…A homeowner has filed suit against online realty giant Zillow, claiming the company’s controversial “Zestimate” tool repeatedly undervalued her home, creating a “tremendous road block” to its sale.
The suit, which may be the first of its kind, was filed in Cook County Circuit Court by a Glenview, Illinois, real estate lawyer, Barbara Andersen. The suit alleges that despite Zillow’s denial that Zestimates constitute “appraisals,” the fact that they offer market value estimates and “are promoted as a tool for potential buyers to use in assessing [the] market value of a given property,” meets the definition of an appraisal under state law. Not only should Zillow be licensed to perform appraisals before offering such estimates, the suit argues, but it should obtain “the consent of the homeowner” before posting them online for everyone to see.
Home owners, realty agents and appraisers have been critical for years about the valuation tool, citing estimates that too often are far off the mark — sometimes 20 percent or 30 percent too low or too high — and misleading to consumers. Zillow itself acknowledges errors. Nationwide, according to Heffter, it has a median error rate of 5 percent. Zestimates are within 5 percent of the sale price 53.9 percent of the time, within 10 percent 75.6 percent of the time and within 20 percent 89.7 percent of the time, Zillow claims.
A Zestimate “is not an appraisal,” the company says on its website, but instead is “Zillow’s estimated market value” using its proprietary formula. Another way of looking at the Zestimate error rate: Roughly one quarter of the time, the value estimate is off by 10 percent or more of the selling price, and wrong by 20 percent or more 10 percent of the time. Though the 5 percent median error rate sounds modest, when computed against median sales prices, the errors can translate into tens of thousands of dollars — hundreds of thousands in high cost areas. Also in some counties, error rates zoom beyond the 5 percent median — 33.9 percent, for example, in Ogle County, Illinois, and 10 percent to 20 percent in a handful of counties in Ohio, Maryland, Florida, Oklahoma and Illinois.
Something we have been saying for a while – you get what you pay for with a ‘Zestimate’. Some of the data can be helpful but when their degree of error typically runs into the 6-figures in LA, how useful is that?