You could say the crypto world is having a moment: Digital currency trading platform Coinbase went public and was valued at $85.8 billion by the end of closing day, auction house behemoth Christie’s pulled in $69.3 million for a piece of digital art and many in the real estate world noticed when Mars House — a property that exists only online as a series of zeros and ones — sold for about the same price as a median-priced home (the old-fashioned, brick-and-mortar kind) in the Denver metro area: just more than $500,000.
These enormous sales got the art world talking about non-fungible tokens, or NFTs, and even more recently the luxury real estate world got its introduction: A brick-and-mortar home in Westchester County, New York that’s listed for almost $4.5 million has its own accompanying NFT listing.
In order to understand NFTs and the future of real estate, let’s talk about what NFTs are. In simple terms, an NFT is the original version of a duplicatable piece of digital information. So, a person who owns an original piece of art as an NFT owns a bit of code that verifies ownership. Other people can create counterfeits, but only the NFT owner holds the original.
Blockchain money, NFT art and crypto-digital homes might seem only peripherally related to the real-life real estate market, and for now that’s true. But several real estate and cryptocurrency experts say the process of transferring physical property is compatible with NFTs and the future world, and some also forecast a future where transferring property rights might come with the option of signing over mineral, water, air and digital rights.
Blockchain and real estate
First, “cryptocurrency” is a general term that describes digital/virtual currency, which is called bitcoin. Bitcoins, also called digital tokens, are traded on digital marketplaces that do not have a central authority (i.e., no bank is involved) and promise to be fraud-proof and entirely secure. There are no physical bitcoins; they exist and are tracked only on distributed ledger technology known as blockchain.
It’s the “entirely secure” part of blockchain trading that makes cryptocurrency interesting to real estate professionals, and why NFTs might be the future of real estate transactions.
“One of the reasons the industry has zeroed in on this is because of how it relates to tracking the chain of title on a property,” said Calivin Bealulier of CENTURY 21 Realty Partners in The Woodlands, Texas. “This technology has the potential to radically change the way property is transferred, but the legal system hasn’t been set up for it yet.”
The problem, said Bealulier, is similar to the electronic signature problem the business industry had until the year 2000, when then-President Bill Clinton signed (via e-signature) into law the Electronic Signatures in Global and National Commerce Act (E-Sign Act), giving the same amount of legal clout to electronically transmitted signatures as pen-and-paper ones had.
“The law, especially in real estate, never moves as fast as the technology,” he said.
Don’t write off NFTs
That doesn’t mean you should write off cryptocurrency, NFTs or blockchain technology. Though it’s not an option yet, some professionals say real estate transactions are perfect for blockchain uses. For example, blockchain technology could make equity instantly available to buyers. The head of the International Blockchain Real Estate Association, Henry Elder, explained that buying a house after it’s ownership documentation has been “tokenized” into the NFT world could allow borrowers to avoid using banks and being subject to their due-diligence process.
Working with NFTs in future real estate sales could go something like this: Everyone involved in the sale agrees to transfer the property as an NFT (same as everyone has to agree to e-signatures). An NFT is then created to include all the pertinent details about the property — disclosures, legal description and reports, for example. The NFT itself proves ownership and the party who owns the NFT legally owns the physical property. The NFT lives on a secure ledger, where it can be identified, valued and placed up for sale on a digital marketplace.
While blockchain technology and NFTs in the real estate world are ideas of the future, the rapid rise in value of NFTs illustrates just how quickly changes can happen. In the real estate world, where speed and accuracy are worth top dollar, technology that streamlines and secures real property ownership will likely catch on, eventually.