When a digital art work from an artist known as Beeple sold last year for $69.3 million, much of the world was confused.
The piece, which looks like a collage of smaller images, is what’s known as a non-fungible token, or NFT. What that means is that while anyone can look at the jpeg version of the art, the owner has exclusive rights to the original digital file. That file can be encrypted and stored in a digital wallet, and is sort of like a digital version of the Mona Lisa; there’s only one owner, but we can all buy the postcard.
A jpeg of Beeple’s multi-million dollar NFT. Credit: Christie’s
The Beeple sale and multiple subsequent high-profile NFT deals have turned the concept into the latest, hottest frontier in the world of virtual currencies. Sports organizations, celebrities and others have all raced to mint exclusive digital works that can be bought, sold and traded like art.
One year ago, Inman asked if real estate was the next place where NFTs would catch fire. At the time, it was unclear just how useful the concept could be for an industry that is inherently tied to the physical world. Would NFTs flame out, like a fidget spinner once enthralling but now forgotten? Or would they finally usher in the long-predicted but never-arriving era of widespread crypto use in housing?
The answer is still unclear, but what is apparent now is that year real estate professionals have pioneered new ways to use NFTs. What follows are a few examples of those new uses, as well as some of the challenges that lie ahead. Keep in mind, though, that it’s still early days and many of these uses are yet experimental.
NFTs as gifts
Probably the most straightforward way real estate professionals are using NFTs is as art — which is sort of how they were conceived and why the concept first caught fire. Specifically, Newgard Development Group will be using NFTs as a kind of closing gift for each of the buyers at an upcoming condo building that is currently under development as part of its Lofty brand in Miami.
Harvey Hernandez
Newgard founder and CEO Harvey Hernandez told Inman that his company is commissioning physical artwork that will be displayed around the property, and then will give NFT versions of that art to the residents.
“We wanted to provide a way for our owners to enjoy art similarly to how they enjoy their Lofty property,” Hernandez said.
Giving gifts to new homeowners is a common practice in real estate, and agents routinely give everything from doormats to keychains to food subscriptions. One agent who has spoken to Inman in the past hires a local watercolorist to do small paintings of newly-purchased homes.
Hernandez’s company is basically offering an NFT version of this age-old practice. But he argued that there is an additional benefit.
“It’s different because of the fact that they could gain value,” Hernandez said of the NFT gifts. “And it’s liquid and its tradable.”
In other words, Lofty owners will be gifted an item that could evolve into something akin to its own kind of currency.
Asked about the monetary value of such NFTs, Hernandez said it was difficult to pin down a price because they haven’t been gifted yet — the Lofty building is still in development — and because ultimately the open market determines the cost of an NFT. It’s also unclear how big the NFT market generally can get, or how much staying power the idea has.
But the Lofty project shows that real estate professionals are participating in the first NFT wave in which the technology is used as a kind of luxury good.
The home as an NFT
Some NFT pioneers are looking beyond luxury goods and trying to blend NFTs and the real world. One such experiment is also taking place in Florida, where ONE Sotheby’s International Realty and Voxel Architects are currently building a mansion that will exist as both a physical property and an identical virtual rendering.
Daniel de la Vega
“We’re just trying to build digital extensions of real world habitats,” Daniel de la Vega, president of ONE Sotheby’s International Realty, told Inman.
De la Vega argued that there are several reasons to create a home with both physical and virtual components. For starters, as the concept of the metaverse grows people will want spaces in their virtual worlds, and having a property that mirrors their real-world environment may be appealing.
Selling an NFT that has a physical house attached to it also changes the nature of the transaction. The company plans to sell the house via the Ethereum blockchain and doing so should offer an experiment in potentially streamlining and decentralizing the transaction. Though the outcome is still to be determined, the hope is that a crypto-oriented sale is simply easier to get done than an more traditional one.
Whatever happens, though, de la Vega does see NFTs and cryptocurrency as the future.
“I think the demand is just to move more into a decentralized space where people can be more creative and own assets through the blockchain,” he said.
NFTs as transaction management
Some pioneers in this space also think NFTs represent a chance for newcomers to get into real estate. Natalia Karayaneva, CEO of real estate blockchain startup Propy, told Inman her company first did an NFT transaction in 2017. The property was an apartment in Kyiv that had belonged to the founder of media company TechCrunch, and selling it as an NFT allowed it to reach a pool of prospective buyers who may never have consider real estate at all, let alone a condo in a foreign country.
Natalia Karayaneva
“We had 40 bidders,” Karayaneva recalled, “and the winner was this millennial from San Francisco. He had never bought a property. He wanted to invest in real estate but he was afraid of the process.”
