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How AI Could Kill Traditional Ad Models

The client pipelines of many real estate pros are inextricably tied to outdated processes like direct mail and paying portals for leads. But what if artificial intelligence could provide a better way for agents and brokers to control their online marketing?

October 8, 2018

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In the past couple years, the progress in artificial intelligence has been so rapid and dramatic that people are starting to call AI the next industrial revolution. One good example to illustrate the scale of the breakthrough is a chess-playing application called AlphaZero, developed by Alphabet-owned company DeepMind. AlphaZero rapidly and routinely beats supercomputers that have triumphed over the best human players for the past decade. After playing chess against itself and learning the game for only four hours, the moves that AlphaZero made began to contradict the school of learning that had been accumulated over the last 1,500 years, shocking the whole chess community. Its moves are so unconventional yet superior that it’s called into question the accuracy of human knowledge and education.

If artificial intelligence can make us rethink such a fundamental example of cognition and understanding, it’s not much of a stretch to assume similar advances could upend the way real estate professionals market themselves and their listings online.

The Second Generation of AI Is Coming

However impressive AI may seem, today’s artificial intelligence is still quite narrow. It’s able to accomplish only very specific goals, whereas human intelligence is very broad. The real target here is artificial general intelligence, which is much more like a human brain, where the system can apply itself to a wide range of tasks.

We’re still pretty far away from reaching AGI that’s at the level of the human brain, but we do have narrower AI solutions that have surpassed human abilities in language translation, image recognition, online recommendations, and games. There are new solutions every day that promise to employ artificial intelligence to better solve old problems, especially in the data-rich arena of real estate.

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Why Real Estate?

In fall 2017, I was invited to attend the Realogy FWD Innovation Summit in New York. About a dozen entrepreneurs presented their technologies on stage in front of leaders of huge real estate brands such as Century 21, Coldwell Banker, Better Homes and Gardens, Sotheby’s, NRT, and ERA. Half of the startups that were invited to present on stage had an AI component to their secret sauce. This increased emphasis on artificial intelligence surprised me. My company, Flipt, had been working on building algorithms on top of big data in real estate since 2013, but I had never seen such interest in artificial intelligence from the real estate community.

I asked Richard Smith, Realogy’s CEO at the time, why there was such a high priority and focus on artificial intelligence at their event. His answer then struck me: “We know that real estate professionals have to do many tasks every day. Any AI solution we can add to improve our agents’ work will give Realogy a competitive advantage.”

The benefits of artificial intelligence are finally becoming better understood and more mainstream in real estate. Intelligent automatic technology is the holy grail of consumer experience online and at its most effective when working alongside human experts. And as Smith’s comment suggests, real estate companies that don’t have the latest and best AI technology will be driven out of business by competition. The most successful real estate companies are likely to be the ones that accept this and which embrace AI and use it to improve the way they do business.

Taking the Digital Media Revolution to the Next Level

In the mid-1400s, Johannes Gutenberg made a monumental impact on the transmission of knowledge by developing the first mechanical moveable type printing press and introducing modern publishing. After more than 600 years it’s still considered one of the most important inventions in history and to this day printing is a $76 billion industry in the U.S. alone. Real estate professionals spend billions of dollars every year on this old but proven technology.

But the transmission of information is changing rapidly, and the advertising industry has been disrupted by digital media. Many people have shifted to consuming the majority their information online, with the average American spending five hours per day on their mobile device, according to 2017 data from analytics firm Flurry.

Nowadays, online content and mobile devices are eating the world, and the average postcard only has a few seconds to make an impression before it ends up in the trash. My apologies to Gutenberg, but print media has become so intrusive and unwelcome that some pay for services where others open their mail, filter it and remove paper solicitations and advertisements, then scan and electronically send only important information to the consumer. Paper is more expensive, it’s not real-time, and it’s inconvenient.

