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Zillow Looks To Improve Price Estimates After Lawsuit

Many people who have used internet searches for real estate are familiar with Zillow, and its online price estimator “Zestimate”. Maybe you’ve wondered what your home might be worth in the current market and have checked the Zestimate for an idea. We’ve mentioned before in our blogs that doing this may be a handy starting point, but have warned about its limitations and that it shouldn’t be relied upon for real accuracy without the input of a local REALTOR or appraiser.   

Well, now a group of homebuilders is suing Zillow in Illinois over the Zestimate. They’re seeking class-action status for a suit that claims the price estimates Zillow provides are illegal appraisals that violate consumer protection laws. In an example of the type of estimate that brought about the suit, the builders cite one newly built luxury home that’s listed for $1.995 million, that has a Zestimate of only $1.168 million. Obviously this can cause problems for the sellers, and the builders say buyers have expressed skepticism about the price because of the Zestimate. They say that an inaccurate or vastly different Zestimate can financially damage the homeowner, and that Zillow should not be providing appraisals without a valid license, or the consent of property owners. 

Zillow is disputing the claims in the suit, and stands by their statement that their Zestimates are not actual appraisals (though the other side says many consumers don’t distinguish the difference, and tend to see them that way.) Now, a week later, Zillow has announced a $1 million contest to help them improve their Zestimate tool. 

Zillow claims that their error rate is only 5% on the more than 110 million homes across the country that their tool provides values for. If you ask most REALTORS, or a fair number of home sellers, they will probably tell you stories of some much larger discrepancies. Some have claimed to see Zestimates off by as much as 33% of true market value. If the example above from the builders filing suit can be believed, that estimate is 41% low. While Zillow claims the minimal error rate, they are acknowledging that the Zestimate needs improvement. They do say, however, that the contest to help improve their tool has been in development for over a year and is not related to or motivated by the lawsuit. 

Regardless of the outcome of either the lawsuit or Zillow’s contest to crowdsource Zestimate improvement, this all serves as yet another reminder that use of such tools as Zillow or Trulia can cause problems for both buyers and sellers. As REALTORS we work to get the best price within the market for our sellers, but it can be tough to set initial pricing if the seller has the wrong idea of their home’s value because of an overly high online estimate. Or similar to the example above, the ability to sell the home can be damaged by a low estimate. And as a buyer’s agent, it undermines our ability to find a buyer the right property or get an accepted offer, if a buyer has unrealistically low expectations of the price they should pay for a home.

Remember, when it comes to home values, no computer algorithm can match a professional agent or appraiser’s experience or ability to take all market and property-specific factors into account. 

Do you have questions about the value of your home, neighborhood, or a property you’re interested in? Contact us today! 

Jim Cheeseman

Jim Cheeseman
LEED Accredited Professional



CA BRE #01265543

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