It’s hard to find any real estate area where artificial intelligence isn’t emerging as a transformational force. Just like property management or brokerage, more real estate legal teams are also considering using AI to streamline workflows. AI may soon reshape how commercial real estate companies manage legal tasks, from drafting contracts to analyzing complex documents.
AI tools in real estate legal work focus on contract drafting, document review, and compliance. AI systems can comb through hundreds of contract pages in seconds, flag critical terms, identify risks, and suggest edits to align with the company’s requirements. These advancements may help real estate firms reduce workloads, cut costs, and make better-informed decisions.
According to a survey by LegalOn Technologies, which sells contract-review software, nearly half of legal professionals spend three hours or more reviewing a single contract. This has led many in-house counsel to evaluate whether AI contract tools may improve their redlining work.
While AI tools can help mitigate contract review challenges, LegalOn notes that adoption is in its infancy. More than 70 percent of legal professionals say their teams are actively considering AI usage, but only eight percent said their organizations are currently using AI.
A big reason for the sluggish adoption is the widespread limitations still endemic in AI use in legal work. Errors can be rampant with AI tools built upon large language models.
Stanford University research from earlier this year revealed that AI models produce hallucinations between 69 and 88 percent of the time when queried about a legal matter. In 200 legal queries in the Stanford study, AI software produced faulty information as much as one-third of the time.
Detailed legal research might exceed what most AI software can accomplish, but contract review could lie within capabilities. Artificial intelligence can be focused on specific contract clauses, and AI-powered contract reviews can analyze individual documents, making it easier for lawyers to validate the work. More focused objectives also help, as contract review involves finding standard clauses and deviations, two tasks that AI excels at with its pattern recognition capabilities.
Other research shows AI holds great promise in record reviews. Stanford and Princeton University researchers recently published a paper outlining the near-perfect performance of a large language model that could assist California county governments and save millions of dollars and hours of work as they strive to comply with mandates to redact racial covenants from property deeds.
The work was inspired by California’s AB 1466, a 2021 law that requires all the state’s counties to redact from recorded deeds instances of discriminatory language, such as racial covenants, widely used clauses that once prohibited non-white people from living in specific neighborhoods.
The U.S. Supreme Court rendered racial covenants unenforceable in 1948, but redacting them from tens of millions of property records is expensive and could tie up local governments for years. Los Angeles County recently signed a seven-year contract with tech firm Extract Systems to manage a racial covenant project that may cost as much as $8.6 million.
According to the recently published paper, researchers used an open AI model to sift through Santa Clara County’s 84 million pages of property records (some that date back to the 1850s) in mere days. The researchers expressed confidence that their AI model achieved a false positive rate close to zero, which they said was an astronomical improvement over manual review.
As this example illustrates, AI’s ability to work 24/7 and analyze documents quickly and consistently allows real estate teams to complete legal reviews much faster, providing a singular competitive advantage.
Automating routine tasks like contract drafting and document review may significantly lower legal costs. Legal professionals, often one of the highest expenses in a deal, can dedicate more of their time to high-value tasks, with AI handling the routine, time-intensive work.
While AI is incredibly powerful for legal teams, its lack of human intuition limits it. Legal language is complex, and AI might misinterpret ambiguous language or overlook unique clauses that an experienced lawyer would recognize as critical. An AI model might miss the nuanced intention behind specific legal wording, leading to misinterpretations that could affect contract enforceability.
Commercial real estate contracts contain industry-specific terms and nuances that AI models might not understand. Training AI to recognize these specifics requires time and customization, which adds complexity to the implementation.
Using AI for sensitive data like legal contracts may also raise security concerns. AI systems are vulnerable to data breaches, which could expose confidential information about clients, properties, and deals. Since legal data is particularly sensitive, firms must carefully evaluate the security protocols of AI providers to protect this information.
To protect sensitive information, firms should invest in vigorous cybersecurity measures. AI software providers should offer transparent security practices and ensure their systems meet regulatory standards for data privacy, reducing the risks of data breaches.
AI is also only as good as the data it learns from. If an AI system is trained on poor-quality data, its outputs will be similarly flawed. Inaccurate AI recommendations could mislead legal teams, potentially impacting deals or resulting in suboptimal contract terms. Ensuring high-quality, relevant training data is essential to maximizing the reliability of AI-driven insights.
Maintaining high standards requires a blend of AI and human oversight. Regular audits of AI-reviewed contracts ensure accuracy, while legal professionals can provide the contextual understanding AI lacks. This approach lets teams leverage AI without compromising on quality.
AI will likely be a collaborator, not a replacement. Firms can use AI to support legal professionals, handling routine tasks while allowing humans to tackle complex issues that require judgment and intuition. This hybrid approach combines the strengths of both AI and human expertise.
Staying informed on AI-related regulations is also essential for compliance. Legal teams should regularly monitor AI policy changes to adapt practices and ensure the company remains compliant as AI laws evolve.
Artificial intelligence may soon transform how real estate companies manage legal matters, offering speed, efficiency, and accuracy that are difficult to achieve manually. However, to truly benefit from AI’s capabilities, firms must approach adoption thoughtfully, balancing AI advantages with human insight.
Real estate firms can use AI to enhance legal processes, reduce costs, and ultimately support growth in a competitive market by overcoming challenges like data security, quality control, and resistance to adoption. Those who embrace AI intelligently will be well-positioned to lead the way in commercial real estate.
