“We’ve discussed how you can make a fungible token using ERC20, but what if not all tokens are alike? This comes up in situations like real estate or collectibles, where some items are valued more than others, due to their usefulness, rarity, etc. ERC721 is a standard for representing ownership of non-fungible tokens, that is, where each token is unique.“
Non-Fungible Tokens (NFTs) have been taking the world by storm, giving more power to content creators than ever before. NFTs use Blockchain technology to establish a verified and public proof of ownership—a way to represent anything unique as an Ethereum based asset. Naturally, this technology could solve many inefficiencies in real estate transactions, and ultimately provide more transparency.
In an extreme seller’s market with record low inventory, multiple offer situations encourage the practice of blind bidding. This prevents bidders from knowing the bids of other prospective buyers and drives up home prices. It can be a frustrating experience, particularly when the listing agent leads the other party to offer far beyond their means in order to win the bid.
The Liberal party, fresh off their election victory, intends to create a Home Buyers’ Bill of Rights to ban blind bidding, so that the process of buying a home is more fair and open:
- Establishing a legal right to a home inspection to make sure that buyers have the peace of mind that their investment is sound;
- Ensuring total transparency on the history of recent house sale prices on title searches;
- Requiring real-estate agents to disclose to all participants in a transaction when they are involved in both sides of a potential sale;
- Moving forward with a publicly accessible beneficial ownership registry;
- Ensuring banks and lenders offer mortgage deferrals for up to 6 months in the event of job loss or other major life event; and
- Requiring mortgage lenders act in your best interest so that you are fully informed of the full range of choices at your disposal, including the First-Time Home Buyer Incentive.
Federal policy intervention in the housing market won’t necessarily improve housing affordability, and might even increase the competitiveness and complexity in a transaction. Smart Prosperity Institute is a national research network and policy think tank based at the University of Ottawa that delivers world-class research. They released a report entitled: Banning Blind Bidding – Would It Slow the Growth in Canadian Real Estate Prices?. One of their key points:
“While the arguments that blind bidding processes cause higher prices are plausible, the evidence, while limited, suggests that increased bid transparency leads to higher, rather than lower, prices in a hot real estate market.“
If there were a viable solution for a fair bidding process, what might that actually look like?
Imagine a scenario where you knew exactly what everyone else was offering on a property. Having walk away power with your best alternative to a negotiated agreement, should you be in a position where you are financially overstretched. It would be unnecessary to risk paying more than you should, when you know you don’t have to.
The way NFTs are traded today, they can be purchased with cryptocurrencies such as Ethereum (ETH), only if you have sufficient funds in your wallet. That would bring a sigh of relief to the listing agent, knowing only qualified buyers can actually bid on a property. Having financing contingencies in a contract of purchase and sale covers a buyer if they’re unable to obtain the mortgage they need to buy a home. If a buyer’s financing isn’t approved, and the deal collapses, the process can become tedious and onerous.
OpenSea is the world’s first and largest NFT marketplace. I can’t help but envision how a marketplace for real estate NFTs would be game changing. You would be able to see who else is bidding on the property, and for how much, at any time, from anywhere. Full price transparency. Etherscan is the leading Ethereum Blockchain Explorer, where you can discover new NFT mints, transactions, and trades. If real estate transactions followed suit and took place on the Blockchain, gone would be the days of property data and activity being locked away in proprietary silos.
Ownership documents such as title, or rights to an LLC, could easily be transferred to all future buyers. Propy is one company that already implemented smart contracts with proprietary legal papers. Moving one step closer to achieving self-driving real estate transactions.
“Future ownership can now be transferred instantly on the blockchain by anyone, anywhere – it truly is an example of global, peer-to-peer financing.”
The Mars House is another great example. The world’s first digital NFT house sold for $500,000. Even Gary Vaynerchuk launched his own NFT collection, aptly named VeeFriends. He is a pioneer in structuring NFT projects around meaningful intellectual property, and using it to build an extraordinary community. Members and hodlers connect with each other in Discord. I watched live, as Gary auctioned a set of his hand-drawn doodle NFTs on Christie’s, which outsold the likes of Andy Warhol and Jackson Pollock art. It doesn’t get any more mainstream, or epic, than that.
We are undoubtedly in the territory of having digital representation (or twins) of physical real estate. Blockchain is the most exciting technology with truly disruptive capabilities that could make digital twins a reality. I’ve been experimenting with creating, or “minting” NFTs myself, and learned that it’s not all that difficult to put a jpeg on the Ethereum Blockchain. Though I wouldn’t say I fully understand what’s happening under the hood, I was able to follow a tutorial on ethereum.org regarding how to write & deploy an NFT. Pretty powerful stuff. You can view the code on Github.
We are on the ground floor of massive change for how ownership is transferred on a property. NFTs have the promise of allowing anyone to participate in a decentralized web, without monetising their personal data. The implications for real estate are revolutionary, and long overdue.
“Web 2: Users are the data, corporations own the platform, and the code is closed.
Web 3: Users own their data, contributors own the platform, and the code is open.“– Naval