How AI can Potentially Transform Real Estate Underwriting?

Underwriters are utilizing AI to streamline underwriting processes resulting in reduced operational errors as well as operating expenses.        

FREMONT, CA: Underwriting is an integral component of investment decisions in the financial world. The process of underwriting is aimed at determining the risks as well as the potential return on all types of investments. In real estate, the analysis usually begins with a property’s gross potential income followed by subtracting variables such as vacancy allowances and operating expenses to estimate the property’s net operating income (NOI), which can be then used in combination with a cap rate to find a property’s value. The commercial real estate underwriting process can be tedious, resulting in a significant amount of time spent looking for paperwork and moving data from one place to the other. Manual underwriting can also involve errors and unnecessary costs. Artificial intelligence (AI) is a promising technology that can address this challenge.

AI can help automate the underwriting process. Automated underwriting with AI allows quick scanning of a document in various formats and extracting the required information for underwriting. Thus, AI-enabled underwriting takes minutes rather than hours or days, exhibiting an advantage over conventional underwriting procedures. Machine learning (ML) is taking the underwriting automation a step ahead by making correlated analyses of unrelated assets and make predictions to estimate the creditworthiness of a borrower quickly. The above capability provides lenders an error-free, fast, and secure means to underwrite a loan with minimal risk.

Incorporation of AI in the commercial real estate underwriting will also enable the lenders to become more efficient. Automated underwriting will reduce expenses as well as the human resources required to take a loan. Another major advantage of AI algorithms is that it eliminates the ‘human-bias’ from the decision-making process. For instance, a lender may have a possible bias towards a particular borrower. However, the incorporation of AI algorithms eliminates any such bias, and the loans are strictly based on parameters and data. ML algorithms also collect massive data sets across each asset class and use the knowledge towards every new loan opportunity.  

Overall, AI is transforming the world of commercial real estate underwriting.

See Also: How Artificial Intelligence Revolutionizes Retail

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