A particular home shows up on popular real estate website Zillow with a Zestimate of $551,252, a fair estimate of the value by some measures. But the owner doesn’t think Zillow is even in the right ballpark, as the home last sold for $626,000. Unfortunately for Zillow, the owner of that home is a lawyer, and she decided to sue Zillow over its valuation of her suburban Chicago home.
A Major Price Gap
Having seen a similar situation myself in the past, I can sympathize with Barbara Andersen, the homeowner and plaintiff in the case against Zillow. Her three bedroom townhouse is in the desirable Glenview neighborhood in the north Chicago suburbs, and homes in her immediate area sell for around $625,000-$675,000.
According to Andersen, the home was listed with a reasonably close estimate on Zillow, known as a Zestimate, but when she updated the listing to “for sale by owner,” the value dropped about $50,000.
Zillow shares on its website that the Zestimate is just an estimate, not an appraisal, and should be used as a starting point in determining the value, but not as the only data point. Zillow’s estimate was about $40,000 less than what I listed and sold my home for in Portland, but not all markets are red hot like Portland. In many cases, online browsers will look at this gap and assume the home is overpriced or use it as leverage to only present lowball offers.
Is Zillow Sloppy?
Andersen, a real estate litigation attorney, did not accuse Zillow of malicious intent, the suit states that the Zestimate is “effectively a sloppy computer-driven appraisal.” However, Zillow states the exact opposite on its website. The suit goes on to state that Zillow “should not be engaging in this business practice without a valid appraisal license and, further, the consent of the homeowner.”
However, while this case shows an obvious problem with the algorithm, Zillow claims a national median error rate of just 5%. Millions of people log into the site every month to view their estimated home price and search for a new home, and very few of them feel compelled to file a lawsuit.
In my case, Zillow’s estimate was clearly low, but it didn’t affect my ability to get a full price, all cash offer in 72 hours from listing. There are other sources of this data in addition to Zillow, such as Redfin. Trulia is owned by Zillow and cannot be considered a legitimate competitor.
Zillow certainly has room for improvement, but calling it “sloppy” and saying it shouldn’t be able to operate is taking things a bit too far.
Owners Influence Zestimates
Zillow responded that they believe the claims in this suit are without merit. In an official statement, they responded:
“We always say that the Zestimate is a starting point to determine the home’s value, and isn’t an official appraisal,” the statement read. “What’s more, the plaintiff can update her own Zestimate by adding the square footage of her home to her for-sale-by-owner listing. If she did that, she would see an immediate adjustment to her Zestimate.”
It sounds like this is a case of an owner not completely understanding how Zillow works. In this case, the plaintiff and homeowner did not update her Zillow listing to accurately reflect her home’s square footage, which Zillow shared would lead to an immediate increase in her home’s estimate on the site.
Zillow bases its estimates on a combination of publically available data, but allows owners and agents to claim a home and update the details. Andersen may have been better off trying this before filing a lawsuit.
Records show that Andersen purchased the golf course home in 2009 for $630,000. She listed the home for $650,000 in 2013 and $670,000 in 2014 before dropping it to the current price, $626,000. With this price history, it looks like Andersen is trying to earn a profit on a Recession Era purchase but is struggling to do so, and is pointing the blame at Zillow rather than her listing price or “for sale by owner” status.
If she really wanted it to move, we all know what she would have done. Instead of filing a lawsuit, she should have hired a licensed, qualified, and experienced agent. If you’re reading this, Barbara, there are plenty of agents standing by at AgentHarvest ready to get that house sold!
Get the whole story at NBC Chicago.