AI Gains Ground in Commercial Real-Estate Appraisals
A new crop of appraisal companies is using artificial intelligence to speed up the process of valuing commercial real estate, aiming to reduce the time it takes to buy or sell a property.
Two pioneers in the nascent market are Apprise, launched last month, and Bowery Valuation, which began operating in 2017. Both companies use technology platforms that automate parts of the appraisal process—such as populating parts of a report with public data on taxes and zoning and tapping natural-language generation to automatically create text in reports.
Unlike Bowery, Apprise also uses AI to estimate the value of properties. Apprise is a joint venture between Maryland-based real-estate financing company Walker & Dunlop Inc. and Netherlands-based AI startup GeoPhy, which supplies the technology.
Apprise is focusing on apartments for now, while Bowery covers all commercial-property types.
The Apprise AI platform can handle 80% of the steps in the appraisal process, executives said, enabling the company to deliver appraisal reports in as little as five days, compared with two or three weeks for a traditional report.
Walker & Dunlop’s primary business is providing loans to commercial-property investors, and appraisals help determine loan amounts. Chief Executive Willy Walker said he decided to launch Apprise to speed up the weekslong appraisal process.
“Time is super important in the transaction business,” Mr. Walker said. “So everything you can do to tighten those time frames is net positive to the person who’s buying it, to finance it, and to the seller.”
New York-based Bowery Valuation uses in-house technology to deliver appraisal reports in five to 10 days, said co-CEO John Meadows.
Commercial-real-estate appraisals tend to take a few weeks because of the leg work required, according to GeoPhy co-founder and CEO Teun van den Dries. That includes gathering data about a property, such as taxes and income, as well as information about comparable properties and the surrounding market. Appraisers also have to make in-person visits to the property.
John D’Angelo, head of U.S. real estate for Deloitte Consulting, said the real-estate sector has traditionally been slow to innovate, but he sees growing acceptance of using AI and big data to make property valuations faster and cheaper.
Bowery has 65 employees, including roughly 40 appraisers. It is licensed to appraise properties in 40 states, but primarily focuses on the Northeast and mid-Atlantic regions.
At Apprise, the 10-person staff includes five certified appraisers. About 40 GeoPhy employees are responsible for the technology platform. Apprise is licensed to operate in 39 U.S. states and it is expected to expand to the contiguous 48 states by this summer.
Prices for Apprise reports start around $3,000, but they can vary depending on the complexity of the transaction, availability of data and other factors, executives said. Bowery’s appraisals typically range from $2,500 to $7,500. Traditional appraisal reports also tend to fall in that range, officials from both companies said.
One of the main features of Bowery’s system is automatically populating information about a subject property and comparable properties, which appraisers use to determine the value of the property being evaluated. Though AI isn’t involved in that feature, Bowery does use AI to generate text throughout reports and analyze and categorize inspection photos, saving appraisers time.
Apprise’s system works by having machine-learning algorithms analyze more than 100 factors related to apartment buildings or complexes, such as rental-income data and crime statistics. The system learns how those factors affected sales prices in a specific market, enabling it to generate predictions about what a property is worth.
Only certified professionals can ascribe a final appraisal value to a property, Mr. van den Dries said, and when they do, Apprise’s system uses that input to improve its predictions.
The system can also predict what will happen to a property’s income and expenses up to a year in the future. It does that by analyzing how job growth, nearby retailers and other factors affected finances at other properties.
For instance, the system has learned that apartment complexes near independent coffee shops tend to have faster-growing rents compared to those near franchise coffee shops, Mr. van den Dries said. Certain yoga chains tend to be strong indicators of future rent growth, he added.
Executives declined to disclose how much they have invested in Apprise, but GeoPhy has raised $45 million. Bowery Valuation has raised $27 million to date.
Automated appraisals are also popping up in the residential real-estate market, with players including HouseCanary Inc. and Reggora Inc.
Mark Linné, a valuation-technology expert and appraisal consultant, said it might be challenging for Apprise and Bowery to build out a national footprint of appraisers, and they will likely see traditional appraisal firms mimic their approaches—but the customer appetite is there.
“Today is a better time for startups in this space than ever before,” said Mr. Linné, principal of Colorado-based Chrysalis Valuation Consultants LLC. “Ten years ago, eight years ago, five years ago, the market wasn’t ready. The market’s ready today.”View Full Article Here (Subscription Required)