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Home Value Predictor

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AI and Real Estate: Reshaping the Future

It is no big secret that the real estate sector has always been one of the slowest when it comes to adopting technological advances and innovations. With that being said, real estate is also going to be one of the main sectors that can actually benefit the most from artificial intelligence (which is also more commonly referred to as AI). When it comes to AI, the applications are only going to be as powerful as the quality and quantity of the data that is fed into them. With that being said, it can be very unstructured and extremely expensive to try and onboard the AI technology with real estate. Now you need to keep in mind that real estate is going to be the second least sector in regard to digitalization. However, over the past couple of years, the immense potential of AI in the real estate sector has started to be noticed.

While the world continues to become more digitalized every single day, the amount of data sources that we have available to us is growing exponentially. What's even more important, is the fact that large enterprises have actually started working towards having better data organization. This means that just about every single piece of information that can be extracted from anything related to user content and property price fluctuation is going to be tracked and analyzed. The main goal of this being to get related valuable insights. With AI continuously growing, there are many different ways that it is currently reshaping the future of real estate.

Here are the top ways that artificial intelligence is transforming the real estate sector right now.

Artificial Intelligence Improves Your Home Search Experience

When you are looking for a new place to live, it can very easily become an extremely daunting ordeal. While most of the home-search engines are going to have different filters that allow you to find the most suitable home for your needs, it has actually helped the home searching process become much easier and much more convenient. You can filter out houses by price, the number of rooms, location, lot size, etc. While this model is going to be very effective, it can still leave you with many more options than you would care to look through. This is going to be where artificial intelligence can help.

Take for example Trulia, which is a San Francisco-based online marketplace for real estate. It uses artificial intelligence-powered personalization to streamline the home search process. The algorithm will identify each user's preference, suggesting different properties based on its findings. In Trulia's app, it is going to use what is referred to as 'computer vision', to extract any kind of relevant information that it can find from that particular user's photos, including color palettes, floors, construction materials, etc.

Once the AI has done its job, the system will then show the user the very best matches that meet those particular criteria, recommending other listings when appropriate. On top of that, it will also take into consideration the similar properties that have been looked at by users with similar preferences. This means that after only a few searches, artificial intelligence can show you a superior level of personalization.

Artificial Intelligence Increases Lead Generation

If you have ever sold real estate, you already know that finding the ideal client is simply a dream. You also know that there are going to be many clients who dream about houses that they will never be able to afford. While Zillow had a special CRM that would analyze thousands of different attributes to distinguish all of the different customers who had real intentions of buying a property and separate them from the ones who were simply browsing for curiosity. This technology would allow agents to save a ton of time and effort by allowing them to only have to deal with the potential home buyers that would match their niches.

AI would be able to take this same technology to the next level. For example, REX, which is an AI-powered brokerage, can leverage the AI technology to market real estate to the target audience that is actually able to purchase it. This is going to be very important for any higher-end properties, as they are going to require a very sophisticated marketing plan to be effective. With AI, it will very accurately be able to identify any of the potential buyers that there may be through analysis of the REX websites. This is going to include everything from the different ads that the particular user interacts with, all the way to their purchasing behavior on some of the other online marketplaces. Essentially, the AI that REX uses is going to produce a much better client than a human can.

Artificial Intelligence Prevents Budget Overrun

When it comes to the construction of real estate, it is going to be one of the main reasons for budget overrun. For example, the Sydney Opera House in Australia was built at 70 million US dollars (which equals 1,357%), in overbudget. While this is going to be an extreme case of budget overrun, it has been estimated that most large construction real estate problems are typically going to be completed with their planned budget being exceeded by more than 80%.

A California-based company named Doxel is going to use robotics to solve this problem. The company can use AI that captures 3D images of the potential construction sites. It will then use an algorithm to analyze the data that it has accumulated, turning it into some very valuable insights. This insight is then used by the property managers to react to the different ongoing issues that the real estate site is experiencing. This process has been so effective, that it has been able to not only eliminate budget overrun altogether, but it has also been able to save up to 11% of a potentially planned budget.

Artificial Intelligence is the Future of Real Estate

With all of the different data that is produced in real estate, it is going to be AI's penetration into the industry that comes as no surprise. With that being said, it is going to be a very long road before AI is ever seen adopted at scale. While many different real estate companies are beginning to progress towards using AI for better data sets, until it is fully integrated, most of the data that is accumulated is going to lack standardization and remain siloed.

The real estate companies that value the more unconventional metrics, like how close a house is to the nearest Starbucks, will be able to utilize the AI-powered tools giving them this information. This means that they are going to be able to stay ahead of the competition. Essentially, AI can give those industry professionals a much larger picture and the ability to assess a particular properties' future value, opportunities, and risks with a precision level that has never been attainable before.

Artificial Intelligence and Your Home Value Estimate: Is the Future Already Here?

When it comes to selling your home, there are going to be several different factors that are all happening at the same time. These are going to include financing, different sales listings, any type of investment analysis, getting property insurance, and even taxation. With all of these different phases of purchasing real estate, the one of them that is going to have the biggest impact on the potential buyer’s decision to purchase the property or not, is going to be the asking or the purchase price. This means that your home value estimate is going to need to be attractive to your potential buyer, but also one that you are comfortable with at the very same time. Luckily, however, artificial intelligence (AI) has been making some very large strides in the home valuation field.

Here is everything that you need to know about your home value estimate and how AI is changing how it’s done.

How Exactly is a Home Value Estimate Made?

