NFT Real Estate: Why and How the Real Estate Industry Can (and Should) Leverage the Blockchain and Other New and Emerging Technologies
For the right price, we will sell almost anything. But when very large sums of money are involved, simply moving it around can be an expensive proposition. In any large-scale interaction with banks, money is routinely siphoned off in the form of fees and expenses. We generally don’t mind this because of the relatively small amounts involved, but they are only ‘small’ in comparison to the overall bottom line of the transaction. They are never ‘small’ in the everyday financial sense. In addition to the arbitrary costs (somewhere in the broad range of 3-5 figures), there is also substantial inefficiency involved with moving large sums of money. Certain transactions—especially the purchase and sale of real estate—are rarely settled without interacting with the traditional financial system.
By my professional training, I am a transactional real estate attorney. This is a role that exists almost entirely thanks to the unique laws of the State of New York. We recently had a closing scheduled for the Friday after Veterans Day. Naturally, banks and other traditional financial institutions are closed on a federal holiday. On the eve of the closing, my client, the buyer, found out that his bank would not be able to provide him with certified bank checks in time for the closing. Certified bank checks were the exclusive payment method allowed under our contract of sale. When I called the seller’s attorney to inform him of this eleventh-hour complication, he leaned on his strong contractual leverage to demand early morning payment as required under the contract. Of course, despite my client actually having sufficient funds, other electronic transfer options were off the table. I will spare the readers the details of the ensuing emergency tactical planning conference calls between me, my client, and my superiors. I am relieved to write that the funds were ultimately transferred on time and the closing settled smoothly thereafter. However, this required third-party reliance, extra work, additional costs, and a certain amount of luck. This way of conducting our real estate transactions is inherently inefficient. Luckily, it is also unnecessary.
From start to finish and at every stage between, there is tremendous room for increased efficiency in the way our real estate industry operates. The key to these dramatic enhancements is the blockchain. The use cases have already been broad, and there are many more that are being developed. At this stage, everyone who follows modern media has seen the headlines about NFTs, the metaverse, and cryptocurrencies. This is all happening before the public eye and at light speed. The amount of money changing hands has been staggering. What many people don’t realize is that while the blockchain is still in its relative infancy, its roots as both an abstract idea and a novel technology run quite deep. Technological progress continues every single day. Over time, the adjacent technological advancements will enable us to utilize the blockchain in a much easier and much more accessible way.
The obvious parallel is the advancement of microprocessors, video cameras, and smartphones. These innovations enabled the underlying technology of the internet to become so ubiquitous that it fundamentally changed our society at levels on a scale rarely seen since the printing press or the cotton gin. Imagine telling a real estate agent today that she can’t post her listings online, and could only limit property descriptions and depictions to print media. Imagine going back in time and explaining the details of a video walkthrough conducted via smartphone app to someone as recently as the 1990s, when the general public’s perception of the Internet was as some weird new tool where hackers might steal your identity through computer viruses and email spam. Similarly, today’s public generally sees the blockchain as some weird new tool where intangible pixels sell for millions of ‘real’ dollars, or where someone can use dogecoin to buy a bored ape as a virtual avatar. Eventually, the initial absurdity gives way to more sustainable and utilitarian use cases.
If, for example, we are able to use smart contracts to facilitate electronic payments and escrows, drastically increasing the efficiency, security, and cost-effectiveness of our real estate transactions, then we should not stick our heads in the sand or resist the evolution of our own technology. We should embrace the new tools at our disposal, take the time to understand how they work, and utilize them to better serve everybody in our industry for years to come.
Undoubtedly, there will be growing pains. If you find yourself unconvinced that this is the future of real estate, remember this: real estate deeds are the original non-fungible token. Our county clerk’s offices and registrars of deeds are the original attempt at an indelible record (albeit a centralized one).
Over the past decades, county clerk’s offices across the country engaged (with varying levels of success) in the massive undertaking of digitizing their deed records. Land deeds are a system of tracking and verifying real property ownership that has been in place, and remained largely unchanged, for centuries. But the core concepts behind it are shared by the blockchain. A deed has no physical connection to the property it references. It is simply a specific description of a unique parcel, maintained by local government offices which are frequently underfunded and understaffed. Similarly, an NFT is a mathematically verified reference(1) that is maintained on an immutable, decentralized ledger called the blockchain. The chain of title can (and I wager will) be converted to a chain of blocks. I wrote an article in July exploring some of my other predictions and findings. The real estate industry should heed the lessons history teaches us about the benefits conferred upon the early internet adopters.
I firmly believe that the real estate industry is in for another big step forward as a result of these looming innovations. The more technical developments that are made public, the stronger that conviction has become. I am now a real estate attorney by day, and a blockchain advisor(2) by night, although the day and night distinction is increasingly blurred. I have found that simply discussing these ideas is the best way to truly understand them. It has been one of the most fulfilling aspects of my career to be able to help develop these ideas with innovators in the space. I encourage anyone who wants to know more, or who would like to discuss their ideas for using the blockchain to move the real estate industry into the twenty-first century, to contact me.
1 The reference can be to an image, a music file, or even the legal description of a parcel of real property. “Ownership” over these things is verified by the system of decentralized nodes that comprise a blockchain, which cannot be hacked or erased or changed.
2 Shoutout to Zach Lewis and everybody in the Blockchain Barristers Discord community, along with everyone I had the pleasure of meeting at FRB’s NFT.NYC satellite event. Brainstorming with all of you has been incredibly helpful in expanding my understanding. Thanks are also due to my law firm; FRB, especially Kenneth Falcon, Matthew Rappaport, and Moish Peltz, for fostering this research and welcoming innovation.
DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.