Last Updated on March 29, 2023 by Mark Ferguson
A couple of months ago a house was sold with an NFT. You may have no idea what I am talking about and that is okay. Most people have no idea how this works and honestly, the people who bought and sold the house in this manner may not have understood it either! Blockchain technology is what cryptocurrencies and NFTs run on. Many people are predicting that these new technologies will change real estate sooner rather than later because you can use smart contracts with blockchain which may make real estate more secure and easier to transact. I am a real estate investor, agent, broker, and investor in crypto and virtual real estate and I wanted to give my thoughts on blockchain technology and traditional real estate.
How did the house sell and for how much?
The house in Florida sold for $653,000 of Ether, a cryptocurrency. There was an auction for the house but it was not sold in a typical way. The house was put into an LLC, and the LLC was sold as an NFT. There were two bidders for the property and the minimum bid was $650,000. There were more bidders who were willing to pay more than the winning bid but they were not willing to buy using the NFT process.
Since the house was in an LLC, the winning bidder did not have to transfer the title or complete any documentation with the government. They simply took over the LLC which owns the house.
What are NFTs and how does blockchain technology work?
NFTs are non-fungible tokens. You have probably heard about pictures being made into NFTs but many other things can become or see NFTs. an NFT is written onto the blockchain and in theory, once that is done, it cannot be changed or duplicated unless it was created to change or be duplicated.
Blockchain technology is what cryptocurrency is built on. The idea is that once a blockchain is created it cannot be broken or changed or duplicated unless it was created to have those attributes. A smart contract can be created with blockchain so that when something happens this happens. For example: if a house is sold, when the asking price is received, the title to the house automatically switches to the person who paid the price.
This is a very basic explanation and I could go on and on about blockchain but we will go into it more with specific uses in real estate.
NFTs and virtual real estate
I love virtual real estate and love to play Upland a virtual real estate game/investment. In Upland and other virtual real estate metaverses, plots of land, buildings, and other items can be bought or sold as NFTs. Once you buy the NFT it is yours until you sell it or trade it or give it away. Blockchain can be very secure with these applications because the game creators can’t take your NFT, they do not have the power. Once they made the NFTs and transfer them to players, they can’t just take them back. They can make rules and punish players who break the rules but they can’t take their NFTs.
With virtual real estate and many other online applications, NFTs can be very useful and blockchain technology has a ton of potential. However, I believe virtual real estate is much different from real-life real estate.
How do others see NFTs and blockchain impacting real estate?
I have seen many people say blockchain technology will change real estate forever and change it very quickly. They say that the title transfer process with real estate is too slow, too antiquated, and not secure enough. They believe that if houses are sold as NFTs or in conjunction with an NFT they could be transferred faster and cheaper.
There is also the possibility of selling a house with a smart contract. That smart contract could say that whenever the house sells in the future, the original creator of the smart contract gets a fee.
There are also debt and financing options popping up in the crypto world and many see the financing of homes becoming easier with blockchain lending instead of traditional mortgages.
Why I don’t think the real estate process will change thanks to blockchain technology
All of these ideas sound great in theory and technically a house was sold this way, but there are many problems with using crypto to buy houses.
- The LLC was sold not the property in the example above. For a property to be sold as an NFT, the entire title process would need to be changed at the government level.
- If the title process was changed, there would still need to be title insurance, and research done looking for encumbrances, etc.
- The entire process of getting loans would need to be changed.
- Yes, you can get loans on crypto now, but you need to have the crypto to get a loan on it. You can get a loan on a house before you buy it. You don’t have to buy it for cash and then get the loan.
- I do not see a feasible way for smart contracts to handle all the things that come up with a house like mechanics liens, HELOCs, tax liens, and utility liens. A smart contract would have to be built from the beginning to account for many unknown variables.
- Most crypto wallets are secured with a digital “key” of numbers or phrases. If you lost your “key” for the house you might not be able to get the title back!
- If you added a fee to the smart contract every time it sold that would be great for the original creator but make the home less valuable since every buyer knows they have to pay that fee.
What is the biggest deterrent to using crypto on houses?
The biggest reason why crypto won’t become a common currency or way to buy houses for a very long time is that people don’t want to use it to buy houses. The seller would have sold for more money had they used the traditional way to sell a house. I flip houses, own rentals, and own a real estate brokerage. I want to sell houses that appeal to the most people to get the most money for myself or my client. Most people will not want to use crypto which means the houses will sell for less money even if all of the other things are figured out.
What is the future of Crypto and real estate?
I think that crypto does have a future. Otherwise, I would not be investing in it. However, I do not see it having a big future in real estate for a very long time. I feel it would cause more problems than it would solve because real estate is so complicated. There is a reason it takes a long time to buy a house and transfer the title. You want to make sure everything is done right and most people need a loan which takes time.