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Artificial Intelligence (AI) has become an integral part of many industries, including real estate. From drafting emails to providing legal guidance, AI tools like ChatGPT and Claude can offer agents invaluable assistance.
However, as we discovered in my recent tests, these AI systems are far from perfect. In this blog, we will share the results of an "AI War" where we posed the same real estate-related prompts to both ChatGPT and Claude. We will explore the strengths and weaknesses of each AI's response, and by the end, you'll have a better understanding of why AI, despite its usefulness, shouldn't be solely relied upon for critical decisions.
Round 1: State Law/NCREC Rule Applicability
Prompt:"As a North Carolina real estate agent working with a seller who has performed unpermitted work on their home, I need to understand how to properly disclose this information. The seller has elected not to disclose this information on their RPOADS. Can you explain the specific NCREC disclosure requirements for unpermitted work and how these disclosures interact with an ‘As-Is’ sale when listing the property?"
Chat GPT Response
NCREC Disclosure Requirements for Unpermitted Work:
Material Facts: The North Carolina Real Estate Commission (NCREC) requires agents to disclose material facts to potential buyers, regardless of the seller's disclosure choices. Unpermitted work is considered a material fact because it can affect the value, safety, insurability, and legal use of the property. As the agent, you must disclose the existence of any unpermitted work to potential buyers, even if the seller elects not to do so on the RPOADS.
Seller’s Election on RPOADS: While sellers in North Carolina have the option to check “No Representation” on the RPOADS for certain conditions (such as unpermitted work), this does not relieve you, the agent, from your duty to disclose material facts that you are aware of or should reasonably be aware of during your representation. If you know of unpermitted work, it must be disclosed, even if the seller has elected not to disclose it.
Interaction with an 'As-Is' Sale:
'As-Is' Sales: Selling a property "as-is" means that the seller is not agreeing to make any repairs or modifications to the property before the sale. However, selling "as-is" does not absolve the seller or agent from disclosing material facts. The NCREC makes it clear that "as-is" sales do not negate the obligation to disclose known defects or conditions that could affect the property’s desirability, like unpermitted work.
Implications for Buyers: Even in an "as-is" sale, buyers should be informed of any unpermitted work to ensure they can make an informed decision. Disclosing unpermitted work is essential because it can affect the buyer’s ability to get permits retroactively, insure the property, or resell it in the future.
Best Practices:
Document Your Disclosure: Always document any disclosure of unpermitted work in writing to protect both yourself and the seller. This can be done through the MLS listing, emails, or additional disclosure forms provided to the buyer.
Advise the Seller: Encourage the seller to be transparent about the unpermitted work, as failing to disclose material facts could lead to legal liability after the sale, especially if it affects the buyer’s ability to use or resell the property.
In summary, while a seller may elect not to disclose unpermitted work on the RPOADS, you as the agent are required by NCREC to disclose this material fact to prospective buyers, even in an "as-is" sale.
Claude AI Response
Winner: Claude.
Claude’s response stood out by advising clients to consult an attorney and suggesting that the agent seek guidance from their BIC or the NCREC—both excellent recommendations. While both Claude and ChatGPT struggled with the nuances of seller disclosure in North Carolina, Claude provided a more comprehensive answer. In this caveat emptor state, sellers have limited disclosure obligations. However, NC courts have held sellers liable for failing to disclose material facts that only they could know, or for misrepresenting issues on the RPOADS by selecting “no” instead of “no representation.” The best advice for clients is that while they are not obligated to disclose everything, if they knowingly withhold information that could lead a buyer to build a case of intentional concealment, they could still face legal consequences. Claude’s suggestion to consult an attorney for uncertain disclosures was especially valuable.
Round 2: Responding to a Client Inquiry About Flood Zones
Prompt:"I’m a North Carolina real estate agent, and I have a buyer client who is considering purchasing a riverside home in a flood zone. They are unsure about the risks and benefits of such a purchase. How can I clearly and effectively explain the pros and cons, including but not limited to the impact on insurance and resale value?"
Chat GPT Response
When discussing the potential purchase of a riverside home in a flood zone with your client, it’s essential to break down the risks and benefits clearly. Here's a way to approach the conversation:
Benefits:
Scenic Views and Lifestyle:
Riverside homes often offer beautiful views, access to water activities, and a tranquil lifestyle. These features are highly attractive to some buyers, which can enhance enjoyment and quality of life.
Potential for Higher Resale to Specific Buyers:
Some buyers may be drawn to the natural beauty and unique features of a waterfront property, which can increase demand in certain market segments. However, this demand may fluctuate based on the location and overall real estate trends.
Unique Investment Opportunity:
Depending on the property and the area, riverside homes can appreciate in value due to their scarcity. If the area is desirable and properly maintained, it might become a sought-after location, especially with new flood prevention measures.
Risks:
Flood Insurance Costs:
Homes in flood zones generally require flood insurance, which can be costly. The cost of this insurance depends on the exact flood zone, the elevation of the home, and other risk factors.
