Zillow property estimates deceptive, complaint says
By Kenneth R. Harney
Syndicated Columnist

Have you ever checked out the satellite photos and market value estimates of homes in your neighborhood on Zillow.com — the Internet real-estate site that offers "free, instant valuations and data for 67 million-plus homes"?

Zillow was launched with major media fanfare last February, backed with a reported $57 million in venture capital. It is one of the most popular real-estate sites on the Web. It also has begun distributing its free "Zestimates" through Yahoo.com and real-estate-brokerage sites. But now Zillow is coming under harsh scrutiny. In a complaint filed Oct. 25 with the Federal Trade Commission, the National Community Reinvestment Coalition charged that Zillow knowingly deceives the public by presenting its property estimates as accurate even though they are frequently far off the mark.

The nonprofit coalition, comprising housing and economic-justice organizations around the country, says its own audit of Zillow's accuracy documented that its valuations are within 10 percent of actual market value "less than one-third of the time."

The allegedly erroneous estimates are especially harmful in low- and moderate-income and minority neighborhoods, the complaint says. "While overvaluations were prevalent in predominantly white areas, undervaluations were more frequent in communities that were predominantly African-American or Latino by census tract," the complaint charges.
That alleged disparity, in turn, has opened the door to a variety of deceptive and predatory real-estate practices in those neighborhoods, the coalition says in the complaint.
In a statement, Zillow called the coalition's complaint groundless.

Stan Humphries, Zillow's director of advanced analytics, said his company's own internal audits found a median margin of error of 7.2 percent nationwide.

Audits also found that, contrary to the coalition's claims, undervaluations were more commonplace in higher-cost areas, whereas overvaluations were more typical in lower-priced neighborhoods.

In the complaint, the coalition cited two other studies — one by online service MSN Money and one by R. James Girardot, president of an appraisal firm in Washington state.

MSN examined Zillow's valuation estimates for a sample of houses in five metropolitan areas and found them within 10 percent accuracy just 29 percent of the time.
The five metropolitan markets — Seattle; Minneapolis-St. Paul; Scottsdale, Ariz.; Cincinnati; and Portland — all were ranked by Zillow as among its most accurate areas for valuations, according to the complaint.

Girardot's study covered 200 houses, comparing Zillow valuations with actual closed selling prices and found inaccuracies ranging from 11 percent to 50 percent. In one case, Zillow's estimate valued a property at $246,865 but the house sold for $489,950 last July.
The Zillow-coalition dispute throws light on a simmering tension within the residential real-estate market:

On one hand, mortgage lenders are demanding valuation alternatives that are faster and cheaper than traditional, full-blown appraisals. The proprietary technology Zillow uses for its estimates is a form of "automated valuation model," or AVM.

Many banks and mortgage companies use commercially marketed AVMs for home-equity loan valuations and to help spot fraudulent or grossly inaccurate appraisals. Traditional appraisals generally cost anywhere from $300 to $500; AVMs can cost a high-volume lender $20 or less.
On the other side of the issue, professional appraisers are threatened by lenders' push for lower costs and high-tech valuations. Although they sometimes use commercial AVMs as data supplements, appraisers insist that their time-tested, hands-on methods produce the most accurate valuations.

San Diego appraiser Vicky Cassens Zillioux says that "valuing a property for a financial decision is not a game — and should not be treated lightly by the consumer, lender or the vendor supplying that value."

She notes that appraisers are held to high standards by lenders and regulators, and "a similar level of accuracy should be expected by the consumer at Zillow.com."

Kenneth R. Harney: kenharney@earthlink.net
Copyright © 2006 The Seattle Times Company