When you're buying real-life real estate, one of the biggest concerns of everyone who touches the transaction is "Will this piece of property appraise?" Because the real estate industry has so many checks and balances, rules and regulations, it's important that a neutral third party is out there appraising properties so values don't become over-inflated.
But what about the metaverse? Right now, a lot of people are asking themselves if virtual real estate will appraise, including real-world appraisers. Since metaverse transactions are essentially cash deals, and there aren't banks relying on appraisers to assure them that the gamble they're taking on a property or borrower will pay off, there are a lot fewer players involved in any given virtual real estate deal.
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Determining property values in the metaverse
You don't need (nor are you likely to find) an appraiser for the metaverse, but that doesn't mean you should ignore the factors that go into giving a metaverse property its value. Although you can get into a mainstream metaverse platform's real estate for under $20,000, you can also spend a million dollars if you're so inclined. Every dollar you put into the metaverse needs to be carefully considered, because it's a highly speculative world, where the risk of your investment going to zero is very, very real.
So far, the biggest metaverse deal to date was a sale of land in The Sandbox to Republic Realm, a company that aims to commercially develop metaverse properties. Originally owned by Atari SA, the 24 x 24 parcel sold for the equivalent of $4.3 million -- Republic Realm essentially bought a city-sized chunk of The Sandbox. The company looked at comparable sales as a component of its valuation, but it is pretty tight-lipped on the actual metrics involved.
However, another commercial venture, Metaverse Group, recently picked up a total of $2.43 million worth of properties in Decentraland with development in mind. In an interview with Business Insider, CEO Lorne Sugarman gave some details on how his company determined the value of the property it acquired.
"We look at prices using OpenSea and other marketplaces. 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."
Consider intended usage and hold time
Since you are unlikely to be able to get a formal appraisal in the metaverse, you're going to have to do a lot of the legwork on your own. Like Republic Realm and Metaverse Group, you absolutely need to consider the other properties nearby and how similar or different they are to the property you want to buy. This is exactly what real estate appraisers do; they find the similar properties nearby (and the closer, the better), then add and subtract for significant differences, like the deck on yours or the second bathroom on the comparable property.
However, since the metaverse isn't a place you go to live as much as a place you go to do stuff, it's also important to consider your intended usage for the property. Some people are buying metaverse lots for development and eventual rental to real-world retailers, for example, while others are looking to develop venues for things like virtual concerts, where ticket sales are part of the revenue stream. Even more, though, just want a little chunk of the metaverse to call their own and turn into their personal playground.
And just like in the real world, a property with commercial potential is going to be valued considerably higher than one that's strictly for funsies (and there's nothing wrong with funsies). Although you'll need to keep in mind that you'll be exposed to a longer hold time for commercial virtual real estate, a shorter hold time is possible for those parcels you're going to be reselling to the general public, which is yet another factor in valuation. Any time you tie up money in an investment, there's the question of what you could have been doing with it otherwise, like buying bonds or shares of REITs (real estate investment trusts), for example.
For now, you can't get a proper appraiser in the metaverse, but you can learn a lot about the platform where you'd like to buy, examine sales trends in the neighborhoods you're interested in buying, and form a fairly educated guess on how the market will move from your observations. And with virtual real estate, that's all any of us are doing right now ... it's a whole new, untested frontier.
