Large real estate consumer search engine platforms have been using personal algorithms to monetize agent data and listings for years, sparking conversations about the impact of algorithms on the homes consumers see online. The practice constitutes a key issue, which is whether it leads to “steering,” or biased search results, and whether agents are liable for it.
For example, a buyer who mentions young children may be shown only suburban houses, while a renter asking about safe areas may receive a list of neighborhoods that shifts based on who is asking.
Algorithmic Steering and AI Chatbots
The California Department of Real Estate has classified AI as an “unlicensed assistant,” placing responsibility for AI-generated errors squarely on the managing broker. This means that brokers cannot outsource liability to the technology provider and must instead manage it themselves.
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Other states, such as Utah and Colorado, have also taken steps to address the issue of AI-generated steering. Utah’s SB 149 removes the “the machine did it” defense, making brokerages strictly liable for any AI-generated misrepresentations, while Colorado’s SB 24-205 classifies housing as a high-risk AI sector, requiring firms to run assessments and assume full compliance liability for their agents’ AI tools.
The US Department of Housing and Urban Development (HUD) has also weighed in on the issue, stating that sharing crime and school information is not a violation in itself, but can be considered discriminatory if done inconsistently or with intent. The agency has also noted that intent can be proven by pattern, such as a family with kids receiving a list of suburban homes with school statistics, while a single renter with the same budget receives a list of urban condos with a crime warning.
America Foy, a California real estate broker, notes that the exposure to brokers can be significant, with HUD penalties reaching $26,262 for a first violation, and the potential for private lawsuits and license discipline. Errors and Omissions companies are also starting to pay attention to AI use in brokerages, with some carriers excluding coverage for losses tied to AI output.
Brokerages must take responsibility for AI-generated errors, as the California Department of Real Estate has made it clear that managing brokers are liable for these mistakes. This means that they cannot shift the blame to the technology provider and must instead manage the risks associated with AI use.
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The consequences of non-compliance can be severe, with HUD penalties reaching up to $26,262 for a first violation. Additionally, private lawsuits and license discipline can further increase the costs for brokers.
Preparing for AI-Related Risks
To mitigate these risks, brokers should develop an AI policy and implement it in their practice. This policy should outline the tools agents may use, the human review process before any AI-generated content is shared, and the tests that AI systems must pass before being used.
Brokers should also keep logs of AI-generated content and review them regularly to ensure compliance with fair housing laws. By being proactive and taking steps to manage AI-related risks, they can protect themselves and their businesses from potential liabilities. The development of AI laws in various states is an ongoing process, and brokers must stay informed about the latest developments to ensure they are in compliance.
