Zillow in trouble after API launch

Yesterday’s opening up of it’s API by Seattle-based Zillow did not go down well with the National Community Reinvestment Coalition(NCRC). NCRC has filed a complaint with Federal Trade Commission(FTC) claiming that the site’s home valuations are misleading consumers, real estate professionals and lenders.

NCRC is an alliance of more than 600 community-based groups working to ensure equal access to credit services for underserved communities.  Zillow is a well funded startup which till date has raised $57 million in funding. Zillow received $32 million in Series A funding in 2005 from Benchmark Capital and Technology Crossover Ventures, $25 million in Series B round of funding from Par Capital Management.

In its complaint NCRC alleged-

“Internet financial services and real estate provider Zillow.com is misleading consumers, real estate professionals and financial service providers in on-line home valuations.”

John Taylor, NCRC president and CEO claims that –

“Consumers are already at risk of being over extended due to the increased access to non-traditional loans, Zillow’s misinformation exacerbates the situation. Practices like theirs undermines the critical importance of valuation protections that benefit consumers and lenders alike, and guide the actions of all valuation professionals.”

NCRC is claiming that out of the 68 million listings on the site, Zillow has less than a 30 percent accuracy rate when offering the valuations for public consumption. In February, 2006 BusinessWeek had quoted Zillow management – “estimates are typically on target, falling within 10 percent of the actual home-sale prices 62 percent of the time”.

NCRC claims that valuations provided by Zillow are worthless and wants FTC to act in public interest and permanently “enjoin and restrain Zillow.com from violating the FTC Act”. NCRC also wants Zillow held “severally liable for redress to all borrowers who were injured as a result of the company’s violations of the FTC Act”. NCRC also alleges that over-valuations by are prevalent in predominantly white communities, while under-valuations were more frequent in predominantly African-American or Latino communities.

Zillow’s Response

“We believe these allegations are groundless. As we say consistently and prominently on our Web site, Zillow is a free research tool for consumers, and Zestimates are designed to be a starting point for consumers who want to learn about the value of homes. We make every effort to explain on our site the role of Zestimates as a research tool, as well as to clearly display our rates of accuracy for every area we cover.”

 

I don’t know if any other independent party has done evaluation of Zillow’s home valuation data, or how accurate is the analysis done by NCRC. I think this complaint will force Zillow into evaluating its Automated Valuation Model(AVM) which has been criticized before in the blogosphere. It will be interesting to watch how Zillow tackles with this situation.

Links:
NCRC Press Release
NCRC
Zillow

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2 Responses to “Zillow in trouble after API launch”

  1. David G from Zillow.com Says:

    Hi Vivek, it’s David from Zillow,

    We do evaluate Zestimate accuracy – to the county level. The Businessweek quote comes from metrics off this Data coverage and accuracy table linked to from our home page:
    http://www.zillow.com/howto/DataCoverageZestimateAccuracy.htm

    For each home, we calculated 10 years of historic Zestimates – and then we plot actual sales on that graph. For me, that’s the best way to evaluate how accurate the Zestimate is likely to be for each house. Most important though is to check a home’s facts on Zillow – automated valuation tools are a garbage-in-garbage-out scenatio; and the public records we use as an input can be incomplete – in those cases, we provide a tool for homeowners to calculate their own estimates.

  2. vivpuri Says:

    David,

    I can’t really comment on the accuracy of your data. Even the case at hand might not be motivated by the reasons claimed for. I think it is good for you guys instead. Your data and valuation method do carry some weight that is why NCRC cared to come after Zillow. These are the signs of old empire starting to crumble. Anyway it is free publicity for you guys.

    -Vivek

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