A coalition of community groups has filed a complaint with the U.S. Federal Trade Commission charging that Zillow.com, a real estate Web site that provides home-value estimates, is misleading consumers and industry professionals about the accuracy of its automated tools. Officials at Zillow have countered that the accusations "are groundless," and the company clearly explains the role and accuracy of its estimates at its Web site.
The National Community Reinvestment Coalition, a group that seeks to increase the flow of private capital into traditionally underserved communities, states in the complaint that its members are worried that Zillow and its affiliated companies may be "intentionally misleading consumers and real estate professionals to rely upon the accuracy of its valuation services" and alleges that "misrepresentations and unfair financial practices have caused, are causing and are likely to cause substantial injury to consumers who rely on the inaccurate representations made by the company at www.zillow.com."
Members of the coalition include national, regional and local community development, civil rights, community reinvestment, government organizations and religious groups. The California Reinvestment Committee, Coalition for Responsible Lending, Lawyers’ Committee for Civil Rights Under Law, the National American Indian Housing Council, National Congress for Community Economic Development, National Council of La Raza, and National Low Income Housing Coalition are among its members.
"Because the site is so inaccurate we feel it does not adequately explain or disclose to consumers the limitations on accuracy," said David Berenbaum, executive vice president for the National Community Reinvestment Coalition, in a statement. The group seeks clearer disclosure about the accuracy of the value estimates provided at the Zillow.com site, and also seeks assurance that the site’s valuations are equitable for all communities regardless of racial composition.
He said the coalition is also considering whether to file a fair housing discrimination complaint against Zillow with the U.S. Department of Housing and Urban Development, charging that an NCRC audit found overvaluations at Zillow.com were more common in predominantly white areas while undervaluations were more frequent in communities that are predominantly African American or Latino by census tract.
The complaint states that the coalition’s audit found that Zillow’s valuations, called Zestimates, "are accurate less than 30 percent of the time," while the site allegedly states or implies that values for "the home they are researching, the communities they are interested in, and for recent comparables is accurate to within 10 percent of value."
Zillow officials said in a statement, "We believe these allegations are groundless. 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."
The homepage for the site states that the site offers "free, instant valuations and data" for 67 million-plus homes, and also states that buyers can use the site to "compare values to avoid overpaying" and sellers can "use our tools to help set a price" while owners can "track your most important asset." The Zillow.com Web site, which launched in February, also states that the site is still in "beta" mode, a term that typically denotes a product version that is undergoing testing.
Berenbaum said that NCRC decided to publicly announce the complaint before speaking with Zillow officials because the group wanted to call attention to the potential for the site to be misunderstood by consumers. "We’re very concerned that thousands of Americans are relying on Zillow’s Web site every day," he said. "Think twice before you rely on this company." Berenbaum said that NCRC has heard reports about real estate brokers and mortgage brokers referring consumers to the value estimates at the Zillow site "to take advantage of consumers."
Consumers "are using that site to look at not only valuations out of curiosity — they’re also looking because they’re thinking of refinancing or challenging a tax assessment. If a home is overvalued it can have a significant impact," he said.
He added, "The reason we went to the FTC — we feel that there needs to be some meaningful guidance on how the quality of this information is being applied." NCRC has been working on home-valuation issues for about a year now, he said, and the group is also looking at other companies besides Zillow though he said "at this point we’re not prepared to discuss" possible actions against other companies.
The NCRC set up a Center for Responsible Appraisals and Valuations about a year ago that is made up of appraisers, lenders, and other real estate and mortgage professionals, though Berenbaum said the NCRC is not acting on behalf of the appraisal industry in filing the complaint against Zillow. "Some people are saying that we’re doing this as a publicity stunt or … because we’re aligned with appraisers. We’re a group for civil rights organizations that also fights for consumer protections."
Michael H. Evans, owner of Evans Appraisal Service Inc., in Chico, Calif., and a fellow with the American Society of Appraisers, an organization for appraisal professionals, said that home-valuation tools such as Zillow.com can lead to consumer confusion.
"A system like Zillow is excellent in the hands of an expert but not the hands of a layman. It creates confusion in the marketplace," Evans said. He said he has spoken with consumers who confused a Zillow-based estimate with an actual appraisal. "In their mind it’s ‘I’ve already appraised it. Here’s what it’s worth,’" Evans said. "The computer isn’t a human, it’s just dragging information."
Until a computer can quantify the type of information that comes from personal visits to the property and expert market knowledge for a particular area, automated value models have limited worth, he said. "Cost does not always equal value."
Lorrie Beaumont, an appraiser in Westwood, Mass., and past president of the American Society of Appraisers, said she hasn’t heard of consumer confusion related to the Zillow.com site first-hand, though she said she has occasionally checked the site’s values. "I just find that it’s not really accurate in the New England region," she said. If the site stated on its front page that its values weren’t accurate then it might not get much traffic, she added.
NCRC’s Berenbaum said that a Zillow representative has contacted the group in response to the complaint, and "I do applaud the company for contacting us to discuss the situation. We hope it becomes a broader discussion on the role of appraisers and AVMs (automated valuation models). The role of valuation is an important check and balance in the entire mortgage process."
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