Sat, 01 Apr 2023

What Are Real Estate NFTs and How Do They Work?

01 Mar 2023, 18:24 GMT+10

Forget the traditional and old-school 'tangible' real estate industry! With the advent of the digital era, the housing market is pushing its boundaries. Could properties and paying methods move to cyberspace? Can you purchase your next home as a non-fungible token? Join us as we embark on this fascinating journey to explore brand-new (and possibly game-changing) ways of real estate investments!

Real estate agents can benefit from NFTs.

Contrary to popular conception, NFTs are tokens backed by existing assets. For starters, NFTs are part of the larger group known as digital real estate. However, they're expanding beyond the worlds of art and entertainment and making a splash in the real estate industry.

For this reason, we recommend that experienced local real estate agents invest time and energy in learning how to buy digital real estate. There are real chances for them to receive royalty fees after secondary sales. But more about that later.

When real estate is perceived as a non-fungible token.

Several real estate companies are trying to implement non-fungible tokens into real estate. 'Propy' was the pioneering company that launched the world's first real estate NFT deal through blockchain technology in 2017.

How can you picture this transaction taking place in the future? Two people can exchange homeownership in one digital business deal where the property is conceived as an actual NFT.

The deal provided a blueprint for future transactions.

The story goes as follows. Michael Arrington, the founder of TechCrunch, sold the real estate-backed NFT that he bought in 2017 on Propy. The sale went through as an auction, with the apartment having an NFT attached to it.

We need some explanation here. The property titleship was listed as an NFT. An essential perk was that the buyer didn't have to pay for the asset upfront. On the other hand, the seller had to previously agree that the property title could be linked to an NFT.

They incorporated the property title (and homeownership) in the real estate NFT.

The company in question chose a platform where the bidding or real estate auction took place. So, we can't speak about a conventional real estate sale anymore.

The bidders bid for a studio apartment's homeownership. The winning bidder received access to the following digital assets: an exquisite wall art, the property picture, and the QR code on the image. The code enabled them to download the ownership transferred paperwork to the home.

The winner provided their name and other basic contact information. Subsequently, the highest bidder automatically became the legal proprietor of the NFT and the actual asset.

Buying NFTs via legal entities

The fundamental idea behind the agreement was disconnecting home ownerships from governmental land registries. In addition, the company transferred property ownership through legal entities. The buyer purchased the apartment through a US-based limited liability company (LLC) in the first place, which facilitated the deal.

NFTs provide liquidity, privacy, and safety.

Real estate tokens imply that owners can trade the ownership and the NFT attached to it on an endless loop. Thus, the NFT lent a particular liquidity provided by transferring ownership at any given time.

Purchasing assets via trusts and LLCs is a common practice in the United States. Thus, homebuyers can safeguard their privacy.

Another safety precaution is that real estate companies in charge of such transactions will verify LLCs. Besides, they will ensure entities will adequately manage homeownership.

Real estate NFT deals v. traditional transactions

What makes a token different from a contract is its transferability, whereas regular contracts make the transaction (unnecessarily) complex. History is written: real-world properties are tokenized now!

However, governments must also recognize the transaction's legality. You can pose the question: which is deemed legal in front of a court, an actual property deed or a token on a blockchain? Are tokens enforceable like an actual contract?

The owner can implement the token itself into the contract. Therefore, whoever owns the token becomes the bearer asset effectively. Besides, it's implementable by conventional contract law.

Disclaimer! The real estate company undertaking NFT-based transactions must ensure its legality via smart contracts under any circumstances!

Which is the essential test real estate NFTs must pass?

The fact that people are cautious about NFTs in the real estate industry shouldn't come as a surprise. Other innovative technologies, such as cellular phones or the world wide web, also had to endure the test of time. Most notably, the real estate business is famous for its reluctance to change.

Property cyber tours and virtual home staging have barely become a thing in the real estate market. We must ask ourselves: is it fair to adopt NFTs at a time when realtors and clients are genuinely having a hard time with new technologies?

There are specific obvious issues with deploying NFTs in the real estate sector. For starters, there would be apparent opposition to a new technology interfering with adopting real estate NFT substitutes. Most crucially, blockchain and NFTs call into question the demand of numerous go-betweens, such as title companies. As a result, we may have to be patient before we see large-scale uses of non-fungible tokens in real estate.

What are the advantages of real estate NFTs?

Selling and investing in real estate NFTs will facilitate transactions. It decreases buyers' costs and makes the buying process significantly faster. You can also become a property's legal owner in a few minutes and, more importantly, anonymously.

In a nutshell, the buyer will own the asset plus a US-based legal entity (a trust of LLC) that is the initial proprietor of said real estate. Moreover, they will also possess the NFT ownership attached to the actual real estate. They will keep your NFT rights in a crypto wallet (a digital account to store and trade your cryptocurrency.) The procedure can be repeated each time the NFT is put on sale.

A day could come when 'NFTing properties' enables cryptocurrency-friendly realtors and present homeowners to receive royalty fees from secondary sales. For this reason, specializing in cryptocurrency as a real estate niche can be highly profitable!

What are the drawbacks of real estate NFTs?

Using NFTs to purchase or sell a home means waiving your right to measures to protect you from real estate-related unpleasant events and accidents. For example, you could lose your right to home inspections before buying a property.

Secondly, digital platforms don't work quite flawlessly because they can be hacked. Thirdly, blockchain transactions are irreversible momentarily. Parties might fall victim to fraud. Suppose you send an NFT to the wrong individual. In that case, you're likely never to get it back. On the other hand, traditional banks and real estate agencies charge you more. Yet, you're less prone to become a victim of scams.


Non-fungible tokens are slowly but surely piercing through the seemingly impenetrable shield of the mainstream real estate industry. Why wouldn't they? The process of selling NFTs is fast and highly cost-effective. Plus, the beneficiary enjoys anonymity.

Suppose you're intrigued by real estate NFT transactions. In that case, all you'll have to do is find the digital platform that has devised intelligent contracts with the required legal framework. As a result, tokenizing real estate can be enforceable.

Can we call this concept of NFTs one of the most important digital trends revolutionizing the real estate industry? Time will tell. Though it's still in its formative years, progressing in baby steps, properties sold as an NFT are here to stay. They have the genuine potential to improve the industry.

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