When you think of artificial intelligence (AI), you probably don't think of real estate. After all, real estate has traditionally been a slow industry to innovate. Most transactions are still conducted through traditional brokers and independent landlords, even with real estate investment trusts (REITs) being the big players.
However, like much of the business world, the real estate industry is embracing the power of AI, which has implications for both commercial real estate and residential real estate.
Any business that involves data is a good target for AI, and there's plenty of data in real estate. Appraisals and estimates have traditionally been based on neighborhood comparisons and human opinion, but AI-based algorithms are increasingly used to generate these estimates. For example, Zillow Group's (Z +4.48%)(ZG +4.37%) Zestimate is powered by AI.
Even generative AI now plays a role, creating 3D models of properties so potential buyers can use any connected device, such as a smartphone or tablet, to get a sense of how the properties look. The technology took off during the COVID-19 pandemic, when sellers were reluctant to have buyers enter their homes, and it's continued to grow.
Finally, AI also plays a role in smart-home devices, such as thermostats, lighting, cameras, and monitoring devices that inform landlords of any problems requiring attention, like a plumbing leak. In this look at AI in real estate, we'll explore ways that the new technology is changing the industry and provide some examples.
Understanding AI
AI is generally understood as the ability of computers and machines to handle tasks that require human intelligence. Machine learning, one of the most common applications of AI, involves training machines with large amounts of data to recognize patterns, analyze data, and run forecasts and algorithms.
These applications are common in real estate. More broadly, AI technology includes computer vision in autonomous vehicles, robotics, neural networks, voice recognition, and natural language processing. Keep reading to see eight ways AI is used in real estate.
Eight uses of AI in real estate
1. Predictive analytics
Perhaps the most common and practical use of AI in real estate is predictive analytics. When you see an estimate on the value of a property, it's generally based on predictive analytics from AI.
Zillow, the leading online real estate marketplace, uses AI for its Zestimates -- the proprietary valuation estimates it provides -- as well as for personalized recommendations, floor plans, and photos. Rival Redfin, now owned by Rocket Companies, uses AI for similar estimates and offers users an AI-powered tool to enhance and redesign listing photos.
Forecasting is important, especially when investing in commercial real estate. Investors, agencies, and economists use AI to predict where the real estate market is headed, hoping to get an edge on the competition and buy at the right price.
Benefits and risks of AI in real estate
Like any other technology, there are both benefits and risks to using AI in real estate.
Among the benefits are:
- AI can help a prospective homebuyer get a lot of information quickly, especially about a large area or number of homes, saving time on research and collecting that information.
- Predictive analytics is another useful tool that AI can provide in real estate. AI-powered systems can help predict trends so you'll know which markets or neighborhoods have the most potential for appreciation.
- Computer vision is also a benefit in real estate, and is being used through tools like digital twins to monitor real estate holdings, or virtual tours to show a home online.
Some of the risks in AI in real estate include:
- AI-based estimates for real estate values can sometimes give a false sense of certainty. Zestimates, for example, aren't based on perfect information, and can't see what's inside a home.
- Another major risk of AI is that the results can be biased, as it's only as good as the data it is fed. If you're screening applicants, for example, you'll want to make sure you test your results for bias so you're not violating any anti-discrimination laws in housing.
- AI can help with real estate paperwork, but it's a mistake to rely on it in place of a human, especially for something like a lease negotiation, or when context or nuance is key.
Ethical considerations of AI in real estate
There are a number of ethical issues that users of AI in real estate should consider.
The biggest is likely the potential for bias. Housing discrimination laws are strict, and it's important that any AI algorithms used by landlords, for example, don't discriminate against any groups of tenants.
Data privacy and security also fall under the ethics umbrella, and it's important for real estate businesses to protect the data of tenants, applicants, or potential homebuyers.
AI can also be used to create deepfakes, or potentially used to impersonate agents, or commit fraud in other ways, so users should be aware of those risks.
Will AI change the world of real estate?
Real estate is a massive, fragmented industry that is typically slow to change. However, the examples above show that AI is already affecting areas such as predictive analytics, property estimates, smart home devices, mortgages, and others. As AI improves, it's likely to become an even bigger part of the real estate industry.
If you're an investor searching for exposure to AI, consider AI stocks or AI exchange-traded funds (ETFs) or learn more about real estate investing to discover more opportunities to use AI in real estate. Keep your eye out -- more real estate companies are set to embrace AI in the future.
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