The process of purchasing a home, especially in this economy, can be a true headache. Finding your ideal digs is just step one of the strenuous process. You have to worry about back-end paperwork, the initial offer, closing costs, and so much more. It could take up to two years to get to the closing cost, and you could still have issues the day you plan to close on the property. But what if there was a way to bypass all of that back-and-forth headache and purchase a property with ease? What if you could purchase a piece of real estate with the click of a button on your iPhone? Or, what if you could easily buy real estate with the same ease that you fill up your Amazon cart (no judgment) and get next day delivery? Well, that reality may be closer than you think thanks to NFTs.
NFTs are non-fungible tokens that are backed by blockchain technology, which means they are one of one. They cannot be changed and their transaction details (the creator, the buyer, how much it was purchased for, and more) are documented digitally and automatically. Traditionally, they have been used to sell physical and digital art by providing not just the art itself, but actual ownership to the consumer. NFTs gained mass popularity last year with the boom of the Bored Ape and CryptoPunks projects. But, since then, their use has expanded to many other areas, including real estate.
One way NFTs are being used in realty is through fractional ownership. Consumers are able to purchase NFTs and receive partial rights to a property. This is a great way for first-time buyers or early investors to dabble without having to fork over the full down payment for a home. Those who purchase fractional NFTs could receive a number of perks outside of asset value, such as rental income, profit split, or capital appreciation upon sale. This kind of ownership also allows for the sale of property to proceed without a middleman or real estate agent. Along with cutting down on the time it would take to transfer rights — that would happen automatically thanks to blockchain technology — people would also be able to get equity without having to borrow money from the bank for a mortgage.
While the thought of unlocking equity with ease sounds great, there are some flaws in the system. Who would be deemed the rightful owner of the property? If the person who owns the most NFTs is considered the owner, that could put current tenants at risk. On the flip side, if the token holders aren’t the actual owners, then the tenant could essentially stay in the property forever and token holders wouldn’t get the full capital benefit. The purpose of NFTs is to cut out the middleman, but if there are multiple investors involved in a property, wouldn’t there need to be someone who managed it?
While the technology is still being tweaked, companies like Roofstock are partnering with Origin Protocol to make real estate NFTs as seamless as possible. They recently launched Roofstock onChain to profile on-chain transactions that represent NFTs. One of their biggest goals is to cut down the high broker fees associated with traditional real estate. They do acknowledge that a middleman or agent of some sort would still be needed to provide information about the property to the consumer, but paired with their technology, the process could go a lot faster.
Fractional ownership isn’t the only option with non-fungible tokens. You can also purchase an entire house all from buying one NFT. Earlier this year, a Florida home was auctioned off as an NFT and was sold for over $650,000. The rights were minted as a non-fungible token, which cut down on closing time and the NFT holder now owns the property through an LLC that holds the NFT. The sale was conducted by Propy, a blockchain real estate startup company that isn’t limiting their business to the U.S. In May, the company helped someone in Ukraine list and sell their apartment for $93,000.
Another blockchain real estate company called Prometheus sold two luxury homes in Portugal through NFTs. The owners of the property are able to resell it almost instantly through blockchain technology. Prometheus reassures their NFT holders that they will ensure the property transfer and title requirements are handled within the laws of Portugal to guarantee true ownership.
Though the process of buying a real estate NFT may be simple using blockchain technology, the back end of transferring true ownership is still a bit messy. Buying the NFT alone doesn’t solely provide proprietary rights. The standard paperwork and title transfer still need to happen alongside the sale. Until laws catch up with the current tech, you have to almost always sell the property under an LLC, then have the NFT holder take ownership of that company.
Can real estate NFTs provide investment opportunities with ease? Yes! Do I think this technology is ready for mass adoption? Not quite. As mentioned, until real estate laws catch up with Web3 tech, there will still be back-end lag that will require companies to ensure ownership is transferred properly. What this does do is provide excitement and hope for the future of blockchain tech and the problems it could solve for the community. Real estate is a gateway to asset and wealth building and thanks to NFTs, the barrier of entry has been lowered for those of multiple class statuses who can now participate.