Zillow home 'values' rile consumer group
Alleged inaccuracies in home estimates on the Web site result in a complaint to the FTC.
By Les Christie, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Zillow.com, a real estate valuation Web site, has been named in a complaint filed with the Federal Trade Commission by a consumer advocacy group, which charges the site's home valuations mislead consumers, real estate professionals and lenders.

According to the National Community Reinvestment Coalition, an alliance of more than 600 community-based groups working to ensure equal access to credit services for underserved communities, Zillow knowingly provides inaccurate estimates in posting valuations on more than 67 million homes around the nation.

"Zillow is placing the American dream of homeownership at risk for countless working families," said NCRC president John Taylor. "For a company that represents to consumers that they are the 'Kelley Blue Book of Homes,' this is a very dangerous situation"

He said people rely on Zillow "Zestimates," believing that they had the equivalent accuracy of an appraisal.

"The biggest concern is that consumers are being misled and injured by this system that uses appraisals that are not actual, independent assessments," said Taylor.

Response

"We believe these allegations are groundless," Zillow said in a statement. "As we say consistently and prominently on our Web site, Zillow is a free research tool for consumers, and Zestimates are designed to be a starting point for consumers who want to learn about the value of homes. We make every effort to explain on our site the role of Zestimates as a research tool, as well as to clearly display our rates of accuracy for every area we cover."

An FTC spokesman said the agency does not comment on an open investigation other than to say a complaint has been received.

The remedy that the NCRC seeks is for Zillow to improve the accuracy of the site, to make its disclaimers even more prominent, and to ensure that homes in lower income communities are not routinely undervalued.

Zillow, for its part, has requested a meeting with the NCRC. Web site spokeswoman Amy Bohutinsky said, "We want to talk to them and figure out exactly what they're looking for."

She added, "We were never contacted by them before they filed the complaint."

How it can hurt

Relying on inaccurate appraisals can hurt consumers in several ways, the NCRC's Taylor said. If the estimate is too high, home buyers may overpay, convinced they are getting a more valuable house for less. They may buy a home supposedly worth $300,000 for $250,000, for example, when, in reality, it's only worth $220,000.

Taylor also said predatory lenders can use high estimates to induce home owners to borrow on non-existent equity. Taken to extreme, a homeowner can wind up owing more than the property is worth.

Low estimates can depress prices in entire communities if both and sellers rely on the site when pricing or shopping for homes.

Taylor said an examination of Zillow's site convinced the NCRC that underestimates are more common in low-income and working-class neighborhoods.

Zillow uses a proprietary software program to crunch huge amounts of public data to come up with its estimates. The company posts disclaimers saying that Zestimates are not appraisals, but it also states that buyers can use the estimates "to avoid overpaying" and sellers can use it "to arrive at the right price."

Taylor acknowledged that Zillow doesn't claim to be more accurate than plus or minus about 7 percent, "But I think it's closer to 30 percent," he said.



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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.