Buying Virtual Real Estate Is Neither Easy Or Cheap

In our ongoing series of articles about Second Life, the enormously popular make-believe on-line universe, we come back to the question of whether one can or WHY on earth they would own virtual real estate.

Anshe Chung would probably give you a loud and clear "yes." Chung is the avatar of a Chinese-born teacher living in Germany who claims to own about a million dollars in virtual land in Second Life; land that she buys, sells, leases, and employs several people to help her manage.

Second Life doesn't provide information on how many of its 6.5 million residents own real estate but it does say that residents have sold close to 41 million square meters of land thus far in May and 5,808 residents currently have over 23 million square meters for sale in 33,000 parcels. This is land, as distinct from islands; 7,122 islands are owned by individuals, companies, and groups at present and 565 new islands have been created so far this month.

Not every resident can buy land. The basic free membership allows a member to explore second life but it takes a Premier Membership at $6 to $10 per month (depending on the length of the subscription) to be able to buy and build on land. Not everyone can buy land for another reason - they are technologically challenged. After over a week of being teleported from one place to another, reading every tutorial we could find, and trying to talk with a live person at Second Life (ten minutes on queue twice only to leave messages that garnered no response) we still had a lot of questions about the process, but, if we weren't wandering around on a free membership with empty pockets, we probably know enough to make a purchase.

Land can be purchased directly from another resident or it can be bought at auction. Over 15 million square meters have sold at auction in May; a figure we assume is separate from the land sales by residents figure given above. The land auction operates in a mode similar to eBay where bidding is automatically generated at $1 over the previous bid up to the price the bidder has set as his maximum.

And the process is not easy and the land and the islands are not cheap. Auctions are conducted in either Linden dollars or USD. We found only two current auctions, both in L$; and tracked one; 2,688 meters at auction in the region of Bishop. Bidding opened Monday morning at 11,500 Linden dollars - approximately $42 U.S. dollars (USD) and, with 13 bids was up to $112 USD by the same time Tuesday - not exactly Monopoly money but, with another 24 hours to go, relatively cheap. Auctions completed in the last week included dozens of large parcels that had sold between $2,000 and $3,000 USD.

Then you could buy an island. That will cost you a flat $1,675 USD for 65,536 square meters. If you have found the perfect spot for your island but aren't quite ready to buy you can reserve a spot for $30 USD. You can create the perfect island from a stock portfolio of five or maybe it is six prototypes. As a work in progress we frequently received conflicting information from one page to another. Once you own the island you can tailor the terrain, expand it, or use it as a base to build a complete continent.

But it isn't the initial investment, it's the upkeep. Owners are assessed a monthly fee by Second Life that is based on a tier system - the more land you own, the more you will pay. Sort of like a condo fee we suppose. The fee for owning 512 square meters (considered to be 1/128 of a region) is $5. However, if you own the equivalent of a whole region, 65,536 square meters the same size as an island, the monthly use fee is $195. An island will cost $295 per month.

So why would anyone spend that kind of money to buy something that really doesn't exist?

Many people simply want a place to plant their avatar. Once one owns land then one can build a fanciful house, ornate office building, or a peaceful spa, outfit and decorate it from the hundreds of stores lining the virtual streets, and invite friends in for music or chatting. Residents are establishing places to meet others with similar interests or proclivities and for sure there are many locations that have been purchased for very adult activities and quite a few that are dedicated to religious observances.

Residents may be motivated to acquiring land to establish a business, and as we mentioned earlier, hundreds of residents are making real money every month providing goods and services from their virtual offices and stores.

Still another reason is investment for rental income. We found one parcel of land where a smart avatar had erected a series of billboards and was renting them successfully to other entrepreneurs to display advertisements for their businesses. Others build malls and rent out space to retailers who are not willing or able to take the plunge into ownership.

The answer that scares us is speculation. We would love to know how much Anshe Chung started out with when she bought her first parcel in Second Life. Regardless of the amount, she was far-sighted enough to see the possibilities and is now a virtual real estate mogul.

But as more and more people are drawn into Second Life through media reports such as this - and there have been recent articles in many, many newspapers including some major news outlets and quite a bit of exposure on CNN, the idea of pyramiding rears its head. Not a pyramid scheme which would suggest that the founders of Second Life set out to defraud, but rather the kind of pyramiding that is now plaguing the real-life housing market. Who will be the last person to make a profit before the virtual market crashes or at least stalls out? Face it, a company like Sony has the resources to plunk down $1,675 to buy an island and might be willing to go to $4,800 or $9,000 a year from now. But will the average person playing what is really an on-line game be willing to spend hundreds or thousands of dollars to hang out or gamble on establishing a web-based business?

Well, one major American real estate player is betting that Second Life is a good place to plant a branch office. Coldwell Banker Real Estate doesn't expect to make money from buying and selling virtual real estate, but they are taking the whole phenomenon very seriously with their new venture (press release).

CB's West Coast hours make their virtual office a bit inaccessible to those of us on the East Coast, but we have visited their offices, made the acquaintance of their official greeter, a Golden Retriever with some unique talents, and have an appointment to meet with the managing avatar for a helicopter tour of the subdivisions the company is building and get a little insight what the company hopes to accomplish.