Zillow in Court Again Over Zestimate Accuracy and Consumer Interpretation

Real Estate aggregation and data website Zillow.com is in hot water in Illinois.  Zillow has been successfully sued in the past for using photos without permission. They’ve been hauled to court over low Zestimate “appraisals” by sellers who’re listing well above the estimates. Even at the other end of the spectrum, they’ve been accused of inflating prices which resulted in some market froth.

The latest suit, seeking class-action status, was filed on behalf of builders who’re trying to sell homes that Zillow persistently undervalues.  This causes prospective buyers to low-ball the homes using Zillow as “proof” their offer is more realistic than the seller’s price.

For their part, Zillow doesn’t tell exactly what black magic and voodoo they use to determine their Zestimates (trade secret and all that).   In the Illinois case, the builders tear down lower-priced homes and upsize them to $1 million-plus homes. Zillow doesn’t appear to catch flips very well.

The lead attorney herself had filed a case against Zillow for undervaluing her townhouse.  She dropped the suit when she picked up the plaintiffs and spun the suit into a possible class-action. Her case rested on the accuracy of Zestimates. The new suit ignores accuracy to focus on whether posting estimates without consent is a violation is Illinois state law.

At first glance, this seems an easy case for Zillow.  Illinois law differentiates in-person appraisals by licensed appraisers and automated, electronic estimates based on public data and secret sauce (one assumes the “zest” in Zestimates”). We’ll see.

For those wondering about Texas, Zestimates would appear to be highly questionable.  After all, we do not report selling prices for real estate transactions. Without that critical piece of data, how can Zestimates be accurate?  And yet, Zillow reports in Dallas County there are 683,600 homes, 628,200 of which they provide Zestimates for.  They estimate that we’re a 3-star market (out of 4-stars) that’s defined as “Good Zestimate,” touting 44.6 percent of the time they’re within 5 percent of the actual sale price … almost the same as transaction reporting Illinois.  Reaching further, they claim 67.5 percent within 10 percent of the selling price and 85.7 percent accurate within 20 percent of selling price with a 5.9 percent margin of error.  When sales prices are not reported, how can this be?

In their own rankings, one-star equates to “Tax Assessor’s value, or unable to compute Zestimate accuracy.” Isn’t that where the entire state of Texas should be?  However, Tarrant, Ellis, Denton, Collin, and Rockwall Counties are rated with the full four-star “Best Zestimate” rating. Are licensed Realtors feeding proprietary MLS data to Zillow? How else could those numbers be generated in Texas?  In fact, nearly all other Texas Counties are either rated with one- or zero-stars, including Houston’s Harris County.

It’ll be interesting to see how the suit turns out in Illinois.  But I wonder what Zillow would say if someone challenged them to prove their accuracy in Dallas and other “reporting” Metroplex counties. Would a few Realtors be outed?

My personal Zestimate?  Within the realm of reality today, but pretty inaccurate historically. This makes me wonder if something changed in how they gather data.

Remember:  High-rises, HOAs and renovation are my beat. But I also appreciate modern and historical architecture balanced against the YIMBY movement.  If you’re interested in hosting a Candysdirt.com Staff Meeting event, I’m your guy. In 2016, my writing was recognized with Bronze and Silver awards from the National Association of Real Estate Editors.  Have a story to tell or a marriage proposal to make?  Shoot me an email [email protected].