Judge Throws Out Lawsuit Alleging Zillow’s Zestimates Harm Homeowners

Zillow’s controversial “Zestimate” lives to see another day: A federal judge dismissed a three-month-old lawsuit that sought to end the real estate listing site’s practice of estimating a home’s value, claiming it wasn’t just inaccurate, it actually hurt homeowners and homebuilders. 

U.S. District Court Judge Amy St. Eve. dismissed [PDF] the lawsuit Thursday, ruling that Zillow’s Zestimates are not likely to confuse potential homebuyers as they are just a “starting point” for home buying research.

The now dismissed class-action lawsuit, filed in May on behalf of several Chicago-area builders, claimed that Zillow’s Zestimates misled potential homebuyers into believing the figures were actual appraisals.

A Price Discrepancy

The lawsuit contended that the Zestimates injured home sellers and builders because it listed properties with lower values than the asking price.

For instance, one plaintiff claimed that the Zestimate on his home was $1,068,677, when the house was on the market for $1.495 million, the Chicago Tribune reports.

Zillow previously conceded that its automated math isn’t perfect. Zestimates are within 5% of the actual sale price about 54% of the time, within 10% of the sale price about 76% of the time, and within 20% about 90% of the time, according to the lawsuit.

While these differences in prices might vary, St. Eve notes in her ruling that Zillow includes information on its website that the estimates are not necessarily accurate.

Not An Appraiser

In addition to claims that estimates weren’t accurate, the lawsuit contended that Zillow’s practice of listing home values based on its Zestimates algorithm was fraudulent, as the company is not a licensed appraiser.

Companies are prohibited under Illinois state law from preparing an appraisal without a state-issued license.

Zillow countered that the section of law allows for automated valuations, such as those provided by the company.

St. Eve agreed, writing in her decision that Zillow’s webpage clearly indicates that its Zestimate is not an official appraisal.

“The word ‘Zestimate’ — an obvious portmanteau of ‘Zillow’ and ‘estimate’ — itself indicates that Zestimates are merely an estimate of the market value of a property,” the judge wrote.

Despite dismissing claims that Zillow acted as an appraiser in violation of state law and that its estimates were misleading, St. Eve told plaintiffs they could replead three claims, including that Zillow violated homeowner’s privacy for posting their homes on its website without permission.

A lawyer for the plaintiffs tells Reuters that they are looking into amending the complaint.

“Zillow has unilaterally imposed its opinions on the value of homes without the consent of homeowners,” the lawyer said. “It impairs people’s ability to sell their homes because the estimates do not comply with recognized appraisal standards, and some are way too low.”

For its part, Zillow tells Reuters that it was pleased with the dismissal.