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Summary:

Zillow.com, the fast growing (at least in popularity) real estate appraisal mash-up service based in Seattle, has hit an air pocket. The National Community Reinvestment Coalition (NCRC) is complaining that the “Internet financial services and real estate provider Zillow.com is misleading consumers, real estate professionals and […]

Zillow.com, the fast growing (at least in popularity) real estate appraisal mash-up service based in Seattle, has hit an air pocket. The National Community Reinvestment Coalition (NCRC) is complaining that the “Internet financial services and real estate provider Zillow.com is misleading consumers, real estate professionals and financial service providers in on-line home valuations.” They have filed a complaint with the Federal Trade Commission which at this point is just a complaint, not an investigation. (Zillow president, Lloyd Frink gives his side of the story on the Zillow blog.)
The specific charges are:

  1. Zillow is falsely representing to the public that its on-line valuations are within ten percent of the home
    selling price.
  2. Zillow has a less than 30 % accuracy rate when offering the valuations for public consumption.
  3. Zillow.com’s over and under valuations are causing substantial injury to consumers nationwide when they consider selling their home, using their home equity or buying or refinancing property.

I think the crux of the problem is this point from the complaint.

NCRC further contends that the general public is unaware that AVMs are exempt from Uniform Standards of Professional Appraisal Practice (USPAP), and that the “average” consumer who relies upon information on the http://www.Zillow.com internet site mistakenly believes that he or she is receiving a valuation equivalent to one conducted by a valuation professional.

In other words, a lot of appraisal professionals can get dis intermediated by Zillow and their ilk, and that’s cause many a lot of sleepless nights. The classic old vs. new debate. On the other side of the debate, we are pretty sure the VCs who have pumped in $57 million into the company must be having an unpleasant weekend.

Frink makes a good point when he writes:

We say in many places on the site (and next to the Zestimate on every home details page) that Zillow is not an appraisal, but a free research tool for consumers. We’ve also tried to be really transparent since we launched about Zestimate accuracy.

By Om Malik

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  1. It’s a shakedown, pure and simple. Classic play in the real estate biz — find the deepest pockets, threaten to sue, get them to settle. Last time you bought or sold a home, remember all those disclosures you had to sign — like the California Red Legged Frog Habitat Disclosure and the Errant Golf Ball Disclosure? Those all came about because of a similar shakedown at one point. It’s simply, and unfortunately, the cost of doing business in real estate.

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  2. Amen to that. I think it is the real estate industry spends liberally on local politicians and pretty much get away with everything. anyway lets see how this shakes out.

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  3. How many of you have actually tried using the valuations on Zillow for something useful? I checked them out recently while buying a house in Southern California, and they were ridiculously off the real valuations of properties in the area. Furthermore, their “valuation charts” are entirely gimmicky and plain WRONG. I don’t know where they are getting their pseudo-metrics from, but I can see how a less savvy person might think they are actually based on real information, and attempt to use them in a negotiation setting …

    That being said, I love Zillow’s plot maps – very very useful for figuring out addresses for properties nearby, which can be checked against lists of recent sales (from sources that seem to have avoided Zillow’s robots thus far).

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  4. I think that at this point, Zillow can only be a starting point to see how much homes are worth. It’s even a fun tool to estimate how much your friend’s house is worth. With the given variability of the results, it cannot provide anything too useful. Over time though, as they tweak their formula, I expect them to be very valuable for homeowners/homebuyers. Right now, I would hate to go to the bargaining table and have someone print off some Zillow information.

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  5. Zillow is fun but unless they radically improve the technology (if that’s even possible), it will never be a substitute for an actual evaluation.

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  6. Zillow may be fun but it has NO VIABLE business model that can make sustainable $$$.

    Stupid greedy VC’s looking for a quick flip…I hope you lose your asses on this one !

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  7. I think that zillow is a great resource to gather som basic insights ito certain properties. Obviously you can’t take their zestimate as a 100% appraisal but they also state this all over the site.

    The NCRC is using this as a leverage tactic.

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  8. We looked at Zillow when we bought a house last year. It was no more helpful than looking at randomly generated numbers. For all I know, that is what they use.

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  9. PropertyShark blows Zillow out of the water.

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