Zillow Class Action Says ‘Zestimate’ Misrepresents Property Values

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Real estate website Zillow is facing class action accusations that its “Zestimate” valuation tool misrepresents properties’ real market values.

Plaintiffs Vipul and Jyotsna Patel and Schaumburg-area developer Castle Builders are bringing this Zillow class action lawsuit.

They claim Zillow’s Zestimate tool unlawfully publishes erroneous estimates of property values, misleading potential property buyers and monkeywrenching sellers’ efforts to sell their properties.

The Patels are represented by Illinois attorney Barbara Andersen. Anderson brought her own individual lawsuit against Seattle-based Zillow Group last month, claiming the company’s Zestimate misrepresented the market value of her own home in Glenview, Ill. Andersen has since voluntarily dismissed her own claim so that she can represent the Patels and Castle Builders in this Zillow class action lawsuit.

Zillow is a real estate marketing website. Its Zestimate tool generates an estimated value for a given property, whether or not that property is on the market, by applying a proprietary algorithm to publicly-available information, such as statistics from county assessor’s records. The property’s Zestimate value is published on the Zillow website.

The Zestimate feature alone reportedly draws millions of viewers to Zillow’s website. That creates enormous marketing value for Zillow, which monetizes that viewership by selling advertising to real estate agents. As a result, Zillow’s quarterly revenues reach into the hundreds of millions of dollars.

But property owners have been criticizing Zestimates for years, claiming they can be wildly inaccurate. Zillow itself admits to a median error rate of five percent, but critics say the resulting estimates can be 30 percent or more off the mark from a given property’s actual market value.

Zillow insists that its Zestimate is not an appraisal. The company characterizes Zestimates as merely a “starting point to determine a home’s value.”

Andersen strongly disagrees. She argues that by publicizing an estimated value for a property, Zillow subjects itself to the laws governing professional real estate appraisers – laws that impose licensing requirements and obligations of confidentiality.

The standard appraisal process also affords property owners the right to challenge the appraiser’s valuation process, Andersen says. She alleges that Zillow doesn’t offer a comparable process to allow correction of a Zestimate.

The Patels claim that potential home buyers treat a Zestimate as a formal appraisal, whether it is one or not. They complain that Zestimates are frequently 20 percent lower than the property’s fair market value, setting up unrealistic expectations in potential buyers’ minds.

Before Andersen refilled this Zillow class action lawsuit on behalf of the Patels and Castle Builders, she accused Zillow of publishing a misleading Zestimate of her own home’s value. The alleged undervaluation has been a substantial obstacle in her attempts to sell the home, she claims.

Andersen says Zillow erroneously stated that her home sold in the fall of 2016 for $685,000. A more recent Zestimate publicized the home’s value at $562,000, she alleges, giving the false impression of a $90,000 drop in value in only six months. The property’s Zestimate value has purportedly dropped even lower since then.

Andersen says she repeatedly contacted Zillow, trying to get them to correct or remove the allegedly erroneous Zestimate. The company ignored her contacts, she claims.

Anderson is still trying to sell her home. She has posted an asking price of $626,000, but a recent Zestimate says the property is worth only $537,788.

The Zillow Zestimates Class Action Lawsuit is Patel, et al. v. Zillow Inc., et al., Case No. 1:17-cv-04008, in the U.S. District Court for the Northern District of Illinois.

UPDATE: On Oct. 18, 2017, for a second time, Zillow asked an Illinois federal judge to dismiss a class action lawsuit that claims Zillow’s “Zestimate” tool is misleading. In its motion to dismiss the amended Zestimate lawsuit, Zillow argued that the plaintiffs’ amended complaint also fails to state a viable legal claim.