BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Use of artificial intelligence (“AI”) is becoming a routine part of everyday life. Frequently, people do not realize that they are, in fact, using AI. Likewise, AI is becoming a significant tool for real estate agents to use in their practices. However, there are a number of ongoing and developing concerns regarding real estate agents’ use of AI.
The California Department of Real Estate has taken the position that AI does not replace a real estate agent’s obligations to their clients, including without limitation the following: review of disclosures; ensuring disclosures are complete; and making recommendations to clients regarding disclosures, the contract, and other aspects of the transaction. While there are a number of software programs and AI platforms which attempt to substitute a real estate agent’s obligations regarding the contract and disclosures, the DRE has taken the position that this is insufficient and cannot replace a real estate agent’s duties and obligations to their clients or to the other parties to a transaction.
Real estate agents are also regularly utilizing AI in their marketing. There are a number of risks affiliated with this usage:
- AI has a tendency to use descriptive words, including adjectives and adverbs. AI has no ability to observe the property and properly represent it in marketing materials. Therefore, real estate agents must carefully scrutinize any marketing material they create using AI to ensure the marketing material is accurate and applicable to the specific property.
- AI also has no ability to decipher whether descriptions or other information it provides complies with federal and state fair housing laws. While both federal and California law provide fair housing protections, California’s laws are significantly broader than federal laws. As a result, in many instances descriptions created by AI may violate fair housing laws.
- AI also has tremendous difficulty in accurately depicting statistics such as market trends, sales activity, etc. Therefore, if agents are seeking to utilize statistics, agents should not utilize AI but should research their sources and utilize verified information.
- Many agents are using AI to develop floor plans, recreations of a home, or depictions of what could be done with a property with certain improvements. Agents need to be extremely cautious in using these depictions to ensure that it is fully disclosed that the recreations have been created by AI. The agent should take steps to ensure that the recreations can actually be undertaken by buyers. However, that verification process should never be undertaken by the agent. For example, an agent should not suggest that an improvement (i.e., ADU; addition; reconstruction of a home, etc) can be done without verification and documentation from the seller or seller’s architect or contractor that the suggested improvement can legally be made. In that case, Broker Risk Management recommends that the agent also use the “attribute, disclose, disclaim” format when presenting that information:
“Seller (or Seller’s Architect/Contractor) has stated that the (described remodel/rebuild) of the Property can be completed with permits in conformance with local building and zoning laws. Agent has not verified this information. Buyer should conduct and rely solely on their own investigation with appropriate professionals.”
Failure to present or suggest future remodels or rebuilding to a property which does not follow the above recommendations can lead to liability for the agent and their brokerage, as well as a potential license sanction by the Department of Real Estate for “misrepresentation.”
While AI can be a valuable tool to real estate agents, it must be used with caution. BRM strongly recommends that real estate agents thoroughly review and scrutinize any materials generated by AI before they are distributed to the public.
PRACTICE TIPS:
- Agents cannot use AI to replace agents’ duties to advise their clients pertaining to inspections, disclosures, and contract documents. For example, agents’ obligations to ensure that disclosures are complete cannot be replaced with AI.
- If agents are using AI to create marketing materials, agents must review and scrutinize those materials for accuracy prior to distribution to the public.
- Agents should not utilize AI for statistics until AI is further developed. AI selection and presentation of statistics are generally incorrect. The utilization of such statistical information could lead to a misrepresentation by an agent.
- If agents are using AI to depict future usage of, or improvements to, the property, agents should verify with seller or seller’s professionals that those depictions could actually be made, and clearly disclose that the depictions were created by artificial intelligence, disclaim that the agent has not verified that information, and that buyer should conduct and rely on their own investigation with appropriate professionals.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is an attorney-client privileged communication for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management PC. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry but rather are intended to suggest good risk management practice.