AI in Real estate valuation
I am going to start my valuation internship in big 4 real estate firms, but I am wondering about the impacts of AI in real estate valuation. As AI is increasingly used in replacing labours in finance and the RE agency side, can it critically automate the valuation of real estates that may cause a huge cut in labor cost? If so, when would this happen?
I could see it having a place in more vanilla transactions (like NNN or large corporate sales), but real estate is hard to quantify sometimes, there are only so many comps available and buying a building is a lot longer process than buying a share of a company.
I've attempted to learn a little bit of coding though, in the event that if something like this did come in, I could at least understand how it works a little better than the old guys.
I have thought about this many times, the first and most vital step needed will be industry wide standardization of leasing format and clean data. The reason why real estate has lagged the equities and debt markets is for this reason along with slow/infrequent transaction time. Lease and sale agreements are private contracts and until a firm is able to produce a reliable database to draw off of then machine learning and AI's impact will be muted.
Assuming a firm compiles clean data I agree with MonopolyMoney in that NNN valuations will be the first to be impacted as they are simple (typically one tenant, OPEX calculations) and are already traded today by investors who treat them essentially as bonds or fixed income assets.
The remaining asset classes will be more difficult to value as their cash streams are more complex and there are many other factors that need to be accounted for to properly measure risk. Examples include political climate of local municipalities, execution/reputation of the buyer/seller to close the transaction, accurate estimation of the impact of innovation and Black Swan events, etc.
Of course with increased technology all of these eventually could be quantified but AI's impact on the valuation process will be muted for the interim future.
Yeah I forgot to mention this, until someone creates a standard lease/ purchase agreement that everyone uses, it's going to be really hard to completely automate the transaction process.
Secondly, there are still a ton of unsophisticated investors in the space, I, on many many occasions, have seen hand written ledgers running properties in the $1-10mm space.
AI wil definitely creep its way into commercial RE and undercut an analyst. There is already an Israeli company that is doing just that with their software.
However, it will always be beneficial to understand the concepts of real estate and applying it.
That’s just my two cents. I can’t balance both working as a real estate analyst and trying to learn code in fear of my job being replaced. Just focus on what you know. The future cannot be determined.
Appraiser here. I'm thinking that AI will not impact commercial re valuation, as much as residential. Maybe the low-end commercial properties can be automated, but not complex, investment-grade properties, which needs someone to forecast income/expenses, go through operating histories, project yield and cap rates, and verifying leases/sales. If valuation can be automated, perhaps underwriting will go, too.
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