Complaint filed against Zillow.com

By now, virtually everyone has gone to Zillow.com to see what their home is worth. The online home valuation site, which was launched several months ago amid enormous publicity, claims to be able to "zestimate" your home's value with an ever-evolving formula that constantly updates property data. However, as anyone who has visited the site soon finds out, many times their valuation is off the market, sometimes substantially. And now a group has filed a complaint against Zillow.com for falsly representing that their property valuations are accurate.

The National Community Reinvestment Coalition charges that Zillow.com is within 10% of the actual property value less than 1/3 of the time. This has opened a debate about the wider issue of property valuations and alternatives to traditional appraisals, which are expensive and tedious.

Putting aside the specifics of the complaint now before the FTC, the Zillow-NCRC dispute throws light on a simmering tension within the residential real estate market: On the one hand, mortgage lenders are demanding valuation alternatives that are faster and cheaper than traditional, full-blown appraisals. The proprietary technology Zillow uses to come up with its estimates is a form of "automated valuation model."

Many banks and mortgage companies use commercially marketed AVMs for home equity loan valuations and to help spot fraudulent or grossly inaccurate appraisals. Traditional appraisals generally cost anywhere from $300 to $500; AVMs can cost a high-volume lender $20 or less.

On the other side of the issue, professional appraisers are threatened by lenders' push for lower costs and high-tech valuations. Though they sometimes use commercial AVMs as data supplements, appraisers insist that their time-tested, hands-on methods produce the most accurate valuations.

San Diego appraiser Vicky Cassens Zillioux says that "valuing a property for a financial decision is not a game -- and should not be treated lightly by the consumer, lender or the vendor supplying that value." She notes that appraisers are held to high standards of accuracy and legal liability by lenders and regulators, and "a similar level of accuracy should be expected by the consumer at Zillow.com."

Of course, given the current state of the market in the Pleasanton area, there are many sellers and Realtors who are more than 10% off in their property valuations lately.

Courtesy of Ken Harney. Read the whole article here. Please note: Originally, this post said that a lawsuit had been filed against Zillow.com. This is not correct. A complaint has been filed by the group mentioned above.