In early June 2022, an interesting New York City office and retail building was listed for sale, however you wouldn’t know it by searching the traditional real estate listings. Instead, the property known as “One Eleven,” located at 109-111 West 24th Street in New York City’s Flatiron District, is listed for sale as an NFT on the OpenSea NFT marketplace.
Though the NFT aspect of the listing adds a sense of novelty to the traditional real estate purchase process, it does not circumvent the process. According to the listing, purchasing the NFT gives the purchaser the exclusive rights to acquire the building, in addition to its uses, rights and related deed covenants. Further, the listing adds that the purchaser must coordinate with the seller to complete the traditional real estate transaction process (which we assume would involve contract negotiation, deed and title transfer). The listing also warns potential purchasers: “Due to the nature of real estate sales, the sale of the NFT does not warrant the completion of the real estate transaction, or reflect the transfer of the deed or title.” The seller described the NFT purchase as a “promise” to transfer the deed of the property to the purchaser.
After the NFT purchase, the full purchase price is to be held in escrow pending the closing of the real estate transaction. At first glance, this appears to place the purchaser at a higher risk of monetary loss versus a traditional real estate transaction. Instead of placing a portion of the purchase price in escrow as is customary in a traditional real estate transaction, the purchaser of the One Eleven NFT is required to place the entire purchase price in escrow before the contract is signed. The seller claimed that the escrow may be held by the purchaser’s side, however it is unclear how the funds transferred to the seller through the NFT purchase will be transferred to the escrow holder. Nevertheless, placing the entire purchase price in escrow prior to closing places the purchaser at a heightened risk of monetary loss in the event the deal falls through. Of course, this all depends on the terms of the transaction between the purchaser and the seller.
Like in any real estate transaction, it is important for the potential purchaser of the One Eleven NFT to establish a strong line of communication with the seller to effectively set the parameters of the business transaction before any funds are transferred. This is especially important in the case of the One Eleven NFT due to the increased amount of fraud occurring in the NFT market. The seller appreciates this fact and added the following to the listing: “In order to assure a quality transaction & to prevent fraud pre & post transaction, Purchaser is highly advised to coordinate with both Property & NFT Teams PRIOR to completion of the NFT Purchase. Multiple levels of verification of wallet should be conducted PRIOR to the completion of the NFT Purchase.” This raises the question of whether listing the property as an NFT makes the real estate purchase easier and safer or more difficult and riskier? Is the novelty of purchasing the rights to purchase a property really worth the added risk of fraud and monetary loss? Due to the current legal limitations of NFTs in the real estate transfer process, especially in the New York City market, it appears that NFT real estate purchases do not add utility to the traditional real estate transaction, however, this has not stopped (nor should it stop) forward-thinking people and companies from attempting to bridge the gap between the old-guard real estate servers and the blockchain.
What are your thoughts regarding NFTs and the future of real estate transactions?
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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