A $175,000 house sold via an NFT. People have questions.
By Anushree Dave
Will NFTs make home buying easier or complicate the process?
Last week, Roofstock, a digital real estate platform, facilitated the sale of a $175,000 house in South Carolina through a non-fungible token, sparking a debate about whether the technology is smoothing or complicating the real estate buying process.
Roofstock onChain, which is the Web3 subsidiary of the company, listed the property on its NFT marketplace powered by Origin Protocol (many mistakenly thought it was OpenSea.) It sold with USDC, a stablecoin.
“Instead of waiting months for a drawing, appraisal, title search and deed preparation, I was able to purchase a fully title-insured, rental-ready property with one click,” said the buyer of the property, Adam Slipakoff, in a statement.
But as news spread about the event, questions arose. A tweet that got a lot of attention questioned who actually owns the property, and whether the token holder owns just the token or the property as well.
“For the property itself, the title is an LLC, and all we’ve done with the NFT here is that the NFT represents the sole ownership of that LLC,” Sanjay Raghavan, head of Web3 initiatives at Roofstock, said in an interview with MarketWatch. “People have been buying and selling real estate through LLCs forever, right? That’s not new. All we did was make it easy to sell that LLC from person A to person B.”
Raghavan added that the operating agreement of the LLC contains language stating that the owner of the token is also the owner of the house, so that is legally established in the LLC operating agreement.
But for others, the explanation only raises questions about safety.
“What if someone steals NFT from a blockchain?” asked Sean Scapellato, a real estate attorney in South Carolina. “I don’t know how you deal with someone knocking on your door saying they bought your NFT and the house now belongs to them.”
Hacks are less of a problem when the owner of the NFT is not anonymous, Raghavan said. In the US, a person cannot own an LLC anonymously. This makes it more difficult to take ownership of a house by hacking NFT. The home owner is known and this is recorded in documents related to the token, he said.
That’s in contrast to NFT art, which is often held by anonymous users online. Hacking and transfer of ownership is easier when the original owner is unknown.
The NFT is also the only thing stored on the blockchain itself, while the metadata associated with it is linked elsewhere, in a data room like a server or a cloud, and that metadata can be updated with any other relevant property information, Raghavan told MarketWatch.
For real estate agents, the technology is brand new, and may raise more questions than it answers. “How does the resale of this property work?” said David Conroy, the National Association of Realtors’ director of emerging technology, in an email to MarketWatch.
“What steps were taken to ensure compliance with regulations, property registration and tax implications surrounding the sale of the property in this manner versus a traditional sale?” said Conroy, who added that NAR is monitoring these technologies as they develop.
Raghavan said that only those with a verified buyer flag on their accounts can have the token transferred to them. This flag, sort of like a blue tick on Twitter, lets the system know that the buyer’s identity has been verified by the company. “Without it, if you try to transfer this token, or try to buy it on an NFT marketplace, the transaction will fail.”
The team worked with legal and tax experts to make the property compliant with the law, Raghavan said. But with laws and regulations varying from place to place in the US and abroad, this transaction could be challenging to replicate in other jurisdictions, he added.
Legal expert Scapellato emphasized that even if a cryptocurrency is accepted for purchase, it does not necessarily specify what rights are transferred as a deed does, and is uncertain whether an NFT will have the same utility as deeds do.
“State real estate laws differ across the United States, and we have hundreds of years of jurisprudence based on the conveyance of a deed with specific warranties and rights that align with the laws of that state. An NFT must have the same utility or it is useless when problems must be sued,” he said.
For the Roofstock team, the South Carolina transaction serves as a case study of what can be done, with the right research, elsewhere in the future. “We’ve run several 50-state analyses [to find out if] an LLC can be transferred from A to B without triggering a tax event, et cetera,” Raghavan said. “In the United States, when we go to the next state, we’ll comply with that state’s law with respect to this, how we do it. these NFT sales.”
For the Roofstock and Origin Protocol teams, the sale of the home also served as an example of what can be done with NFTs as the underlying technology for transferring physical assets.
Origin Protocol’s Matthew Liu said the technology will define the evolution of the internet. In the future, we won’t refer to NFTs as NFTs, the same way we don’t call them “HTML web pages” anymore, he said in an interview with MarketWatch. But the underlying HTML technology created the blogging, e-commerce and social networking industries, just as NFTs will change industries in the future, he said.
“We’re going to see a world five years, 10 years from now, that’s drastically different,” Liu said. “There’s going to be a new version of the internet, and NFTs are going to be like the fundamental building block of digital ownership. But with all big technology cycles, you kind of see an overhyped first cycle, then a crash, and people build and like a second cycle where there are actual real utility and use cases. And it ends up being very, very powerful.”
-Anushree Dave
(END) Dow Jones Newswires
10-27-22 1650ET
Copyright (c) 2022 Dow Jones & Company, Inc.
