A homeowner, Barbara Andersen, who is also a real estate attorney, has filed suit against online realty giant Zillow, claiming the company’s controversial Zestimate tool repeatedly undervalued her house, creating a “tremendous road block” to its sale.
Zillow’s Zestimate feature is the cornerstone of its business model. Through it, Zillow attracts millions of home shoppers, allowing the company to sell advertising space to realty agents. Zillow generates significant capital resources with the help of its Zestimate model: In the first quarter of this year (2017), it reported $245.8 million in revenues, including $175 million in payments from “premier” agents, who pay for advertising.
Ms. Andersen must feel a little bit like David and Goliath as she goes to the mat with Zillow.
In the suit, Andersen said that she has been trying to sell her townhouse, which overlooks a golf course and is in a prime location, for $626,000 — roughly what she paid for it in 2009. Houses directly across the street, but with greater square footage sell for $100,000 or more, according to her court filing. Zillow’s AVM has apparently used sales from a different and less costly part of town as comparables in valuing her townhouse without appropriate adjustments, she says. The most recent Zestimate for Ms. Andersen’s home is for $562,000. Andersen is seeking an injunction against Zillow.
Barbara Andersen, a real estate lawyer in Glenview, Ill., claims in the lawsuit filed in Cook County Circuit Court that Zillow’s Zestimate is making it difficult to sell her home. She isn’t seeking any financial compensation but is asking the court for an injunction that would require Zillow to either remove or modify the Zestimate of her property.
According to Courthouse News, in her complaint, the attorney states, “Since the recession, Andersen has been attempting to sell her home on different occasions. However, a tremendous roadblock to same has been the fact that Zillow posts a Zestimate of person’s homes without their permission, consent and/or any license to do so,” “An estimate is effectively a sloppy computer-driven appraisal of the home.”
Andersen says Zillow is in violation of Illinois state law, which forbids people or businesses from issuing appraisals without the proper license. Zillow vehemently rejects the notion that its Zestimate is an appraisal.
This isn’t the first time that the accuracy of Zillow’s Zestimate has been publicly called into question. In an article in the Washington Post June 2014 David Howell Executive Vice President and Chief Information Officer for McEnearney Associates was quoted extensively regarding the inaccuracies of Zillow’s Zestimate AVM. “No algorithm, however sophisticated, can quantify the value of a kitchen that was remodeled just before a home was put on the market or a yard that is poorly maintained. It simply isn’t possible for any AVM to predict the value of a home with a level of accuracy sufficient to make a housing decision.” It’s a good point that I think most appraisers will agree with.
Zillow published a response in an online magazine and described Howell’s comments as “wildly inaccurate and inconsistent, without much context as to how that level of accuracy compares to other opinions of value.”
For now, to wrap up; the following commentary by the author:
If it looks like a duck, and quacks like a duck, and flies like a duck, where I come from….it’s probably a duck!! Zillow, in their own words have described what Zestimate provides as an estimate of market value whose accuracy compares to other opinions of value…. Wow. Why did I ever bother getting a license to be an appraiser in the first place?
Is Zillow illegally providing real estate appraisals? Should they be licensed? Should there be some sort of oversight of AVMs like this?
If you have answers or thoughts please get back to us with them. We really enjoy and value the many opinions that come from our appraisal community.
Thanks for reading this Food for Thought, and stay tuned for more as this unfolds.
Good luck and do good work,