Artificial intelligence is a complex topic. While some love it and others hate it, there's no denying that it's currently transforming the real estate industry. To that end, here's what investors need to know about artificial intelligence in real estate. Read it over to learn how AI is being used in the industry as well as how you can incorporate it into your business.
What is artificial intelligence (AI)?
At its core, the definition of artificial intelligence (AI) refers to a type of technology that can draw logical conclusions on its own. However, though this technology has improved by leaps and bounds over recent years, it's not quite there yet. In reality, today's version of AI technology uses sophisticated algorithms and predictive analytics to make educated guesses about future behavior.
Though it may seem as though AI only burst on the scene a couple of years ago, this technology has actually been around since the 1950s. Alan Turing, a British mathematician and World War II code breaker, is widely credited with its Inception. In fact, the Turing Test is still widely used as a benchmark for a machine's ability to process information independently.
Since then, and especially since the personal computer became a regular household item, we've seen machine learning grow rapidly. Today, the big data industry has an ongoing impact on many aspects of our lives, from social media to real estate.
5 ways AI is being used in real estate
With that said, it's important to take a look at the ways in which artificial intelligence and machine learning are impacting the real estate industry. In truth, nearly every aspect of the real estate sector has been touched by AI solutions over the past few years. To give you a clear picture of the ways in which AI is impacting your typical real estate transaction, here are a few examples.
It's helping agents with lead generation
Most agents know they're bound to receive plenty of website visitors and potential leads who aren't serious. After all, at this point, it's a common pastime to visit a site like Zillow (NASDAQ: Z) (NASDAQ: ZG) and dream of owning a multimillion-dollar property. However, instead of the agent having to sift through all their leads to identify those with the most potential of becoming a real buyer in the near future, deep learning allows artificial intelligence to be able to qualify leads accordingly.
Other sites use natural language processing (NLP) technology to help specialty agents zero in on their ideal clients. For example, an agent who specializes in the luxury market can use this real estate technology to prequalify their leads so they don't waste time tracking down potential buyers who can't afford their listings.
It's transforming the home search process
Ever since listings first became searchable online, technology has played a role in helping buyers streamline their home search. While nearly every home search tool allows real estate agents and prospective buyers to narrow a home search by a list of criteria like the number of bedrooms and bathrooms or location, often, this method still leaves everyone with too many options to choose from.
That's where the AI algorithm comes into play. Many of today's home search tools can use those search criteria to identify the user's preferences and select properties based on those findings. Most algorithms can then offer alternative listings that might be a good match and place the best-fitting listings at the top of the user's search results.
It's streamlining transactions
On the back end of the transaction, artificial intelligence can also make it easier for the Realtor to run their real estate business. For instance, many customer relationship management (CRM) systems utilize machine learning for things like auto-fillable data and generating automatic reports.
Not only does this cut down on the amount of time a real estate agent needs to spend in front of the computer doing office tasks, but by taking the human element out of data entry, it helps reduce the number of errors overall.
It's making property valuation easier
Additionally, one of the major features of AI that real estate agents are coming to rely on is its ability to "predict" the future. Namely, this comes in handy when trying to assess property values and rental values. In this instance, an AI application’s automated valuation model might gather data about public records, transportation options, area crime rate statistics, and school district ratings in order to generate an analysis of a particular property's value.
On the one hand, this version of desktop appraisals has been particularly useful in the era of the coronavirus pandemic. However, beyond that, it will likely continue to prove to be a useful tool for real estate agents when they're tasked with generating comparative market analysis, as well as with investors when they're deciding whether to add new properties to their portfolios.
It's changing the way we approach lending
Lastly, machine learning has also had an impact on the mortgage industry. As any real estate agent or investor knows, the underwriting process involves pouring over any collected paperwork to determine whether to lend to the prospective borrower.
However, the process of desktop underwriting uses AI technology to read those documents and make an initial determination before the documentation is handed over to the underwriters. While desktop underwriting doesn't always replace the human element of this process entirely, it does help speed it up significantly.
How can investors benefit from adding AI to their real estate businesses?
Now that you know how AI learning can benefit the real estate industry as a whole, it's important to take a closer look at how investors can benefit from this technology. To that end, we've laid out some examples for you below. Read them over to get a better sense of whether adding machine learning to your business might be something to consider.
Get help with decision-making
We mentioned this briefly above, but it's so important that it bears repeating. Essentially some AI programs use predictive analytics to tell you more about a property's current or future valuation.
As an investor, this information is invaluable. For one thing, it can help you determine if a property meets your bottom line before you put in an offer. For another, it may be able to tell you what returns you'll get on your investment when it's time to use your exit strategy.
Gain a competitive edge
At the end of the day, however, having predictive analytics on your side won't just help your wallet. It will also help give you an edge over the competition. Put simply, if an AI tool can help you get a truer sense of a property's valuation, it can also help you determine what to offer.
By making more educated offers, you'll be able to get ahead in today's real estate market, where there is often more than one offer on the table.
Automate the investing process
AI can also be helpful if you're following a buy-and-hold strategy and have to deal with property management tasks on a regular basis. Just like an artificially intelligent CRM can help real estate agents manage their transactions and cut down on the number of errors, it can do the same for property management and real estate investment. In this case, automation can help with everything from data entry to lease abstraction.
The best AI tools for real estate investors
After reviewing more about how AI works and its benefits, the next step is to learn about some recommendations. With that in mind, we've curated a list of some of the best AI programs available to you as a real estate investor to give you a sense of which ones might be the best fit for you and your business.
For those in the commercial real estate industry, Skyline AI collects data points from a variety of sources and analyzes past transactions to help you get a sense of which neighborhoods are up-and-coming and which are heading for a potential downturn. By analyzing property owner behavior, this tool can also help commercial real estate investors find distressed properties, off-market deals, and opportunities for value creation.
Proportunity offers a similar service for those in the residential real estate industry. Operating in 50 markets, this tool gathers property value data, crime rates, transportation data, and school district ratings to fuel its automated valuation model and predict which properties and neighborhoods will give you the highest returns.
Those in the multifamily market should turn to Enodo. Its machine learning capabilities can help you calculate market rents, find comparable properties, and identify lucrative investment opportunities. For those considering doing renovations, it can also help you estimate the future value of any added amenities.
Meanwhile, those within the vacation rental industry may benefit from using Beyond Pricing. This tool compares data from a variety of sources, including Airbnb and VRBO, to help you find the best pricing for your vacation rental.
Like Proportunity, Lofty AI claims to help you identify the best investment opportunities in 40-plus markets. This tool is geared toward out-of-state investors and uses deep learning as well as alternative data points to predict early signs of gentrification.
The bottom line
These days, it seems like artificial intelligence and machine learning programs are growing smarter by the day. While there's no telling where technology will take us in the future, one thing we know for sure is that this technology can be used right now to help real estate agents and investors. With that in mind, use this post as your guide to AI in real estate. Armed with this knowledge, you should be able to bring your real estate business to the next level.