Thousand Oaks, CA

The $800k California Home being sold for $2 Million - Why? It Comes With an NFT Included

Toby Hazlewood

Does selling via the blockchain justify such an inflated price?

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House with orange skyImage by Gus Ruballo on Unsplash

On April 27th, CNN reported the case of California real estate broker Shane Dulgeroff who had the idea of using an NFT auction as a means of selling an $800,000 home in Thousand Oaks, California. Steve was inspired by the recent successes of Beeple and had been impressed by the $500k+ sale of a digital rendering of a property ‘Mars House’ created by artist Krista Kim.

His idea — to commission a digital rendering of the property in question, to auction it as an NFT and to include the house itself along with the NFT. He engaged an artist, Kii Arens to produce the artwork (named ‘Flying in Colors’) and listed it on OpenSea with a starting bid of 48 Ether (at the time, around $110,000) with a reserve of equivalent to $2million.

Here’s a screenshot of the listing:

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OpenSea Listing for a Home in CaliforniaAuthors Screenshot from OpenSea

NFTs — A quick overview

In case you're unaware of them, Non Fungible Tokens (NFTs) broke into the public consciousness when artist Beeple sold a token representing his digital collage of 5,000 artworks to the pseudonymous collector Metakovan for $69 million.

Nothing attracts participants like a rising market. In the aftermath of Beeple’s success, numerous creators have been exploring ways of using NFTs as a means of reaching audiences with their work.

I’m a firm believer in the potential of blockchain technology. As a relative newcomer I’m keen to expand my ‘beginners mind’ and have been trying to learn more while adopting the skepticism and naivety of someone in need of persuasion.

The extreme edge-cases of NFT (like a piece of digital art that can command $69m or the thriving investment market that has sprung up around NBA Top Shot) are effective in grabbing public attention. But average creators are more likely to be moved by ways that they could modify what they do today to exploit NFTs, rather than having to learn entirely new skillsets.

With that in mind I’ve been researching and experimenting with NFTs and documenting my experience in the hope of helping others to figure out the potential.

I’ve created and minted my own NFTs and offered them for sale.
I’ve researched their place in the world of art.
I’ve explored how NFTs could be used to sell limited edition runs of prints.
I’ve documented ways that NFT could present opportunities for creatively managing and funding careers.
I’ve even bought an NFT from a creator who read and followed my process.

While the many uses of NFTs emerge, it's exciting that a real estate agent in California has minted an NFT and is selling it along with an actual house in Thousand Oaks, California currently for an auction price of $1.4 million. It’s raised some interesting questions about the further utility and limitations of NFTs.

What‘s included with an NFT?

The key principle of NFTs is that they are non-fungible — completely unique. While a creator is largely powerless to prevent anyone from taking unofficial copies of a digital media file such as an image, they can mint an NFT for the file which can be used to irrefutably denote the one, original copy. This token allows them to sell the original and to ascribe ownership of it.

I naively and incorrectly assumed that the buyer would receive a digital copy of the artwork as part of the price — and who knows, maybe they did. When I listed my first NFT — a digital photo I took earlier this year — I decided that I’d include the original image file with the NFT and would delete all other copies of it on my laptop. I assumed that the token itself should come with accompanying artwork.

I’ve since learned that while NFTs can include the ‘thing’ that the token represents, they don’t have to.

The Kings of Leon have sold NFTs for their latest album, some of which include front-row concert tickets for life. Others include limited edition pressings of the record. Crucially, the NFTs don’t include the master recordings of the music or the rights to it. The NFTs are the thing in their own right.

NBA Topshot videos are the modern equivalent of collectible sports cards, encompassing digital videos of significant moments of action from NBA basketball. But the video clips associated with the NFTs aren’t the only copy of the action in existence.

However, in the case of Shane Dulgeroff’s NFT for the house in Thousand Oaks, he included the house itself as a part of the sale price.

He didn’t have to, and he could have just sold the digital artwork that he’d commissioned. But he thought he saw a creative way of exploiting NFT technology to sell the house, and who knows — maybe it will come off?

The complex intersection between the real-world and the online world

The regulatory landscape within the world of blockchain and cryptocurrency represents one of its greatest unknowns. Governments are keen to exert control and influence, but don’t seem sure at this stage how to achieve that.

As of now the only decisive step that’s been taken by the US government is to tax the capital gains of cryptocurrency traders who buy and sell crypto and make a profit in doing so. The impending tax increases being progressed by the Biden administration will see top-rate capital gains increasing from 20% to 39.6%.

This hike was one of many reasons recently proposed to explain a short-term drop in the price of Bitcoin. It’s speculated that sellers were keen to crystallise gains made from the meteoric rise in the price of the best-known cryptocurrency in recent years, in advance of anticipated tax increases.

