June 9th: I am in a hotel room in NYC: I am nervously staring at the screen of my small, rose gold colored computer. Thankfully, the WiFi is working well − which is always an unknown at a hotel. In one hour, an irrevocable auction online will start. Truthfully, I have no idea what will happen.
It all started in April this year, when I wrote an article sharing the idea that real estate is the perfect asset to convert into a Non-Fungible Token (NFT). This led to a life-changing collaboration with other innovative individuals, united to build something transformative.
I argued at the time that the reason a real estate property was the perfect candidate for an NFT was that it already behaves like a digital asset in many ways. NFTing one provides numerous benefits, such as instantaneous settlement and a simplified overall transaction process – exactly what young people who grew up with smart phones desire. Real estate transactions are long, tedious and archaic. I was hoping to show it was possible to change.
We have already seen a new generation of home buyers looking for other solutions beyond the status quo. Unaccustomed to the costly and lengthy, drawn-out process of home-buying, with its reliance on outdated methods of transacting business and multiple middlemen, they are demanding a transparent, “one-click” process that is quick, efficient and reflective of the era they live in. They’d rather not buy a home than get into a hideous process.
After the article was published, I received many inquiries from real estate investors, agents, homebuyers, venture capitalists and coders asking how they could get involved. I was convinced that consumers were ready for this innovation, just like they were ready to buy art on blockchain. So I decided that it was time to discover how to NFT a property.
We’ve been working on this for years but there were remaining challenges that we needed to solve:
- Creating the actual NFT
- Wrapping the NFT within the U.S. legal framework
- Inventing the “know your customer” process since most art NFT transactions are anonymous
We solved the NFT creation issues by switching the property ownership from individual ownership to a US-based legal entity. Doing so enabled us to simply transfer ownership of the entity via NFT, which automatically transferred ownership to the property. And, as an added benefit, because the entity held the property title, there was no need to record the title again in the county − saving significant time and money.
Then we developed a protocol that would transfer an asset from one wallet to another, collect personal names and complete simple background checks − all of which ensured the transaction’s integrity.
Having all challenges resolved, we found the perfect property to NFT — a studio apartment, that was owned by a US-based legal entity. It was also the first cryptocurrency property purchased via smart contracts in 2017. Purchased by Michael Arrington, founder of TechCrunch and Arrington Capital, the NFT included the apartment and a piece of art by a famous local street artist Chizz.
With the NFT created, we scheduled a 24-hour auction on June 9th, 2021. While I was at first worried that we wouldn’t have bidders, over 40 bids were placed in Ethereum cryptocurrency. The winner was a first-time home-buyer − a millennial from Silicon Valley. After a stressful 24 hours plus six, 15-min extensions, sitting in the same hotel, ordering room service to not skip a minute from the online miracle, I was relieved − it was all successful. Technology worked. People wanted this asset.
The new NFT owner was thrilled with the process − it took only 22 minutes to transfer ownership − a far cry from his experience trying to buy a home in the Bay Area, a process he found far too complicated, so he never did. I learned about his experience after he kindly agreed to have a zoom call after the sale. He shared his plans to rent out the apartment as a historical one, and told me that he had been ready to pay double the price for this asset.
NFT or not, Millennials and Gen Z are already purchasing high-value assets such as expensive avatars or automobiles online. They expect the same ease and transparency when buying real estate. However, higher levels of security and more data integrity are necessary to circumvent wire and other forms of cyber fraud common in such transactions. Real estate settlement on an immutable blockchain using NFT technology could very well be the solution these new generations demand.
Brad Garlinghouse, CEO of Ripple, speaking at the Milken Institute’s 2021 Global Conference, said that settlement on blockchain is applicable in many industries including real estate for “any transaction that requires someone to commute the trust between the transaction” [participants].
People who will help consumers to NFT their homes could be entitled to royalty fees paid to their digital wallets automatically. These “NFT Miners” (similar to cryptocurrency miners) can receive small royalties for every future purchase as compensation for putting all of the data and the property to make it transferable (title report, inspection reports, disclosures etc).
Can the NFT revolutionize the real estate industry? I say absolutely! We are not just seeing interest rise amongst younger buyers and sellers and tech-savvy crypto enthusiasts who want to diversify their portfolios.
Agents and brokers who are also interested in setting themselves apart from the competition are actively learning and engaging in the crypto/NFT/blockchain space. Here’s what Mauricio Umansky, CEO at The Agency shared with me when I asked his opinion about real estate NFTs at the recent Inman Real Estate Connect Conference, “As clients become more educated about NFTs, there is growing interest in creating NFT real estate with real property. Changes in technology always align with changes in the real estate industry and at the minimum, this is a novel marketing tool to reach an audience interested in the metaverse. On the other hand, it can revolutionize our concept of real estate commodity and what clients will come to expect in a transaction. I believe NFTs will bring significant change to our industry.”
Once it is possible to NFT an property, the NFT will become collateral in the crypto world which unlocks crypto-enabled mortgages, where crypto holders would be able to participate in liquidity pools to secure peer-to-peer decentralized lending marketplaces for real estate similar to the current popular DeFi lending protocols for cryptocurrencies. NFT, DeFi, crypto title insurance protocols and crypto appraisal solutions will create a full cycle for the new age of liquid real estate. At the end of the day, the concept of homeownership is a social consensus just like the NFT art.