Real Estate

Virtual Assets Are Selling For Millions. Is Real Estate Next?

Last week, one of the buzziest pieces of real estate in the world hit the market. Dubbed “Mars House,” the home is framed entirely in glass reminiscent of Los Angeles’ iconic Stahl House. Soft, neon lights bathe the property in ever-changing color. And outside, it boasts sweeping views of jagged red mountains.

The house went up for sale via auction, and by Monday morning its creator had accepted an offer for just over half a million dollars.

There’s just one catch: The house is completely virtual. The happy new owner can never actually go inside.

Mars House, and its sale, are buzzy not just because it’s a pretty piece of design, but also because it represents what appears to be the very first “NFT house.”

But don’t beat yourself up if you have no idea what that means.

In a word, an NFT is a digital asset. The concept has been evolving for years now, but in recent weeks exploded in popularity. People are now paying tens of millions of dollars for NFTs, and as the Mars House shows, the concept is drifting toward real estate. That doesn’t necessarily mean that agents will all suddenly be selling virtual properties in the near future, but the trend has already proven to be disruptive in unexpected ways. And that means it could very well ripple further across the world of housing.

Here’s what you need to know about this latest frontier in (virtual) real estate:

What exactly is an NFT?

The initials “NFT” stand for “non fungible token.” The idea is that an NFT is a digital asset that the owner, alone, controls. So for example, let’s say an artist creates a visual image and posts it online. If you wanted to have that image, one option would be to take a screen capture of it and make your own jpeg. That jpeg would be like taking a photo or buying a poster of the Mona Lisa; you don’t have the original, but you have a nice-enough image that you can duplicate as you wish.

But let’s say you wanted to own the original digital artwork. In that case, you could buy it as an NFT. The piece could be encrypted and stored on the blockchain, which is a kind of secure ledger that forms the basis of cryptocurrencies such as bitcoin and ethereum. You’d then use those cryptocurrencies to buy the piece.

So, owning the NFT of an image would be like owning the actual Mona Lisa, rather than buying the poster from the gift shop.

The end result is that while anyone could have a version of the artwork that is  visually indistinguishable from yours, you’d have the peace of mind of knowing you have the original, which is coded and secured to prove it’s unique.

Still, this raises existential questions about authenticity. If the original and the copy are visually identical, what’s the value in owning the original?

Earlier this month, NPR tried to explore the nature of NFTs and suggested that the essence of having one is akin to owning an internet trophy, clout or maybe just a feeling. An expert in cryptocurrency ultimately told the outlet that when you buy an NFT, you’re essentially buying the underlying computer code. And still others have compared NFTs to digital bar codes.

How are people using NFTs?

This is where the NFT story gets crazy. The highest profile example of an NFT in recent days is a piece from digital artist Beeple, which sold at auction on March 11 for $69.3 million. The piece is a composite of other Beeple works, and you can look at it right here:

Credit: Christie’s

So far, NFT’s have made the biggest waves in the art world.

In February, for example, meme artist Chris Torres listed an animated cat gif dubbed Nyan Cat as an NFT, and it eventually sold for more than half a million dollars.

Credit: Chris Torres

Traders have also been spending big money on images of NBA highlights, including $200,000 on a video of LeBron James slam dunking. And Twitter founder Jack Dorsey is currently selling an NFT of his first tweet. Bids for that NFT are currently at $2.5 million.

All of which is to say, people are using NFTs for almost anything. If it’s a digital image — or even an image-like asset such as a tweet — it can be coded, bought and sold. The important thing to remember is that this is still a new thing, and there’s consequently plenty of evolving yet to come.

Why is this going to be the next big thing in real estate?

All of this brings us back to real estate and the Mars House. The house is the brainchild of Krista Kim, an artist who in the past has partnered with high-end brands such as Lamborghini.

A video Kim published of the house makes it look like a scene out of Blade Runner.

Fundamentally, Mars House is more of an art project than a real estate endeavor. But it does raise interesting questions about how the virtual and real worlds might converge. For example, on Wednesday cryptocurrency news site Coindesk pointed out that virtual real estate is cheaper to create and can potentially reach far more people than conventional real estate. You could, after all, reach more consumers in a popular virtual environment than you ever could with a storefront on Madison Avenue.

Sensing that potential, companies such as Adidas have begun offering promotions within virtual environments.

This kind of thing already exists in real estate. For example, 3D staging company roOomy has in the past partnered with furniture retailers to place their products inside virtually staged spaces. Retailer Wayfair has also created tools to let consumers put its products into 3D renderings of their homes.

These examples don’t involve NFTs, but they do highlight the ways that the virtual world has infiltrated real estate.

And in light of the recent NFT bonanza, a number of questions come to mind: Could NFT furnishings become a thing, letting people buy one-of-a-kind digital items for their digital spaces? Could someone merge renderings of their actual home or possessions into an NFT property such as Mars House, effectively letting them “move in” to the virtual space? Might a company like eXp Realty, which already has a robust virtual environment, begin incorporating NFTs? Could virtually staged homes truly turn into virtual marketplaces?

There are currently no answers to these questions, but the possibilities are truly endless. And keep in mind that three months ago no one would have guessed an artist could have sold what is basically a jpeg for almost $70 million. If something sounds impossible now, just wait.

Why should you be skeptical?

All of that said, there are reasons to be skeptical. Here’s a useful anecdote: In the past month, two Inman staffers including this reporter, have refinanced their homes. Despite the fact that Inman covers digital and virtual closing technology almost every day, both staffers’ refis ended with in-person signatures. This reporter had to drive halfway across town early in the morning to do it.

That’s all fine and not a big deal, but it highlights how despite major advances in technology, actual adoption is far from widespread. Most consumers today are probably still engaging with real estate the way they have for decades.

Here’s another example: Almost five years ago, Inman published an essential guide to cryptocurrency. A few months later, Inman explored whether or not blockchain would be a game changer for real estate. That piece, based on a panel at a CMLS conference, pointed out that there are many potential uses for blockchain technology. And yet despite the enthusiasm of the panelists, nearly five years later the technology has yet to make serious inroads into real estate.

And here’s one more: Zillow launched 15 years ago, prompting near-continual speculation that it was going to doom traditional real estate models. And yet, a decade and a half later, agents are still ubiquitous. Things have changed, but slowly and perhaps less radically than some might have anticipated.

The point here is that while NFTs have a lot of potential, real estate in particular changes slowly. Ultimately, NFTs, the blockchain and upstarts like Zillow, may yet build a world that is radically different from the one we have now. But if the past is prologue, that world won’t emerge overnight.

Email Jim Dalrymple II

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