Buying virtual real estate in metaverse platforms like Decentraland or The Sandbox is becoming an increasingly popular investment for the tech-savvy real estate investor who doesn't mind the risks of being an early adopter. However, determining just how much to pay for said virtual real estate has been tricky, especially since there are no professional appraisers in the metaverse yet.
For many, knowing what to pay for a parcel in the metaverse platform or platforms of their choice is kind of a crapshoot -- but it shouldn't be. Just like real-world real estate, there are several things to consider when determining how much to offer for a piece of metaverse real estate, all of which can help you better determine a fair market value for the land you want to buy.
Factors that go into virtual real estate pricing
Most of the same factors come into play when pricing virtual real estate as you'd use to price real-world real estate. For example, it's important to know how much the lots around yours have sold for, as well as the commercial potential of the lot you've purchased, if any exists.
"We look at prices using OpenSea and other marketplaces," Lorne Sugarman, chief executive officer of Metaverse Group, a Tokens.com subsidiary, explained in an interview with Business Insider. "We look at location. We look at what we think foot traffic can be, at what we think we can get as yield. We're looking at all traditional metrics that you would see in the real world and determining the right price."
However, one thing that's harder to predict with virtual real estate is who is about to move into the neighborhood. Big companies are buying and renting lands in a very hush-hush manner, which is impossible in the real world. If Snoop Dogg moves into your neighborhood, for example, you'd definitely hear rumblings; if a popular fast-food chain were being built next door, there would be permits and zoning hearings.
Characteristics that determine real estate value
There are many different characteristics of land that can determine its value in the real world. Anything from retained mineral rights to the existence of a connection to the sewer on a lot can make it more valuable to the right buyer. The same can be said for metaverse lots, though people value different things. These are a few important characteristics.
We've touched on this, but the influence on the price of a metaverse lot's location can't be overstated. That means not only the location of the lot within its platform but also the platform wherein it's located. Since metaverse land can't be moved, just like real-world land, it is where it is, and if the neighborhood is a hot one, you may find you have to pay a lot more to be there. The trade-off, of course, is that you'll be near more interesting things, and whatever ends up on your lot could gain a great deal of synergy from its neighbors.
Although lot sizes in some platforms are the same, others are not, and this is important to note. You can also buy something called an estate: a real estate package that may contain multiple lots or a lot with a structure on it. These additional parcels or structures can significantly influence the value of a piece of metaverse property since they directly influence the size of what you can build on your land.
In theory, you can build anything you want anywhere on any metaverse lot, but some lots simply make more sense to use in particular ways. For example, if a lot faces a road, it might make a more valuable parcel for people who want to build billboards. If you hope to build a mini-mall, you don't necessarily need the road frontage since avatars can move through lots without roads, too. If you're a lot or two off the main drag, a dominating structure would be just as visible from the road, and you'll pay less for the location.
Know your neighborhood; know your platform
In the end, the best you can do is keep a close eye on the neighborhood where you intend to purchase, as well as those nearby, and what parcels are selling for, using platforms like OpenSea or Non-Fungible.com. You'll be the first to know when prices start to climb or whether you've found a good bargain simply by being aware of what's going on in your neighborhood.
The popularity of the platform you choose also cannot be underestimated. Right now, Decentraland and The Sandbox are the absolute top performers in this market -- and where most corporate entities are focusing their efforts -- but if these platforms fail to bloom into true "sticky" communities, prices may fall over time or even go to zero. This is the inherent risk in investing in metaverse real estate, one you should always keep in mind.