While it’s impossible to say whether this is explains the temporary drop or not, is irrelevant. It offers a useful segue to the intersect between transactions involving the blockchain and transactions conducted in the real world. The same capital gains tax hikes will also be applied to the proceeds of real estate sales and the profits made within them.

This is just the start of where things became a little complicated for Steve Dulgeroff as he tries to sell a house using an NFT.

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Realtor with House KeysMaurice Williams on Unsplash

Who enforces the law?

There are numerous laws and regulations that apply to the sale and purchase of real estate. Regardless of the sale being transacted via an NFT instead of conventional channels, these same rules would need to be followed and applied as part of the transaction.

The capital gains tax would still be due — not inconsiderable given that the house in question had been purchased for $746,000 and Dulgeroff had at one stage envisaged a sale price of around $20million. Had he really factored this into his plans? I’m sure he’d have been pleased to have even 60% of the profit from a $20 million sale, but the tax would be due nonetheless.

Other questions have come up during the auction which demonstrate the hurdles that would need to be overcome between the buyer and seller.

  • How would the title transfer from seller to buyer? When will it happen?
  • How would the legal conveyancing be processed? Who will fund it?
  • How would prospective buyers go about arranging financing if they didn’t have the cash? Does the NFT exclude buyers in need of a mortgage from a lender in a conventional bank?

It’s important to note that on completion of the auction, a smart contract will automatically execute on the Ethereum blockchain which underpins the OpenSea platform. This would transfer the purchase price from the crypto wallet of the buyer to the seller. The NFT for the artwork itself would move in the other direction. This happens automatically and without human intervention, such is the nature of smart contracts on the blockchain.

What happens about the transfer of the other asset — the house itself?

The listing states the following in its description:

“You are bidding on the worlds first REAL property + NFT. The winner of the auction will have the opportunity to own a piece of history with both a digital and physical investment. Visist www.Dulgeroffnft.com for more details
The real estate included is located at 221 Dryden St, Thousand Oaks, CA, 91360.”

The usual realtors description of the property follows on, describing the quality of workmanship, the number of bathrooms and so-on. More importantly it mentions that the buyer is assumed to be willing to comply with the terms and conditions described on Shane’s website.

These are presumably the essential legal terms and conditions that govern the sale of a property in such an unconventional way. Can these really be enforced? Would the Californian or Federal legal systems be willing to enforce these terms should either the buyer or the seller decide not to comply? Would the courts be able to do so even if they tried to?

Will Shane Dulgeroff’s NFT sell so that we can find out? I hope so.

How will the contract be enforced?

Those who are unlucky enough to fall victim to a financial scam involving conventional currency will usually have recourse through the police and local law enforcement agencies. When transactions involve decentralized and ungoverned cryptocurrency, the authorities seldom take an interest and have limited ability (or desire) to enforce the law unless other laws have been broken.

This would suggest that the buyer of this house will be reliant on the better nature of the seller to make good on their promise to hand the house over — it seems like quite a gamble given the amount of money at stake.

Price premiums?

Many of those minting their own NFTs are pricing them highly in the hope of capitalising upon public interest. This is clearly evident in the case of the NFT for the house in Thousand Oaks — a property worth around $810,000 according to the CNN article, is being offered for sale at around $1.4million (albeit with the accompanying digital artwork) — quite a hefty markup.

Should the use of NFTs enable sellers to charge a premium for real world goods just as is the case for works of art? Art is priced subjectively and the premium paid is a reflection of many factors including status, scarcity and desirability of the artist’s creations.

In the case of property, the premium is often priced-in. This is based on the property itself, its location, facilities, surrounding amenities, rentability and so-on. Is it feasible to expect a vast premium would be paid by a buyer simply for the privilege of executing the transaction via an NFT, even if the house itself were accompanied by a piece of digital art too?

The test of this will presumably come if and when Shane Dulgeroff manages to sell the NFT (or not).

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Gold NFT TokenImage from Shutterstock

Key takeaway

There clearly exist some real challenges associated with the sale of real-world goods using NFTs, but these may conceivably be overcome in time. We could theoretically see a market for anything from rare and customised cars, sculptures, art installations, fine wines, antique collectibles or any number of other physical goods, all sold and logged on the blockchain using NFTs.

As technology matures and platforms allow blockchain users the facility to quickly and easily design and implement additional terms in binding smart contracts without having to be able to write code, then more complex sales could theoretically be executed and processed exclusively on the blockchain. These sales may end up having to incorporate defined and structured hand-offs to real-world legal and financial systems.

This would be the point that using NFTs perhaps become a more suitable vehicle for the transfer of ownership of real-world goods. For now, it’s fascinating to see where things are going — I will watch Shane Dulgeroff’s NFT sale with interest!

Note: This article is for informational purposes only. It should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.

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