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Non-Fungible Tokens (NFT) Newsroom

Blockchain Real Estate Transactions - Have we finally arrived?

Blockchain Real Estate Transactions - Have we finally arrived?

Proponents of blockchain real estate transactions believe that cryptocurrency and blockchain technology have the potential to revolutionize the way we handle and record real estate transactions. To date, we have yet to see this idea come to fruition, the primary hurdle being the unwillingness by local municipalities to integrate blockchain technology as an alternative to their current real estate title recording systems. Despite this hurdle, proponents of crypto and blockchain enthusiasts have not been deterred from their own self-integration of crypto and blockchain technology into real estate transactions. These proponents claim that utilizing blockchain technology enables properties to be purchased more efficiently and transparently, compared to conventional residential real estate transactions.

One example is the online real estate marketplace, Roofstock, which, through its web3 subsidiary, Roofstock onChain (ROC), recently announced the sale of an Alabama home via non-fungible token (NFT). ROC uses crypto, NFT and blockchain technology to settle real estate transactions via an NFT marketplace on the Ethereum Blockchain.

Rooftop’s Chief Blockchain Officer, Geoff Thompson, recently touted its pioneering in this field “Going from our first sale in South Carolina to our second sale in Alabama in just a few months has proven that the model is scalable across different real estate markets,”. “We’re excited to continue innovating in the real estate industry by leveraging the power of blockchain technology. Buyers and sellers can benefit from instantaneous sale and settlement of rental properties, with flexible asset-based DeFi leverage options, all while maintaining transparency and security in the transaction process,” added Sanjay Raghavan, Head of web3 Initiatives at Roofstock onChain.

ROC’s goal is to facilitate the instantaneous sale and settlement of single-family rental properties listed on its NFT marketplace. The most recent sale, located in Harvest, Alabama, is among the first property sales to occur on a blockchain via NFTs. The idea is to make transactions cheaper, more transparent, and faster through the use of blockchain. ROC connects home ownership to NFTs by holding actual title to reach property in a limited liability company. Ownership of the LLC is then wrapped into a dedicated NFT and labeled a “unique Home onChain.” The purchaser of the specific NFT is supposed to instantly become the single owner of the corresponding LLC.

At first glance, this appears to be more of a corporate transaction, than a real estate transaction as the purchaser of the NFT is purchasing the LLC that owns the property, rather than the property itself.

In most real estate (and corporate) transactions, a varying degree of due diligence is required before purchasing a property. ROC claims to do this work for its buyers by providing clear title, title insurance, updated inspections, a copy of the recorded deed and the LLC documents (operating agreement, articles of formation and good standing certificate). Regardless of how easy this sounds, it is highly recommended to exercise the utmost care when entering into any transaction, especially an “online-real estate transaction” such as the type that ROC is offering. Careful review of the property-related and corporate documents is crucial for maximum legal and financial protection. For example, careful review of the title insurance purchased by Roofstock for the property is necessary to determine if adequate coverage was obtained.

It is also important to note that Roofstock maintains an “administrative role” in the LLC after the purchase for purposes of maintaining the LLC and “legal compliance.” It is important to fully understand the Seller’s role after the purchase as it is rather unconventional for the seller to maintain any interest in the LLC after it is sold.

At the end of the day, the purchaser in this type of transaction is placing a high degree of trust in the seller (the online property marketplace) that their acquisition of the property was performed properly. This degree of trust rises to levels higher than that which is advisable in a conventional real estate transaction.

It is not unfathomable to imagine more companies like Roofstock popping up over the next few years if Roofstock’s model proves to be successful. In any event, a great degree of diligence and care should be exercised by any individual interested in this type of transaction. Though the proponents claim this will make the real estate buying process easier, it is impractical (and perhaps dangerous) to abandon all of the conventional real estate purchasing practices utilized today.

For the latest developments relating to NFTs and their impact on Real Estate, stay tuned to Ingram's NFT Newsroom and connect with us on LinkedIn and Twitter.

By: Michael A. Mulia