It seems that people either love Zillow or hate it. Home buyers tend to be in the first group, and home sellers in the latter.
While it can empower consumers with knowledge, it can frustrate homeowners when the “Zestimate” falls considerably below their asking price or what they believe their property is worth.
Zestimates are supposedly based on recent sale prices for similar properties in the area, tax assessments and an individual property’s own sale history. Zillow claims an overall median error rate of under 6 percent, and under 4 percent in the Chicago market.
Unlike professional real estate appraisals where a human being physically walks through your home, they are computer algorithms that don’t take into account features unique to a specific property or improvements the homeowner has made to it. Maybe you installed a new kitchen; maybe you added a finished basement. Zillow can’t possibly know that.
Yet even though Zillow includes a disclaimer on its site that Zestimates are not professional appraisals, the practical effect—as sellers and real estate agents would probably tell you— is that many buyers have come to give them as much weight as appraisals and use them for leverage.
It’s understandable then that property owners would start pushing back, which is what happened in a 2017 Illinois lawsuit against Zillow Inc. and Zillow Group.
The sellers' claims against Zillow
A group of plaintiffs, all seemingly in the same family, claimed that Zillow was handicapping their ability to sell various properties in Schaumburg and Barrington. For instance, one property was placed on the market for $1.5 million while the Zestimate for it was just over $1 million. Zillow refused the sellers' request to “fix” the Zestimates or remove the properties from the site.
They sued the company for violation of the Illinois Uniform Deceptive Trade Practices Act, the Consumer Fraud and Deceptive Business Practices Act and the unauthorized appraisal of property under the Illinois Real Estate Appraiser Licensing Act.
In their complaint, the plaintiff sellers alleged they suffered harm because the low Zestimate (1) drove away potential buyers, (2) caused buyers to harass them with the Zestimate, (3) caused them to incur additional expenses due to the increased time needed to sell the property, (4) forced them to hire brokers, and (5) caused the sellers to withdraw their property from the market.
(I would love to know more details about how buyers “harassed” the sellers with the Zestimate, but alas none were provided in the court opinion.)
The plaintiffs also accused Zillow of using the Zestimate as a marketing ploy to sell ad space on the site to real estate brokers (“Zillow premier agents”) so they could solicit “unsuspecting” sellers with offers to market their properties.
Unfortunately for the plaintiffs, the Illinois courts were having none of it.
The federal district court judge dismissed the suit and the Seventh Circuit panel that considered the appeal upheld the dismissal on all claims.
Why the courts ruled in favor of Zillow all around
Zillow argued First Amendment protection, but the court didn’t even reach the issue because the plaintiffs claims already failed under Illinois statutory law.
District Judge Amy St. Eve pointed out that language in the appraiser licensing act makes it clear that the law doesn’t apply to an “automated valuation model”; that is, an automated system that is used to derive a property value through the use of publicly available records and various analytic methodologies—which is exactly what Zestimates are.
Further, as Judge St. Eve noted, the licensing act “is a statute regulating a profession, not a statute protecting property rights,” and allows for enforcement by the government, not aggrieved private parties.
The plaintiffs’ case held up no better under the Deceptive Trade Practices and Consumer Fraud statutes, because the court found that Zestimates are not false, misleading or likely to confuse. For starters, the name itself indicates they are “merely an estimate of the market value of a property,” particularly when the Zillow website “discloses clearly and in great detail that Zestimates may not be accurate” and are “a starting point in determining a home’s value and not an official appraisal.”
The plaintiffs could not show that Zestimates are anything more than nonactionable statements of opinion.
The plaintiffs were also found to face no risk of future harm as a result of Zillow’s alleged deception, because they couldn’t demonstrate that Zestimates caused potential buyers to avoid their properties to the extent that they couldn’t sell their homes at their true market value. And even if Zestimates were likely to confuse the buying public, their prospect of future harm based on marketplace confusion was too speculative.
Because the plaintiffs didn’t claim that they suffered actual damage that was directly caused by Zillow’s conduct, their allegations were “overly conclusory.”
This is where the district judge began to lose me a little bit, because to a seller having a hard time selling their home, the consequences of a low Zestimate are anything but speculative or conclusory. How can you provide concrete evidence that the Zestimate turned prospective buyers away? It’s like trying to prove a negative.
Why it may not even matter in the big-picture sense
But the three-judge Seventh Circuit appellate panel offered a fresh argument in Zillow’s favor that I thought was pretty convincing. If Zillow is occasionally wrong about a property’s true value, then it must also issue incorrect Zestimates that overvalue a property, in favor of sellers. In those cases, a seller would be unlikely to request that Zillow correct or remove it. If unhappy sellers could obtain removal of every low Zestimate while artificially high Zestimates remain on the site, it would heavily skew the system in favor of sellers and against consumers, or the buyers, and disrupt the marketplace.
In other words, the inaccurately low Zestimates are balanced by the inaccurately high ones, evening everything out so both buyers and sellers on the whole get fair treatment.
I suspect that’s probably small comfort to disgruntled homeowners, but you can’t win ‘em all.
[The case is VIPUL B. PATEL, et al., v. ZILLOW, INC., and ZILLOW GROUP, INC., No. 18-2130 (7th Cir. 2018)]