Developers and investors have, for too long, relied on outdated processes and workflows to manage the underwriting process. This reliance on manual underwriting may be undermining your deals by creating a lengthy approvals process that damages your ability to impress potential borrowers. Manual financial modeling can also create inefficiencies and errors in the pricing process, further slowing down your deals. Overall, the traditional approach to underwriting can be error-prone, time-consuming, and too reliant on gut decision-making.
Even though the lending landscape has relied on virtually the same workflows for decades, the process is slowly being transformed by technology. AI underwriting in real estate is transforming how deals are evaluated, priced, and approved. Leveraging AI and automation across the deal lifecycle can help enhance efficiency, expediting the approvals process and addressing their pain points.
Here you’ll get a deep dive into how traditional underwriting compares to a tech-driven process, and insight into how you can optimize your acquisitions workflows:
What Is Underwriting in Real Estate?
In real estate development, underwriting is the assessment of the risks and potential return on an investment. It’s the process lenders use to asses the creditworthiness of a potential borrower and mitigate risk to lenders. Lenders will often also look at the property being purchased and assess the market value to ensure its sale price will align with its appraised value. The property itself is used as collateral against borrowed funds in a real estate transaction, and for this reason, underwriters typically use the debt service coverage ratio (DSCR) to determine the property’s ability to deliver value.
Traditional loan underwriting is an intensive and hands on process, and common pain points include managing paperwork, slowed down process for approvals, and increased compliance risks. Human error is a huge issue with relying on outdated workflows – issues can arise when a person is manually inputting data, and biases can also impact interpretations of a prospective deal. When a person has to manually review income information, credit reports, or other documents from a prospective borrower, it can slow the approvals process down by weeks and endanger a deal. Innovation is much needed for underwriting in the real estate industry, modern deal making platforms are enabling this long overdue shift.
What Is AI Underwriting in Real Estate?
AI underwriting in real estate development is changing revenue and investment processes work, allowing for faster transactions with increased ability to leverage historical or market data for decision making. In contrast with traditional methods of underwriting, which rely on manually entered and static data, AI can provide dynamic insights. Leveraging AI in the underwriting process has a number of benefits for investment teams, increasing accuracy in the process by preventing human error, speed and efficiency that offers a competitive edge, and the ability to scale your portfolio as needed to grow your business.
Modern deal management platforms are allowing investment firms to accelerate portfolio and business growth. Northspyre Deal has the ability to accurately calculate high-level return scenarios in seconds, improving the speed and accuracy of your financial analysis. The platform can also accelerate your deal velocity and real-time pipeline visibility, and boost your ability to communicate with and produce reports for key stakeholders across the deal lifecycle.
Key Benefits of AI in Real Estate Underwriting
- Speed:The real estate investment market is more competitive than ever before, and your ability to improve speed and accuracy of financial analysis will give your team an edge. The ability to instantly stress test different financial scenarios to understand the impact certain factors will have on your budget or returns will expedite your deals and improve overall velocity.
- Accuracy: AI powered underwriting can analyze a large amount of data to identify patterns that would take time to become apparent to human analysts. This means more accurate financial analysis, and less room for human error to derail a potential investment.
- Scalability: Businesses looking to scale can leverage AI to take on larger portfolios with consistent evaluation without increasing head count. AI-powered dealmaking platforms offer the ability to evaluate deals of all size and scopes at scale using standardized waterfall models and distributions.
- Data Types:: AI also offers the ability to analyze vast amounts of data across different fields, such as market trends, tenant demographics, and other economic factors inform your investment decisions, eliminating human bias or overlooked data trends
The Future of AI Underwriting in Real Estate
AI will become a cornerstone of the real estate underwriting process, and you can expect to see several trends unfold as the technology is adopted by leaders in the investment field.
- Broad Adoption: AI-driven tools have been part of a revolution in commercial real estate, which has historically been resistant to changing outdated and error-prone workflows.
- Hybrid Models: AI-underwriting tools can play a hybrid role in the underwriting process, the processing power of AI and data analytics can inform the strategic judgement and expertise of your acquisitions team.
- Real-Time Underwriting: Instead of taking days or weeks to manual underwriting process, AI-powered deal platforms can allows for realtime updates.
The ability to leverage an AI-powered deal management platform for the underwriting process will have widespread implications for brokers, lenders, and investors. AI can streamline data analysis, automating risk assessment, and improving financial forecasting, investors a greater ability to evaluate deal viability. Brokers, as a result, will have a faster turnaround and bolster their reputations with clients. Investors will be able to create a proprietary database of historical deal and cost data to inform decisions that provides a strategic advantage in the deal-making process.
Common Misconceptions About AI Underwriting
The real estate industry has historically shown resistance to implementing modern tools, and it’s important to dispel several common misconceptions about how AI underwriting will augment your CRE operations.
Here are few common myths about AI’s role in acquisitions, and the truth behind how the technology facilitates operations:
- Myth: AI will replace human expertise.
- Truth: AI supports the work underwriters are already doing, removing the grunt work so they can focus on high-value analysis.
- Myth: AI is only for large firms.
- Truth: Cloud-based platforms like Northspyre make advanced tech accessible for mid-sized firms too.
- Myth: AI is only for large firms with deep pockets.
- Truth: AI underwriting is scalable and accessible.Modern cloud-based solutions like Northspyre don’t require a full IT overhaul or large internal teams. Implementation is quick (4–8 weeks in many cases), and firms of any size can start seeing ROI almost immediately.
Overall, AI means your team spends less time manually entering and analyzing deal related data and can focus on being strategic. Your team members will have more time for sourcing deals, fostering stakeholder relationships, and to optimize returns.
AI underwriting real estate isn’t just a trend—it’s the future of the investment field. Eliminating the error-prone and time-consuming manual processes used in traditional underwriting will allow your team to keep a competitive edge amid a difficult and ever-shifting market. For teams looking to get to market faster with the highest and best use cases, AI-driven solutions are no longer a nice to have but a must-adopt.
Northspyre Deal is a comprehensive financial modeling and deal management solution providing the ability to track, evaluate, and execute investment opportunities. By centralizing deal activities in a real-time platform with you’ll eliminate spreadsheet inefficiencies, and boost collaboration with key stakeholders.
Book a Demo and learn how Northspyre can transform your underwriting process and boost returns across the deal lifecycle.
