with a single click. The real estate NFT can record and track the entire history of the property, from ownership to mortgage payments. NFTs are divisible into smaller units, making them especially useful with real estate asset nuances, like fractional ownership and rentals.
A NEW KIND OF TRANSACTION, BUT STILL A HOUSE
In this discussion, the NFT is not a bad or disruptive thing, it’s just a transactional tool. Its impact on the agency and brokerage ultimately depends on how it’s used. NFT is one, dependent variable in the overall equation.
Because the underlying asset of being exchanged is still a house (or condo, or building), there is some fine print that cannot be ignored. Even with all the relevant documentation stored securely on the blockchain, and the crypto payment for the deed is confirmed, the transfer of property is still not complete and cannot be completed with the click of a button. The sale of real estate as an NFT is not officially real, in the real world, unless it’s recorded with the municipality. This is a showstopper without a creative workaround. A cliffhanger resolved in the next, Are NFTs Good for Real Estate, blog. Stay tuned…