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.

An infographic showing five examples of how artificial intelligence could be used in the real estate industry.
Image source: The Motley Fool.

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 0.82%)(ZG 0.8%) 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

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

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 (RDFN -1.58%) 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.

2. 3D modeling/virtual tours

Visual representations have become increasingly important in the real estate industry. It's one of a number of industries taking advantage of digital twins: AI-based, computer-generated images that enable users to explore a space digitally.

Matterport, now owned by CoStar (CSGP -0.85%), is considered a leader in technology. It creates 3D virtual tours of properties, allowing potential buyers to use augmented reality and other features to explore a property before visiting in person. Matterport's proprietary AI, Cortex AI, is a neural network that utilizes computer vision, image processing, and deep learning to automate 3D-image construction.

Nvidia's (NVDA 1.74%) Omniverse technology, which enables the creation of digital twins, is often used for virtual tours, allowing prospective buyers to immerse themselves in the property. This technology can also be used for virtual staging, allowing realtors to virtually show a property fully furnished or with different layouts.

The technology helps increase the pool of potential buyers since anyone with a connected device can get a good look at the property. It also helps buyers, sellers, and agents save money by screening potential buyers to ensure they're interested.

Some start-ups are developing similar technologies that show renderings of properties that don't exist yet. Some of them focus on assisting architects and offer tools that can provide cost estimates based on different design options.

3. Smart home devices

Real estate is a massive industry, and property tech might be an overlooked corner of it. However, property tech, or proptech, represents a fast-growing niche in the real estate industry.

Proptech focuses on devices that enable landlords and homeowners to monitor properties remotely. These include smart home devices, such as smart doorbells, locks, thermostats, and cameras, that help notify people of any problems that might occur inside the property.

AI enables devices to learn user preferences and adjust their settings accordingly. They can help save money on utilities, improve tenant satisfaction, and help the landlord stay up to date and avoid major repairs.

4. AI in property management

Property management is another important subsector of the real estate industry. AI assists managers in screening tenants, collecting rent, and scheduling maintenance.

AI chatbots can play a role in tenant screening, much like their uses in customer service across other industries. They can answer questions about rental rates and availability and guide customers through the application process, alleviating some of the work required of human agents.

AI automation can assist with processing payments, managing workflows, performing market analytics, and managing collections. Additionally, AI assistants can generate reports to track leasing performance, helping improve occupancy and operational efficiency.

5. Mortgages

Artificial intelligence is also gaining increasing adoption in financing, including mortgages. In underwriting, AI is used to analyze borrower information, including credit scores, income, and employment history, to evaluate the borrower's risk profile and find the best rate to charge.

AI tools help detect and prevent fraud and can automate loan servicing tasks, such as payment processing and customer communication. Some mortgage lenders, such as Rocket Companies (RKT -2.0%), use AI to deliver near-instant decisions on mortgage applications.

For instance, the company offers mortgage approvals in as little as eight minutes. In April 2024, it launched Rocket Logic, an AI-driven platform designed to simplify the mortgage application process for homebuyers and deliver approvals faster.

6. Risk assessment and fraud detection

Risk assessment and fraud detection are other ways AI can benefit realtors and potential sellers. Machine learning algorithms can analyze large amounts of data to find suspicious patterns and potentially fraudulent behavior.

In this sense, cybersecurity plays a role in AI and real estate, and large landlords use platforms like CrowdStrike's (CRWD -1.17%) Falcon endpoint security program for threat detection. Commercial real estate services firm Cushman & Wakefield relies on the Crowdstrike platform for protection from fraud and other cybersecurity challenges.

7. Automated property valuation

AI is also being used for automated property valuations. These automated valuation models utilize algorithms and data sets to determine a property's estimated value, using comparable sales, tax assessments, other listings, and records to determine a value.

Automated valuations offer some advantages over traditional methods, including speed, scalability, data-driven analysis, and real-time valuations. While they're not designed to be a full replacement for a comparative market analysis (CMA), they are a good starting point for valuation estimates and gathering information.

8. Personalized property recommendations

Finally, AI is being used for personalized property recommendations. Instead of just analyzing properties, AI can review customer data, including purchasing history, browsing patterns, and preferences, such as size, budget, and amenities, to make recommendations for customers.

Much like with automated property valuations, this technology is designed to complement a human real estate agent, who can work with nuances and desires that would be beyond a typical AI function.

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World-changing?

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.

FAQ

Artificial intelligence in real estate: FAQ

What is AI in real estate?

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AI is used in a number of different ways in real estate, including for virtual tours, price estimates, and in underwriting mortgages, among others.

How is AI used in real estate?

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Artificial intelligence is being used in real estate in a variety of ways. For example, AI-generated 3D models enable prospective buyers to tour a property from the comfort of their homes. AI is also gaining popularity in underwriting to evaluate credit scores or employment history.

Is AI going to take over real estate?

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Like many market sectors, AI is unlikely to replace humans entirely within the real estate industry. Too many situations require a human touch for this to be a realistic goal. However, AI will likely continue to grow within real estate since it can help cut costs.

Is it worth investing in AI tools for real estate?

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Investing in AI tools can certainly pay off, though their usefulness likely depends on the size of the company. For an individual realtor, a direct investment might not be worth it when free tools are available. For a large commercial real estate company, employing AI tools could provide a competitive edge.

Jeremy Bowman has positions in CrowdStrike, Nvidia, and Redfin. The Motley Fool has positions in and recommends CoStar Group, CrowdStrike, Nvidia, and Zillow Group. The Motley Fool recommends Redfin. The Motley Fool has a disclosure policy.