If you are looking to have your home appraised, it is going to be a very difficult process, since every single property is going to be different and have its own unique features. These can include things such as the location of the house, the floorplan, how large the lot is, and any amenities that the house is going to come with. As if that weren’t enough, you also need to factor in any specific real estate market concepts such as the amount of supply and demand there is for houses in a particular area or region. If there are too many houses available and not enough buyers, the value estimate is going to go down. If the opposite is true and there are more buyers than sellers, the value estimate will go up. Here are the basic valuation concepts that are going to play the largest part in your home valuation estimate.

Basic Concepts of Home Valuation

If you wanted to get technical about it, the value of a property is going to be defined as the current worth of any future benefits that may arise from owning the property. Unlike many of the different consumer goods that will be used quickly, one of the main benefits of owning real estate is going to be realized over a longer period. This means that your home’s value estimate is going to consider social and economic trends, as well as any kind of governmental regulations or controls, and environmental conditions that have the potential to influence one of the four elements of value. These four elements are going to be:

Demand: the need or desire to own a home in a particular area that is going to be supported by the necessary financial means to fulfill that desire
Utility: the properties ability to satisfy any needs or desires that the future owner may have
Scarcity: the number of other properties in the same area that are available to potential buyers
Transferability: how easy it is going to be to transfer all of the ownership rights

Now you may be thinking to yourself that your home is worth tons and tons of money. However, the value of your real estate is not going to necessarily be equal (or even close for that matter) to the actual cost or price.

The main difference between value and cost is going to be that the cost refers to the number of actual expenditures, such as labor or materials. The price, on the other hand, is going to be the amount that somebody is willing to pay for something. Now keep in mind that both cost and price are going to affect the value, they are not going to determine the value.

For example, say that the sales price of a house is $250,000, but the value of the house could be much higher or much lower. This can happen if you have a new owner that has discovered some type of serious flaw in the home, such as the foundation is faulty. This will make the value of that house potentially lower than the price of it.

Your Home Market Value

When you have your house appraised, it is essentially going to be an estimate or opinion regarding the actual value of the property at a specific date. An appraisal report is going to be used by just about anybody that is trying to decide on a real estate transaction. The ultimate goal of the appraisal is going to be determining what a particular property’s market value is, which is essentially going to be the most probable price that the house will be able to sell for in an open and competitive market.

The market price of your home, which is the price the property sells at, is not always going to necessarily reflect the market value. For example, if you are selling your house due to the threat of foreclosure, there is a very good chance that the property is going to sell at a rate that is below its market value.

Home Value Appraisal Methods

To correctly appraise a home, it is going to require the methodical collection of different types of data. Data including all of the details of the property, as well as more generalized data such as the region, city, and even the neighborhood where the property is located, will all need to be collected and then analyzed to get an estimate of the value. To do this, there are going to be three main methods that will be used.

The Sales Comparison Approach

This method is normally going to be used in appraising land and single-family homes. Often referred to as the ‘market data approach’, it is going to be an estimate of value that has been derived by comparing the current property with any other properties that had similar characteristics in the area, that were recently sold. These similar homes are going to be considered ‘comparable’. Using this method will require a minimum of three or four similar properties that have sold recently, the most important factors being the size, any comparable features, and the location.

The Cost Approach Method

The cost approach method of appraisal is used to estimate what the value of a particular property maybe if it has been improved upon, for example, a remodel. This is going to be a method that requires separate estimates of value for both the land and the house. The two estimates will then be added together to calculate the entire property’s value. This method is going to assume that a potential buyer will not spend any more than the price of buying a similar piece of land and building a comparable house on it.

This method is going to be more common when it comes to homes and buildings that are not frequently sold.

The Income Capitalization Method

This method is going to mainly be used to assess any property values that come with potential income potential. This can include an office or apartment building that is going to have several different tenants, as well as any single or double family houses that have extra rentable space. With the income capitalization method of appraisal, the appraiser will evaluate any income potential that the property may have.

Now that you are familiar with the different types of home value estimates and all of the data that is required, you can see that it is a lot of work to estimate the value of a property. On top of that, since it is going to be a person that is factoring in all of the different data, there is always going to be the possibility that mistakes and errors will be made by them. However, with the incorporation of AI, the number of mistakes and errors that are made will be reduced, as well as the entire appraisal process will no longer take as much time to do.

Artificial Intelligence for Home Value Estimates

When you combine CRM (customer relationship management) and any marketplace data, the AI is going to be able to help brokers and agents to better predict what the future value of a particular property will be in a specific marketplace. For example, the AI system can synthesize information that it has taken in from a wide variety of different sources, some of those including the amount of crime in an area, transpiration, how good the schools are, and the amount of marketplace activity.

Since most people buying houses are going to see their new home as a type of investment, the AI technology will be able to provide them with a much more reliable forecast of the future value that the house will have. This means that the buyer and the seller will both be able to make a much more confident decision about the value that the home has moving forward.

There is no limit to how effective and accurate AI can be when it comes to predicting the value of a property. In fact, there is a startup that is working on a particular type of AI that can precisely predict the amount of future rent, identify the different future market anomalies and trends, and even capture arbitrage that may be between the asking and market price of a property, as it compares upwards of 10,000 different property attributes that go back as far as 50 years.

AI is changing the way that homes and properties are being appraised, and for the better. They are not only able to give more accurate appraisals, but the number of errors potentially made will be reduced as well. There is no telling how accurate AI will be able to price your home value estimate, but the technology is here for you.