Propy’s approach differs from the Miami mansion because rather than create virtual houses for a still-nascent metaverse, the idea is to increase transparency and ease. For example, Karayaneva said NFTs allow transaction-related documents to be uploaded into an owner’s digital wallet. Information sticks to the property more easily. And over time, this means an owner could have easy access to a vast trove of transaction-related documentation that is traditionally much more difficult to access.
“You would look at the NFT as your title,” she explained. “And you have full access to your title, which is sitting in your wallet.”
Since the Ukrainian deal, Propy has since moved on to sell other properties as NFTs, including a home in Tampa, Florida, this week. The company has more than 1,000 people on a waitlist for future NFT transactions, and Karayaneva described demand for the service as “robust.”
NFTs a membership cards
Daniel Shamooil is the founder and CEO of VORO, which is both a brokerage and a platform provider. Agents can subscribe to the platform in order to get access to things like transaction and back office management.
Shamooil launched VORO in 2012, but last year announced plans to sell a collection of NFTs. And in this case, the NFTs are less like a piece of art and more like a membership to a gym.
“Once you become an NFT member you then get access to membership perks,” Shamooil said. The perks include pricing discounts, as well as participating in a future metaverse the company is planning.
So why not just sell a conventional membership?
Shamooil said his company’s NFTs are priced at $600, but are also tradable. Meaning that unlike a gym membership, which has to be renewed and can only belong to one person, the owner of a VORO NFT could potentially sell it at a profit.
“It’s a digital asset that you own,” he said.
Future opportunities
Everyone who spoke to Inman for this story characterized the convergence of NFTs and real estate as in its earliest stages right now. Though players like Propy have been working in the space for several years now, it’s still a very experimental field and it’s unclear which solutions will stick.
But there are speculative ways NFTs could evolve further. Shamooil pointed out that the NFTs his brokerage is selling will have a practical impact that’s similar to an initial public offering (IPO) on the stock market: They’ll provide the company with an infusion of cash, while giving traders an asset that grows in value as demand rises.
In that context, Shamooil noted, it’s easy to imagine more companies looking to NFTs as a fundraising strategy. In the same way that mergers with special acquisition companies, or SPACs, became a massive trend in recent years, NFT pseudo IPOs could catch on in the future. That future surely depends on how well companies like VOROs do with the idea in the immediate term, but it’s at least a future that’s easy to imagine.
Such a future could also see NFTs provided to agents and company employees, much in the way that companies such as eXp Realty and Compass currently hand out stock as part of their compensation packages. NFTs surely have a long way to go in terms of mainstream adoption before that happens, but some real estate companies have shown a willingness to adapt quickly, putting NFT compensation packages within the realm of possibility.
Propy’s point about documentation also represents a potentially expanding frontier. For instance, De la Vega speculated that within 10 years, “everything that’s done in the home from the last screw will live on the blockchain.” Which is to say, homes could have a ledger that describes things such as construction and repair status that today have limited or no documentation at all. In a future where every home has an NFT attached — which is a future de la Vega sees as not particularly far off — all of that information can be easily managed in one digital place.
The challenges of NFTs
Companies working with NFTs are seeing demand for their products, but many of the sources who spoke to Inman for this story also acknowledged that there’s a long way to go before the general public fully grasps the concept. Indeed, this appears to be the biggest short-term obstacle to wider adoption.
“A lot of people are still very new to this space,” Shamooil said.
That issue may work itself out over time as people organically read more about the topic.
But a potentially bigger issue is that its unclear what role, if any, the government should play in the world of real estate NFTs. Dave Jones is the co-owner of Windermere Abode in Tacoma, Washington, and owns a number of non-real estate NFTs himself. He’s a fan, user and closer follower of the technology. However, Jones also said the decentralized nature of NFTs means there aren’t a lot of rules yet in place.
Dave Jones
“You can go off the honor system, but as I’ve seen in the Web3 space, there’s a lot of people who might not be in it for the best reasons,” he noted. “Right now there’s not a high level of security in the NFT space. Without any intermediaries or centralization you’re going to have people getting burned left and right.”
That means people could be taking risks with large sums of money, but without the backing of regulators that typically police the housing industry. Jones also said he doesn’t think regulators will just sit out the rise of NFTs, and thus it remains to be seen just what order they might ultimately impose.
“The [Federal Communications Commission] is not going to allow us to start decentralizing property and making NFTs do things willy nilly,” Jones suggested.
Jones was optimistic about the world of NFTs, but his point was that there are still some major unknowns about the field. And for those just dipping their toe into the space he suggested starting with major brands, which offer more security, and diving into YouTube videos that provide in depth explanations. Either way, though, Jones and other industry members agreed that a more digital, more experimental future awaits.
“The metaverse,” Jones concluded, “is coming.”
