Artificial intelligence has changed how people research commercial real estate. A property owner can now ask ChatGPT or another AI tool a question about property value, appraisal methodology, or what to expect from an appraisal and receive an answer within seconds.
That can be useful for gaining a general understanding of a topic. But when it comes to a specific appraisal assignment, general answers can quickly become misleading.
Commercial real estate appraisals are highly dependent on context. The reason an appraisal is being performed can influence the scope of the assignment, the information that must be considered, and how the resulting appraisal will ultimately be used.
That is why one of the first questions in any appraisal assignment should be: What is the purpose of the appraisal?
Not Every Appraisal Is Being Done for the Same Reason
A commercial property may need to be appraised for many different reasons.
An owner may need an appraisal as part of a financing decision. An attorney may need one in connection with litigation. A property may be involved in an eminent domain matter, estate planning, tax-related work, for donation or gifting, or another business or legal situation.
Although each assignment involves analyzing real estate, the circumstances surrounding those assignments can be very different.
The client, intended users, property, effective date, available information, and purpose of the assignment all provide important context for the appraiser.
That means two questions that sound similar on the surface may not necessarily have the same answer.
Where AI Can Create Confusion
AI tools are designed to take large amounts of information and provide a useful response to a question. The challenge is that the person asking the question may not know which details matter.
For example, someone might ask:
“Why doesn’t my appraisal match what I think the property is worth?”
An AI tool can explain general concepts about real estate valuation. But it does not automatically know the complete circumstances surrounding that particular appraisal.
It may not know:
- Why the appraisal was ordered
- Who the appraisal was prepared for
- How the appraisal is intended to be used
- The effective date of the value
- The characteristics of the property
- The information available to the appraiser
- The specific circumstances surrounding the assignment
Without that context, a generalized answer can make an appraisal seem simpler than it really is.
Want a clearer understanding of how AI fits into the appraisal process?
An Appraisal Is More Than a Property Value
It can be tempting to think of an appraisal as a document whose primary purpose is to answer one question:
“What is this property worth?”
In practice, an appraisal is a professional analysis performed within the context of a specific assignment.
Understanding that distinction is especially important when reading an appraisal report. A number or conclusion should not be separated from the purpose, assumptions, analysis, and circumstances that led to it. In fact, all appraisals are required to include language indicating that a report is not to be used for any other purpose other than which it was created and cannot be recycled for a similar or other purpose in the future.
This is why comparing one appraisal to another—or comparing an appraisal to an AI-generated estimate—without understanding the underlying assignments may lead to incorrect conclusions.
A good example would be how a property’s value in an independent appraisal can result so differently from the County Auditor’s established value. The County is using desktop data, trends, and statistics to come to a conclusion. The appraisers completing these analyses are not conducting full site visits (interior and exterior) to a property, nor are they talking to individuals directly involved with the property or the comparable sales that may be used. It’s the difference between a 30,000 ft. view and a 30 ft. view: one takes a closer look at a specific property while the other is an over-arching view of the properties in the immediate area. (Read more about the county-wide reappraisal process here)
Use AI to Ask Better Questions, Not Replace the Appraisal Process
AI can still be a valuable educational resource.
It can help property owners become familiar with appraisal terminology, understand common concepts, and develop better questions before speaking with an appraiser.
The important distinction is knowing where general information ends and professional analysis begins.
If an AI-generated response causes you to question something in an appraisal, that does not necessarily mean the appraisal is incorrect. It may simply mean that the AI tool does not have all of the information needed to understand the assignment. More importantly, AI could be ‘hallucinating’ (the term for when AI produces false information) and you wouldn’t know without consulting someone with a deeper knowledge of the process.
In those situations, the better next step is to ask the appraiser.
Context Matters
Commercial real estate is rarely one-size-fits-all, and neither are commercial real estate appraisals.
Before drawing conclusions from an online article, an automated estimate, or an AI-generated response, make sure you understand the purpose of the appraisal and the circumstances surrounding the assignment.
At The Robert Weiler Company, we believe informed clients make better real estate decisions. Our appraisal professionals help clients understand not only the conclusions contained within an appraisal, but also the context that makes those conclusions meaningful.
If you have questions about commercial real estate appraisal services in Central Ohio, contact The Robert Weiler Company to discuss your specific needs.
Learn more about The Robert Weiler Company’s commercial real estate appraisal services in Central Ohio.