Example: Homes in high-risk zones (e.g., FEMA Flood Zone A or AE) tend to have much higher premiums. It's essential for your buyer to get a flood insurance quote early in the process to fully understand the ongoing financial commitment.
Resale Value Fluctuations:
While waterfront properties can attract certain buyers, they can also be harder to sell in the future due to the risk of flooding. Some buyers are hesitant to purchase in a flood zone due to safety concerns, maintenance, or insurance costs. If flood maps or regulations change, it could affect the resale value.
Recent flood events can negatively impact the perception of the area, potentially lowering demand and the resale price.
Maintenance Costs:
Riverside homes may be more prone to water damage, erosion, or mold issues due to their proximity to water. These homes often require more frequent maintenance, including safeguarding the property against potential flooding.
Limited Financing Options:
Some lenders may require additional insurance or have stricter terms for homes in flood-prone areas, which could limit financing options or increase the buyer's upfront costs.
Potential for Property Damage:
Flooding is the most obvious risk. Even if a home has never flooded before, climate change and changes in local infrastructure (like dam projects or zoning changes) can increase the risk over time.
Suggest looking at historical flood data and projected flood maps to understand the home's long-term risk.
Additional Considerations:
Flood Mitigation Measures:
Some properties have flood mitigation features like raised foundations, flood barriers, or drainage systems, which can help reduce flood risk and insurance premiums. If these measures are in place, it can be a positive selling point both for your client’s protection and resale.
Local Community and Support:
If the home is in a well-developed area with good flood control infrastructure, this can mitigate some of the risk. Suggest they check with local authorities about any ongoing or planned flood prevention projects.
Disclosure Requirements:
Make sure the seller has provided full disclosure regarding past flooding, flood damage, and insurance claims. North Carolina requires sellers to disclose material facts about properties, including past flooding and flood insurance claims, so your buyer can make an informed decision.
Conclusion:
Encourage your client to weigh the lifestyle benefits against the financial and risk factors. Emphasize the importance of due diligence—consulting with insurance agents, understanding the flood zone, and considering the long-term investment potential.
If your client has a specific risk tolerance or financial budget for maintenance and insurance, that can guide their decision. Balancing the emotional appeal of a riverside home with a realistic assessment of the risks and costs will help them make a confident decision.
Claude AI Response
Winner: ChatGPT.
ChatGPT provided stronger advice by including specific details on flood mitigation measures that could be implemented at the property. It also highlighted financing limitations, a crucial point that Claude missed. These additional insights made ChatGPT’s response more comprehensive and practical for guiding clients through the risks and benefits of purchasing a home in a flood zone.
Round 3: Negotiating on an "As-Is" Sale
Prompt:"I’m representing a buyer client who is concerned about the condition of the home they want to purchase following the inspection report, but the seller is unwilling to make repairs and insists on an ‘as-is’ sale. How can I negotiate concessions without losing the deal?"
Chat GPT Response
In North Carolina real estate transactions, when a seller insists on an "as-is" sale, it doesn't necessarily close the door on negotiations. Here are specific strategies you can use to help your buyer client secure concessions like a price reduction or credits at closing while maintaining a collaborative atmosphere with the seller:
1. Leverage the Inspection Report
Use the inspection report as a neutral, third-party document to highlight the home's condition and any significant issues. While the seller may not be willing to make repairs, the report's findings can still justify a price adjustment or closing credit.
Strategy: Frame the request around the need for your client to address certain issues immediately upon moving in. For example, “Based on the inspection report, it seems that some immediate repairs, such as the HVAC system or roof, will be necessary. My client is willing to move forward but would need a credit at closing to handle these issues.”
2. Focus on Health and Safety Concerns
Many sellers are more open to negotiating on health and safety concerns versus cosmetic or minor repairs. If the inspection reveals issues that could impact the safety of future occupants (e.g., electrical problems, mold, structural integrity), emphasize these.
Strategy: Explain that while the buyer understands the "as-is" condition, they are particularly concerned about safety risks. Present these issues as a non-negotiable concern for your client but offer flexibility on other, less critical repairs.
3. Ask for a Price Reduction
If the seller is firm on not making repairs, another approach is to negotiate a price reduction to reflect the cost your buyer will incur for necessary repairs. A reduction in the purchase price will not directly impact the seller's cash at closing, which may make this option more palatable to them.
Strategy: Estimate the repair costs (you can use repair estimates provided by contractors) and request a price reduction equal to that amount. For instance, if the roof needs replacement and costs $10,000, propose a reduction of the sales price by $10,000.
4. Request Closing Cost Credits
Closing credits can be an effective way to help the buyer with upfront repair costs without reducing the home's purchase price. This could be particularly useful if the buyer has limited cash for repairs after closing.
Strategy: Negotiate for a credit at closing equivalent to the repair costs or a portion thereof. This can sometimes be a more attractive option to sellers since it doesn't directly affect the agreed-upon sales price but still helps your client offset future repair expenses.
5. Highlight Future Transaction Delays
Sellers may reconsider their stance when they realize that failing to address certain concerns (even through credits or price reductions) could lead to future delays, such as the buyer struggling to secure financing due to property condition issues. If the repairs involve major systems or structural components, some lenders may require them to be fixed before approving the loan.
