Zillow is a real estate listing website with a twist — each listing has an estimate of the value of the real estate, which Zillow calls a “Zestimate.” That twist has been controversial among homeowners, especially when the Zestimate is lower than expected. In April of this year, a homeowner (and lawyer) in Glenview filed suit against Zillow alleging that the Zestimate for her property is unfairly low and prevented her from selling her property for the market value. The case has since been dismissed, but another lawsuit filed shortly after remains pending in Federal Court, and the larger debate about Zestimates continues to swirl.
For its part, Zillow takes the position that a Zestimates is a “prediction of sales price” and is not a substitute for a professional appraisal. According to Zillow, although Buyers and Sellers can use the Zestimate as a starting point, they should work with a licensed broker and appraiser to determine an accurate price for real estate. Does Zillow unfairly downplay the potentially negative effects of publishing Zestimates?
The controversy poses some interesting questions. For instance, is there anything inherently wrong with Zillow taking publicly available data and publishing its opinion as to the value of real estate? My knee jerk reaction is that, like all Americans, Zillow has the right to publish its opinions. However, right to publish an opinion is not absolute, and opinions about the value of real estate (i.e. a real estate appraisal) are regulated by the State of Illinois. If a Zestimate is an appraisal, Zillow must be licensed (which it is not and has no intention of becoming licensed).
The Illinois Real Estate Appraiser Licensing Act of 2002 (225 ILCS 458/1-1, et seq.) is the relevant authority, and it defines an appraisal as “the act or process of developing an opinion on value,” and the Act requires a license to “develop a real estate appraisal.” Seemingly, Zillow may have an issue, a Zestimate is an opinion on value, the development of which seems to require a license. Zillow takes the position that it is not subject to the Act, because it is not performing opinions of value in exchange for money for a particular client like a traditional real estate appraiser.
Another question is whether there is any harm done to homeowners as a result of the publication of Zestimates. In other words, are Zestimate actually hurting people? This is a difficult question to answer. Among real estate professionals, Zestimates are not considered to be reliable. I am comfortable in saying that Zestimates have almost no effect valuations made by real estate brokers or appraisers. The more difficult question to answer is what effect, if any, do Zestimates have on the general public. To the extent that there are brokers involved in the transaction, probably not much. As for those not working with brokers, I would be interested to hear your opinion, because I am too far inside the industry to know!
Perhaps there is room for compromise. Perhaps there is a need for an appeal process whereby an owner could request a manual review of the valuation. Zillow could allow for homeowners to voluntarily opt out of publishing valuation entirely. Maybe new laws or regulations are needed to provide legitimacy and oversight for this relatively new aspect of the real estate market.
Interestingly, other sites, such as Redfin and Trulia, have joined Zillow in publishing opinions on the value of real estate. Even the National Association of Realtors publishes value estimates at Realtor.com. In other words, potentially inaccurate internet values are probably here to stay. Buyers and sellers can avoid the possible pitfalls by working with an experienced broker, who will be able to sniff out bad information and give good advice.
As always, please do not hesitate to contact me at 773-632-8330 or patrick@loftus-law.com. And finally, as always, I am honored by your referrals. To learn more about my practice, please contact me! And if you are looking to buy or sell property, I would love to set you up with one of my fantastic real estate brokers.