Is AI Disrupting the Commercial Real Estate Industry?
A discussion with the Argianas & Associates team about the role technology plays in real estate valuations
The reality is that from Netflix to Zillow, artificial intelligence (AI) is already a part of our lives. According to Merriam-Webster, the definition of artificial intelligence is “the capability of a machine to imitate intelligent human behavior”. Some reports state that AI will reach human brain capacity by 2025.
The commercial real estate industry, like every other professional service provider, is facing the reality of being disrupted by AI. A recent article in Real Estate Tech News, outlines how brokers, agents and appraisers are already using AI to handle everything from basic property queries with chatbots, to automated trigger marketing campaigns, to crunching data by synthesizing seemingly unrelated information to identify industry trends.
For commercial real estate appraisers, using AI does not only help with efficiency, it can help their clients adhere to government regulations. For example, when trying to understand unstructured data as it pertains to lease data collection and analysis, AI can automate the data collection. It can also identify areas of risk where terms have been omitted and keep an accurate and up-to-date account of all lease documentation for the government.
Charles Argianas and Alexander Argianas, the management team at Argianas & Associates, sat down to discuss how AI is disrupting the real estate industry and answer the big AI question – Will AI replace appraisers? Here’s what Charles and Alexander think the future holds for AI in commercial appraisals.
Is AI beneficial to the real estate appraisal process?
Charles – Yes, it’s a good thing. Technology is always a good thing, and it’s here to stay. However, you still need professional experience and market expertise to interpret and formulate a meaningful assessment of the data used to solve the problems and issues associated with any given real estate valuation project.
Alexander – I think posing this as a good vs. bad question is coming at it from the wrong perspective. I would rephrase the question and ask — how can appraisers make AI work for them? The whole crux of technology has always been to make technology work for us. The iPhone example has almost become a cliché, but it’s still valid because we walk around every day with a small handheld device that can tell us anything we want to know about the world. As appraisers, we now have access to market data almost instantaneously. Whereas, before it took months to conduct research, and even then, you had to make sure you spent the time researching the correct data.
How are commercial appraisers using technology?
Charles – What we are working with right now is leaps and bounds beyond what we had available in the past, and I say this with over 30 years in the real estate appraisal business. In just a couple of steps, we can convert data into graphs, filter unnecessary data out, access data points and see global trends.
What are the pitfalls to relying too heavily on AI?
Charles – The real distinction is that it’s not what the data says, it’s what you think the data says. And that’s what people often miss. We have a professional comparable sales database that gives us analytics, and sometimes it gets it wrong, which only confirms again that you still need professional judgment. Furthermore, you’re not going to be able to replace what a good MAI brings to the table. You can’t replicate experience and you can’t replicate the critical thinking that goes into the analysis.
Alexander – Deals are made or lost on our work and a lot rides on our best work each time. A predictive/analytical model might be able to tell us information that we otherwise wouldn’t have, but robots aren’t the ones reading these reports. They’re for people. That’s where the appraiser steps in to analyze the results and apply critical thinking to ensure that the information is correct. Is the story that we’ve presented logical, and if not, to go back and find out why. To solve problems before the report reaches the desks of our clients.
Will AI replace appraisers?
Charles – Until robots and computers are busy buying and selling properties on their own, you’ll have to have humans involved and because of that, you will need a human component. Furthermore, you’re not going to be able to replace what a good MAI brings to the table. You can’t replicate experience and you can’t replicate the critical thinking that goes into analysis. When machine learning gets to that point, then maybe.
Alexander – I think you’d be hard pressed to find good MAIs in the future without work. It goes back to critical thinking and the analysis that should be going into all appraisal work. If you’re going to complete an assignment without really thinking about it, then yes, you’re probably replaceable. If you treat each assignment as unique, you spend the time to think about the assignment, you identify all the potential problems (using experience), and are a problem solver, no, you won’t be replaced, in fact you’ll be an asset.
Has the AI used in commercial real estate caught up with AI used in residential AI?
Alexander – Residential valuation algorithms have come a long way in the past 10 years, even so, banks still rely on the trusted judgement of residential appraisers. That said, commercial properties are not like houses with what can amount to cookie cutter structures and layouts. Commercial properties spill out into a number of categories and are all varied and diverse. Just as appraisers spend years crafting templates that work with their analysis, machine learning must do the same. It will take years to make these computer-generated algorithms successful and years after that to earn the public’s trust. By that time, we will be living in a very different place than today.
What does the future hold for AI and real estate appraisal?
Charles – At the end of the day, professional judgment will always be needed. Appraisers will always need to be properly trained and mentored and the technology is only pushing appraisers to be even more skilled. Right now, computers are subordinate to professional judgment. Maybe that will change at some point in the future, but the one thing that I’ve learned in this industry is that you can’t prevent progress.
Alexander – I see AI as taking away some of the busy work that good appraisers hate doing like having to go back and find missing data. All of this, in my opinion, leaves the appraisers with more time to spend on the analytical and critical thinking and that is truly what our clients seek from us. For me to be able to spend more time on a highest and best use analysis would be amazing. AI is a good thing and regardless, it doesn’t matter what we think because it’s happening. So we all have to get on board.
Are you looking for Chicago real estate appraisers? The team at Argianas & Associates is ready to put our real estate appraisal experience to work for you. Do not hesitate to give us a call at 630.390.0113. Stay in the know and join our mailing list to receive our e-newsletter featuring case studies, industry events and news, and informational real estate valuation topics.