The home buying process, especially in this economy, can be a real headache. Finding your ideal accommodation is only the first step in the arduous process. You have to worry about administrative paperwork, the opening offer, closing costs and much more. It could take up to two years to reach closing cost, and you could still run into problems the day you plan to close. But what if there was a way to avoid all that back-and-forth headache and buy a property easily? What if you could buy real estate with the click of a button on your iPhone? Or, what if you could easily shop for real estate as easily as you fill your Amazon cart (no judgement) and get overnight delivery? Well, that reality may be closer than you think thanks to NFTs.
NFTs are non-fungible tokens which are backed by blockchain technology which means they are one of one. They cannot be changed, and the details of your transaction (the creator, the buyer, how much it was purchased for, and more) are digitally and automatically documented. Traditionally, they have been used to sell physical and digital art providing not only the art itself, but also the actual ownership of the consumer. NFTs gained massive popularity last year with the rise of the Bored Ape and CryptoPunks projects. But, since then, its use has expanded to many other fields, including real estate.
One way NFTs are used in real estate is through fractional ownership. Consumers can purchase NFTs and receive partial rights to a property. This is a great way for first-time buyers or early investors to get in on the action without having to shell out the full down payment on a home. Those who purchase fractional NFTs could receive a number of benefits outside of the asset value, such as rental income, profit split, or capital appreciation upon sale. This type of property also allows the sale of the property to be carried out without intermediaries or real estate agent. In addition to reducing the time it would take to transfer the rights (that would happen automatically thanks to blockchain technology), people could also raise capital without having to borrow money from the bank for a mortgage.
While the idea of unlocking equity with ease sounds great, there are some flaws in the system. Who would be considered the rightful owner of the property? If the person who owns the most NFT is considered the landlord, that could put current tenants at risk. On the other hand, if the token holders are not the actual owners, then the tenant could stay in the property forever and the token holders would not get the full benefit of the principal. The purpose of NFTs is to cut out the middleman, but if there are multiple investors involved in a property, wouldn’t someone need to manage 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 representing NFTs. One of his biggest goals is to reduce the high broker fees associated with traditional real estate. They recognize that a middleman or agent of some sort would still be needed to provide property information to the consumer, but coupled with their technology, the process could be much faster.
Fractional ownership is not the only option with non-fungible tokens. You can also buy an entire house with the purchase of an NFT. Earlier this year, a house in Florida was auctioned off as an NFT and sold for more than $650,000. The rights were minted as a non-fungible token, which reduced the closing time and the NFT holder now owns ownership through an LLC that owns the NFT. The sale was made by Propy, a blockchain real estate startup that doesn’t limit its business to the US. 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 houses in Portugal through NFTs. Owners of the property can resell it almost instantly through block chain technology. Prometheus assures its NFT holders that they will ensure ownership transfer and title requirements are handled within the laws of Portugal to ensure true ownership.
Although the process of buying a real estate NFT can be simple using blockchain technology, the back end of transferring true ownership is still a bit complicated. Buying the NFT alone does not provide solely property rights. Standard paperwork and transfer of title still need to be done in conjunction with the sale. Until the laws catch up with today’s technology, you almost always have to 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 technology, there will still be a back-end lag that will require companies to ensure that ownership is transferred correctly. What this does is build excitement and hope for the future of blockchain technology 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 to entry has been lowered for those from multiple class statuses who can now participate.