Strategy: Point out that issues like roofing or HVAC system failures could trigger appraisal concerns or lender repairs. Emphasize that resolving these issues now, via a price reduction or credit, will help ensure a smooth transaction.
6. Compromise on Timing or Other Terms
If the seller refuses to make repairs or offer credits, consider sweetening the deal by offering concessions elsewhere—like adjusting the closing date or waiving minor contingencies in exchange for a price reduction or credit.
Strategy: Propose a quicker closing date in exchange for a credit at closing. If the seller is eager to close quickly, they might be more willing to agree to a credit to avoid delays.
7. Use Emotional Appeal
Sometimes, sellers are attached to the home emotionally and want the next owner to appreciate it. Framing your negotiations around your client’s desire to make the home their own (but noting they’ll need to address some issues) can humanize the negotiation process.
Strategy: Say something like, "My client loves the home and is excited to make it their own. However, they are concerned about the upfront cost of addressing these key issues. A small concession would make this process more manageable."
8. Asking for a Home Warranty
If the seller won’t budge on repairs or price reductions, you can still request that they purchase a home warranty for the buyer, which would cover major systems and appliances for the first year.
Strategy: Present this as a lower-cost alternative for the seller that still provides some peace of mind for your buyer client, especially if there are concerns about the longevity of systems like the HVAC or water heater.
Conclusion
When negotiating, make sure to maintain a professional yet collaborative tone, aiming for a win-win scenario. By emphasizing objective findings (such as the inspection report), offering multiple options (credits, price reductions, warranties), and focusing on health and safety, you stand a better chance of securing some form of concession for your buyer without alienating the seller or jeopardizing the deal.
Claude AI Response
Winner: ChatGPT.
Both systems made errors, but ChatGPT's mistakes were less significant. While ChatGPT incorrectly stated that a price reduction wouldn’t impact the seller’s net at closing, Claude made more critical errors. Claude wrongly suggested that a buyer could get their due diligence fee back, when in reality only the earnest money is refundable. Additionally, Claude mistakenly said that form 310-T could be used to extend the due diligence period, which is actually done with form 4-T. ChatGPT provided more accurate strategies overall, which is why it came out on top.
Round 4: Marketing Email Newsletter
Prompt:"I’m a real estate agent preparing a fall marketing email for my client database, most of whom are homeowners or potential sellers in North Carolina. I want to highlight why the fall season is a great time to list a home for sale, emphasizing benefits like less competition and serious buyers. Could you help me craft a friendly yet professional email that engages this audience and encourages them to contact me about listing their home?"
Chat GPT Response
Subject: Why Fall is the Perfect Season to Sell Your Home! 🍂
Hi [Client’s First Name],
As the leaves change and the crisp air sets in, you may be wondering if now is a good time to list your home. You might be surprised to hear that fall is actually one of the best seasons to sell! Here’s why:
1. Less Competition:Many homeowners wait until spring or summer to sell, which means there are fewer homes on the market right now. This gives your property a better chance to stand out and attract more attention from serious buyers.
2. Serious Buyers:Fall buyers are typically more motivated. Whether it’s a job relocation or a desire to settle in before the holidays, they’re ready to move quickly. This often leads to smoother negotiations and a faster closing process.
3. Cozy Appeal:Fall offers a unique opportunity to show your home in its coziest light. Warm lighting, fall décor, and inviting outdoor spaces can help potential buyers feel right at home.
If you’ve been considering selling, now could be the perfect time to take advantage of these seasonal benefits. I’d love to help you explore your options and discuss how we can position your home for a successful sale this fall.
Feel free to reach out to me at [Your Phone Number] or reply to this email if you’d like to learn more. Let’s make your fall real estate goals a reality!
Best regards,[Your Name][Your Real Estate Company][Your Contact Information][Social Media Links]
Claude AI Response
Winner: Claude.
Although Claude mentioned more flexible closing dates, which isn’t always true due to holiday bank and register of deeds closures, it crafted a more inviting, detailed marketing email. The email also stood out by ending with a strong call to action, asking for referrals.
Who won?
The only winner is YOU, silly! Both of these AI tools can be of tremendous value if used appropriately in your profession as a real estate broker. We encourage you to explore them further and check out our Chat GPT for Real Estate Agents course if you want our best tips for creating useful prompts so that you get the best results when using AI.
As we can see from these examples, while both AI systems are useful, they are not infallible. Claude gave strong legal advice in the first scenario, while ChatGPT provided more practical, thorough responses in other cases. However, both systems made mistakes, and relying solely on AI can lead to misunderstandings or missed opportunities. Therefore, we encourage all real estate professionals to always double-check the information provided by AI tools and consult with trusted human advisors—whether it’s a broker-in-charge, an attorney, or a mentor—when handling complex real estate matters. AI can assist, but it can't replace professional judgment or local expertise.
What prompts should we ask for our next edition of AI Wars? Let us know in the comments or sound off in an upcoming CE Class!