Nonprofit Files FTC Complaint Against Zillow.com

On the same day that it announced it would make its home valuation service freely available to any Web site, Zillow.com was hit with an FTC complaint on Thursday alleging that its valuation method is "highly inaccurate and misleading."

The National Community Reinvestment Coalition, a nonprofit group that promotes equal access to credit and financial services to underserved communities, claims that the home valuation estimates provided by real estate site Zillow.com are reasonably accurate only around 30% of the time.

By both over- and underestimating home values, Zillow.com is "causing substantial injury to consumers nationwide when they consider selling their home, using their home equity or buying or refinancing property," according to the complaint.

Started only in February, Zillow.com quickly became one of the Web's most popular real estate sites by offering instant valuations and aerial photographs for addresses plugged into its Web site. It maintains valuations and data on 68 million U.S. homes.

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On its site, Zillow.com explains that it comes up with its home valuation "Zestimate" based on copious public data crunched into a proprietary algorithm. It also states that its estimate is a first step in determining a home's value, and not an appraisal.

Overall, Zillow.com maintains that it has a median margin of error of 7.2%. In a statement issued in response to the NCRC complaint, the company said: "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."

Questions about the accuracy of Zillow's estimates have arisen before. In an interview with Newsweek earlier this year, the company's CFO Spencer Rascoff said "The "zestimate" is only as strong as the data available."

Before announcing Thursday that it would make its home valuation tool widely available, Zillow.com had already syndicated the service to other sites including Yahoo Real Estate, Prudential Northern California and Nevada, and ZipRealty, along with smaller agent sites. The company had said in July that it planned to offer the valuation service to third-party sites.

In its complaint, the NCRC asks the FTC to also enjoin other sites, including Yahoo, from using the Zillow.com valuation service.

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