BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Broker Risk Management (“BRM”) has published a number of tips regarding the risks of using artificial intelligence (“AI”) in marketing, advertising, and other aspects of real estate transactions. Recently, it has come to BRM’s attention that agents and clients are using AI to review and summarize disclosures. There are significant risks affiliated with this practice.
BRM also understands that several vendors and real estate companies are developing AI programs to summarize disclosures in real estate transactions. Brokers and agents are cautioned when using these programs.
The review and evaluation of disclosures in a real estate transaction can be very subjective and takes the knowledge and experience of a real estate professional to appreciate any potential red flags or issues with the property. At this point, AI does not appear to be developed to a point where it can detect nuances in disclosures or red flags.
Please consider the following scenarios:
SCENARIO NO. 1: Listing agent lists a house with an adjoining lot. The house visibly encroaches on the lot. The seller has disclosed the encroachment on the Vacant Land Questionnaire, but not on the Transfer Disclosure Statement. Buyer writes an offer to purchase the house, but not the lot. The TDS pertaining to the house was provided to the buyer, but not the VLQ pertaining to the lot as the lot was not being sold. The buyer’s agent uses AI to summarize the disclosures for the buyer. AI missed the encroachment. Who will get sued?
RESPONSE: The listing agent will likely get sued for failing to provide the VLQ to the home buyer. The buyer’s agent will likewise be sued for not identifying the encroachment, which likely could have been identified in a visual inspection, but not picked up by AI.
SCENARIO NO. 2: Seller writes on the Transfer Disclosure Statement that the seller undertook improvements without permits but that all improvements were undertaken in accordance with the Building Code. Buyer’s agent runs the disclosures through AI. AI fails to note the inconsistency between the seller’s response noting that some improvements were made without permits, but the seller misrepresented that the improvements were made in accordance with the Building Code, because by definition, improvements done without requisite permits are not in accordance with the Building Code. This is a nuance that only a real estate agent reviewing the disclosures would identify.
Buyers relying upon AI will likely be misled into thinking that they do not need to read the disclosures in their entirety and can rely on the summary. Therefore, BRM has created an advisory for the use of buyers and sellers when AI is used in disclosures. That advisory is attached to this tip.
Please be advised that the California Department of Real Estate has not approved the use of AI in interpreting or reviewing disclosures. Therefore, if AI is used to replace an agent’s review of disclosures and advice to their clients, the DRE could proceed with an investigation and potential sanction of the agent’s license.
PRACTICE TIPS:
- AI should never be used to replace agents’ review and analysis of disclosures in a real estate transaction.
- If a real estate agent relies upon AI regarding disclosures, it is recommended that the attached advisory be used.
- Agents should never use AI software without approval from their brokerage or manager.
Attachment: Advisory Regarding Using AI to Interpret Disclosures 6-27-25
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 LLP. 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.