However, while many real estate advertisers are migrating online, digital marketing is exponentially more difficult. Today there are thousands of different options for online ads. They vary in type, size, format, audience, placement, and objectives. Audience targeting is similarly vast, layering on demographics, search interests, online behavior, and more. The ads can be so small that they only accommodate a few words or so huge that they occupy the full screen. They can be displayed at different times of the day or week, so an advertiser can drive prospect traffic during desired hours. Digital ads can be optimized for the fastest results or a more consistent conversion over a longer period of time.

These options are hard for one human brain to contemplate. And with online ads, you’re competing against thousands of other marketers who are bidding to display their ads to the same audiences, so employing artificial intelligence can provide a substantial competitive advantage.

I’m not the only one who’s noticed this potential, of course. Software giants such as Facebook and Google have thousands of technology engineers working on big data analytics, machine learning, and specifically “deep learning method” as the foundation for a new generation of online advertising decision-making. Those advertising platforms have invested billions of dollars to analyze big data from their users, giving their clients the ability to display digital ads in a more relevant and effective way.

One important way AI can revolutionize online advertising is in the bidding process. With many digital media platforms, the ads that win the right to be displayed alongside certain keywords are the ones that have the highest engagement scores, not necessarily the ones that come with the highest bids. To outperform a competitor, an AI tool can predict which keywords will be more relevant for an ad, and which ones will produce higher engagement scores.

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Tackling the Difficult Problem of Seller Leads

The majority of people dreaming about buying a home start by searching for real estate online. Real estate portals use big data to revolutionize the home search experience and have the resources to build or acquire the next generation technology that will provide consumers with the property recommendations that suit their demographics and online behavior profiles. They’re concentrating on personalizing every customer interaction based on what’s worked well for similar clients, employing image-recognition to find unique property insights, and tailoring messaging to facilitate a faster and more secure transaction.

This is the reason why home buyers can be found on these large portals while sellers have been more elusive. Thus, the old need to connect with property owners looking to move is stronger than ever. According to data from realtor.com®, the average number of new listings each month is just over 450,000. If you figure that there are around 2 million real estate professionals licensed in the United States, that means there are almost five times as many agents as there are new properties coming on the market at any given time. And with many homeowners still reluctant to get off the fence, the competition for home sellers feels near its peak. That’s why it’s crucial agents and brokers begin using artificial intelligence to find and connect with potential sellers online.

One important task AI can accomplish is connecting agents with homeowners who are more likely to become sellers because they’re nearing retirement, likely to become empty-nesters, or will soon need more space. AI marketing systems can find the best targeting settings, optimize ads, and select the best time and placement for displaying the ads. Moreover, AI never sleeps, so it can outbid the ads of competitors that are distributed by humans.

Employing artificial intelligence technology can help agents and brokers provide more relevant real estate and property valuation ads to the people who are the most interested in selling. This information is carefully crafted to facilitate a consultation request and to start a conversation with an agent. Such ad technology is similar to the idea behind targeted postcards, but the online experience can be branded, personalized, and optimized for mobile devices. It’s designed for long-term competitive advantage and brand recognition with home sellers.

This AI model is very different from the traditional method of buying leads. While artificial intelligence provides superior advertising and targeting, it’s not attempting the conversion, lead nurturing, or relationship building tasks that are typically performed by an agent. Real estate pros are truly the best people to qualify, follow up on, and engage with prospects. They’re the ones who run the meetings, provide pricing consultations, draft a contracts, and close deals. But when agents use AI to automate much of the work of running ads, they can free up time to spend on more profitable human-scale tasks. This helps agents gain a competitive advantage in the ultracompetitive world of real estate, and it even allows brokerages to function more profitably.

Andrey Nokhrin

Andrey Nokhrin is a former real estate broker-owner and the CEO of Flipt, a real estate AI tech company that was selected by the National Association of REALTORS®’ strategic investment fund, Second Century Ventures, to be part of the 2016 REach® Accelerator Class.

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