Practical uses for AI in the real estate industry
by Zain Jaffer
The landscape of various industries is changing very rapidly in the current course of the Artificial Intelligence boom. These emerging AI technologies are truly unlocking new frontiers across different sectors, real estate included.
As a real estate investor and developer, I’ve found quite a few uses for AI tools like Chat GPT. Although some news reports say that AI can spell the doom of humans in a working capacity, personally I think in its current version it is helpful.
Although regular search, such as those with Google and Bing, produce useful links, the output of AI like Chat GPT are really answers to well formed questions. It does save me time when I want to know, for example, “What is the state of the multi-family housing market in Cincinnati, Ohio?” Questions to the AI can even be more detailed than that, and the insights you might get might astound you.
Of course your years of experience should tell you if what the AI is telling you sounds too good to be true or somehow doesn’t fit in with your preconceived notions. Then you have to dig into the question more, maybe with phone calls or even an actual visit to the place.
Let me stress that as in the film The Big Short (a film about the 2008 subprime mortgage crisis), there is really no substitute for visiting a place, going around, looking at properties, talking to the locals, and augmenting your own personal impressions with the data available online. But often that comes when you have already made a decision that you are interested in investing in real estate in a particular place.
In the film The Big Short for example, the hedge fund investor (played by Steve Carrell) felt that his suspicions merited an actual visit by his team, and he was rewarded for his on the ground due diligence with his team with some sobering news about the subprime mortgage market.
Often as investors and senior decision makers, what we really need is context. That’s why traditionally there is no replacement for a person on the ground in that particular location to give his assessment of the real situation.
For example, the various states and cities might publish data on annual average rental rates, average prices of houses sold, and other information we use to assess if we should enter a market.
Before that, it would be expensive in terms of time, energy, and money to just blindly fly into a place to assess its potential. That is where these new AI tools come in. Aside from your own research, and your staff’s research, an AI assessment based on its scan of many data points available on the web might give you valuable insight that can help you assess if you want to consider a certain place or strike it out from consideration.
Note that AI tools like Chat GPT do not have biases like a broker who does not want to give information to a perceived competitor who might be a threat. AI tools just make their judgements based on the data they are presented with.
Take note that there are many aspects of real estate. There’s raw land, site preparation, construction, buying, renting, selling and leasing. There are port facilities, storage and warehouse, cold storage, multifamily apartments, single detached homes, high end properties like palatial homes, expensive condominiums, golf courses, groceries, strip malls, and the like.
These days, capital is expensive as the interest rates have gone up dramatically during the last few months. You definitely want to optimize your decision on where to invest in terms of current prices, crime rates, whether it is a sellers or buyers market, environmental factors, average rental, purchase, lease, and selling prices, and other factors. Tools like Chat GPT can give valuable insights before you spend your time and energy visiting a place, or at least talk to a local who might charge you money for a report or an opinion.
You may have also heard of iBuying, a program that Redfin, Zillow, and Opendoor offer where you simply ask the site to come up with offers for your house for sale, and algorithms will match interested parties who are looking for that budget and location. The opposite of this is iLending, which speeds up approval of your mortgage application if you fit and are preapproved on certain criteria. Depending on the extent of the capabilities of the algorithms, it could possibly be AI at work or just a straightforward regular search algorithm. [See https://www.nytimes.com/2021/11/19/realestate/ibuying-ilending.html]
AI is now replacing (or augmenting) human decision making on who should get loans such as mortgage, car, and other types of loans. That would pretty much reduce the bank manager’s discretion on who gets the loan, but in this age of high debt rates, that was probably long overdue anyway.
According to a 2020 Harvard Business Review article [https://hbr.org/2020/11/ai-can-make-bank-loans-more-fair], it may also reduce discrimination in who gets the loans if these are designed properly to eliminate biases.
As long as we keep to the ethics of developing AI for the good of humanity, I think we shouldn’t fear it. The concerns about replacing humanity in many areas and even threatening its existence may be real, but if we develop it in the right direction, it can actually increase our human potential.
For us in the real estate sector, AI does improve our efficiency and productivity and makes us more successful in what we are trying to achieve.