A group in New Jersey sued Zillow Group this week, alleging that letting some partners move the Zestimate valuation tool lower down on listings hurts competition and amounts to a violation of U.S. anti-trust laws.
In a suit filed Monday in U.S. District Court in New Jersey, EJ MGT sued Seattle-based Zillow Group over a home listing in Cresskill, New Jersey on Zillow. EJ MGT set the price for the eight-bedroom, 10-bathroom “palatial mansion situated on a private cliff” at just under $7.8 million, but the Zestimate for the home is only $3.7 million. In its complaint, EJ MGT alleges that several buyers were dissuaded from purchasing the home due to the discrepancy.
EJ MGT alleges that the Zestimate is an inaccurate tool and claims the company acknowledges that. Typically, the Zestimate is one of the most prominent aspects of a listing, appearing just below the list price. By allowing what EJ MGT calls “co-conspirators” in the form of brokers that partner with Zillow to “conceal” Zestimates, Zillow is undermining the transparency the tool was meant to create.
“In essence, Zillow is disseminating misleading and inaccurate pricing information that has gained prominence because of Zillow’s market power, and charging downstream participants to hide this negative information that Zillow, itself, acknowledges to be inaccurate,” according to the suit. “Further, members of the public have no way to prevent Zillow from obtaining this information, and they cannot alter its display once Zillow presents it unless they hire a broker that is party to the Zestimate Agreement.”
Zillow spokeswoman Emily Heffter told GeekWire that some partnership programs do include the option of moving the Zestimate elsewhere on the page, but the tool is present on virtually every listing, with the exception of those that don’t have enough available data. The company also issued the following statement:
We believe the claims in this case are without merit. The Zestimate is intended to be a starting point for determining a home’s value, which is why we provide it, for free, on more than 100 million homes across the country. As a company, we always seek to create advertising products that add value for consumers and advertisers, and we intend to vigorously defend ourselves against this lawsuit.
EJ MGT is seeking a jury trial to hash out the issue, and it is asking for an injunction halting the Zillow business practices at the center of the suit as well as “compensatory and punitive damages.” The suit was spotted by The Real Daily.
This isn’t the first time Zillow has been sued over the Zestimate. Last year, a real estate lawyer in Illinois sued Zillow, alleging that the Zestimate tool constitutes an appraisal and created a “tremendous roadblock” to selling a home. That case was eventually thrown out, and the lawyer later joined a class action suit against Zillow that was dismissed in August.
Over the years, the Zestimate tool has served as a source of contention from home sellers expecting to get more, home buyers expecting to pay less, and real estate professionals wishing they weren’t caught in the middle. Zillow co-founder and executive chairman Rich Barton called the Zestimate “very provocative and personal and a little voyeuristic” in a 2016 GeekWire interview discussing how the company came up with the tool.
Zillow consistently refers to the Zestimate as just one data point that consumers have access to when considering buying or selling a home — along with information such as recent home sales and guidance from real estate professionals. Zillow explicitly points out that Zestimate does not constitute an appraisal. Launched in 2006, it marked the first time that homeowners gained access to estimated home values — data that was previously only available to real estate agents, appraisers and mortgage lenders.
Zillow says on its website that a Zestimate is exactly what it sounds like, an estimate. Zillow creates the estimates by pulling available data on the home and running it through a proprietary algorithm.
The estimates are only as good as the data available. Zillow says on its website that in Seattle, for example, “Zestimate values for half of the homes are within 4.5% of the selling price, and half are off by more than 4.5%.”
Following an update to its algorithm last year, Zillow said its home valuation tool is more accurate than it has ever been. Thanks in part to a decision to transfer data to the cloud, Zillow can now compute the Zestimate in near-real time. That helped bring the tool’s accuracy to 4.3 percent nationwide, down from 5 percent.
Zillow is working to improve Zestimate internally, and it has also called on data scientists around the world to improve the home valuation tool. The $1 million Zillow Prize, announced last May, marks the first time that anyone outside Zillow got a look at a portion of the proprietary data that powers the Zestimate. Zillow will soon name the 100 finalists for the prize.