Robots are becoming increasingly better at jobs that once belonged to humans. The machines of today are the assemblers, builders, and burger-flippers of tomorrow. Now, a new industry is being threatened by robots: real estate. For years, real estate appraisal has been a profession that needed a human eye. The approximate 73,000 employees of the industry are now being pushed out by automation.
Advances in big data, computing, and AI are helping automation creep into knowledge-based professions like real estate. You may be familiar with the “Zestimate,” Zillow Group Inc.’s online appraisal system. The algorithm is learning to capture crude facts about values in the surrounding neighborhood, as well as more specific price indicators, such as hardwood floors or granite countertops. Then, based on the information, it provides an estimated value for the house. Although some in the industry argue that computers will not be able to pick up on all the specifics, Zillow and other companies are trying to prove that wrong.
Engineers from Zillow are mining the website’s collection of photos, looking for interior and exterior features that make one home more valuable than another. They’re teaching the algorithm to recognize details – such as a tree casting shade on the front lawn – that make buyers willing to pay more. They took a next major step by announcing the Zillow Prize, which will reward one million dollars to the person or team who can improve their estimate system.
These new appraisal algorithms are hurting an already injured industry. Appraisers have been struggling since the housing bust of 2007 and the following financial crisis. When the market tanked, appraisers were often blamed for not keeping reckless lending in check. Regulators responded by making it harder to enter the profession, which now commonly requires a four-year college degree as well as hours of additional training, a couple years of apprenticeship, and license exams. At the Appraisal Institute, 1,200 people applied for traineeships in 2005, compared to only about 100 in 2016.
Freddie Mac, the government-sponsored company that backs many U.S. mortgages, started allowing automated valuations for some refinancing loans in June. It plans to expand the program to home purchase loans in the coming months.
Automated appraisal is gaining a lot of traction in the real estate industry. These new forms of automation integration are a humbling reminder of how versatile these machines can be, especially for the 73,000 employees working in real estate appraisal.
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