Zillow, founded by former Executives of Microsoft and founders of Expedia, Rich Barton and Lloyd Frink in 2005, is an online real estate database website that uses the “Zestimate”, an algorithm that appraises the values of properties based on several undisclosed factors. Buyers and sellers of properties can freely access and search for properties on its website. It is currently holding information of 52 million valuations all throughout the U.S. According to Alexa’s website ranking, Zillow is at the top 300 U.S sites. However, since the beginning of its operations, Zillow has been charged with many complaints regarding the inaccuracy of its “Zestimate” algorithm.
An online article posted in the Wall Street Journal describes an astonishing inaccuracy as follows:
“Zillow had estimated that a four-bedroom, 7,600-square-foot home in Fall City, Wash., was valued at $661,756. The home, built last year, sold in early January for $2.7 million. “If you don’t visit the property, you’re never going to know that it’s in an exclusive, gated part of the neighborhood,” says Maria Danieli, who represented the sellers. Ms. Danieli says Zillow may be fine for “cookie-cutter” neighborhoods but “they can’t compute” the values of the luxury homes she sells.”
In their 12-page complaint filed by The NCRC (The National Community Reinvestment Coalition), a nonprofit organization based in Washington, D.C that is promoting equal access to credit card services and capital for underserved areas, to FTC (Federal Trade Commission) against Zillow, says that the valuation of Zillow is “highly inaccurate and misleads consumers.” NCRC also added that “Zillow is off the mark with its home value estimates more than two-thirds of the time”.
However, in the letter response made by FTC to the complaint filed by the NCRC against Zillow, FTC said that “Zillow’s website is not an appraisal and should be used only as a starting point to determine a home’s value”. Zillow also made several modifications on its website to further clarify its purpose and the information given by the “Zestimate” and its limitations. There’s also a page where visitors are being redirected that says that “Zestimate’s” mathematical computation doesn’t consider the features and other conditions of a specific home (www.zillow.com).
The FTC ruled that no further action is needed regarding the complaint filed for the time being. Zillow called the allegations as “groundless”, saying that their website is a free research tool for consumers and “Zestimate” is just a starting point in determining the value of a property. FTC also asked NCRC to continue to monitor real estate related advertising practices that may cause injury to consumers