Artificial intelligence has infiltrated seemingly all aspects of digital activity, including homebuying.
Nearly all homebuyers use online platforms, according to a 2021 study by the U.S. Government Accountability Office. Since then, more of those platforms are using AI.
A recent GAO study revealed the potential benefits and pitfalls of incorporating AI into the homebuying process. Here are seven takeaways.
1) Accelerated homebuying process
AI underwriting systems can speed up document review and income and employment verification by scanning large volumes of loan files, according to the report. “This can reduce the time needed to assess borrower credit risk,” GAO stated.
2) Increased access to credit
Automated underwriting systems may also improve default risk predictions by identifying patterns not captured in traditional underwriting, incorporating more data to help determine a borrower's ability to pay, according to GAO. “This may expand credit access for homebuyers with multiple or inconsistent income streams, such as gig workers, whose income can be difficult to assess,” GAO stated.
3) Lower costs
Closing fees and other administrative costs in purchasing homes may be reduced by using automated valuation models, according to GAO. The report stated that traditional appraisals generally cost homebuyers $350 to $600, while automated models “can estimate values at little cost to the homebuyer.”
4) Potential to curb — or continue — historical biases
Studies have shown the existence of racial bias in traditional home appraisals. By not considering the race of a home buyer or seller, AI models have the potential to reduce that bias — or perpetuate it. “While automated valuation models do not take into account the race of participants in individual transactions, they may perpetuate valuation disparities by continuing to undervalue properties in historically undervalued communities,” GAO said. The study emphasized the importance of reviewing AI models for potential bias and implementing guardrails.
The study also concluded online platforms’ use of some AI models could violate fair housing laws by discriminating against certain users. “For example, if search algorithms and chatbots are not trained to recognize problematic search terms — such as references to protected class characteristics like race, national origin, disability, or religion — they may generate search results that illegally ‘steer’ consumers to certain listings,” GAO stated.
5) Reduced transparency
When it comes to publicly available information on the methodologies used in valuation models, AI is a “black box,” according to GAO. This limits users’ ability to identify data errors. “According to HUD officials, the lack of transparency in AI models may hinder consumers’ and regulators’ ability to assess or challenge discriminatory practices,” GAO stated.
6) Distorted housing market prices
The use of AI in online real estate platforms can distort housing prices, according to GAO. The agency reviewed one study that found Zillow’s valuation tool affected listing and sales prices “in several U.S. cities,” driving higher listing prices and property valuations in affected areas.
7) Bigger gaps in governmental oversight
Aside from the Federal Housing Finance Agency, federal oversight “generally has not focused specifically” on property technology products, according to GAO. Additionally, FHFA this year began waiving components of its fair lending rule and rescinding related guidance, GAO stated. GAO recommended FHFA provide updated written direction to online platforms clarifying how they should comply with fair lending requirements and how that compliance will be supervised.
