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Defending Zillow.com . . .

Picture yourself living in Boston, Massachusetts, where the climate is six months of drizzle and mud followed by six months of deep snow and permafrost. Let’s say it comes to your mind to bid a final farewell to all things wintery and shuffle off to the endless, boundless, soul-enriching sunny skies of Phoenix, Arizona.

This is a rare adventure that only happens about 200,000 times a year, so you’ll want to do some preparation. So you put on your long underwear and your clothes, your overclothes and your overcoat, your socks, oversocks, shoes, overshoes and snow-boots, your gloves, your overgloves, your hat and your overhat, and you grab your umbrella and layer on a scarf or two for good measure and then you trundle out into the permafrost to face the day.

You waddle your way over to Out Of Town Books in Harvard Square and buy a copy of Phoenix Magazine. The photos are astounding — mountains, deserts, golf, tennis, spectacular sunny skies and stunning women in skimpy sun-dresses. If you’re looking for everything Boston isn’t, you’ll find it in the pages of Phoenix Magazine.

But: Is this adequate preparation for a transcontinental relocation? I really like Phoenix Magazine, and I have a client who is an Associate Editor there, so I have even more reason to like it. But there is a big difference between thumbing through one issue of Phoenix Magazine and making detailed plans to move from Boston to Phoenix.

Who could doubt this?

I’m being very serious. Even if someone could be so impulsive as to move from Boston to Phoenix on a whim, goaded by a photograph in a magazine, would even that will-o’-the-wisp conflate impulse with planning?

The answer is obvious, isn’t it?

This is how we can know with a certainty colder than the wrought iron railings of Beacon Hill in Olde Boston Towne that the complaint brought against Zillow.com by the National Community Reinvestment Coalition (NCRC) is completely specious.

Do you see why? There is no possible way that any thoughtful person could confuse a number regurgitated by a piece of software with a responsible evaluation of a home. NCRC claims that Zillow.com is peddling fraudulent information, that it is doing so in a way that is biased in favor of prosperous white people and against poor and non-white people, and that these latter groups are suffering adverse financial consequences as a result of Zillow.com’s Zestimates.

Not one of these charges is true.

It happens that I am one of Zillow.com’s most vocal critics. My essay Debunking Zillow.com is the single most popular article on our weblog, BloodhoundBlog. If you Google for Zillow.com, “Debunking Zillow.com” will come up second or third in the organic searches. The gist of that essay is the obvious epistemological point that no Automated Valuation Method (AVM) like Zillow.com can actually evaluate houses — because AVMs are concerned with records about houses, not the houses themselves. The coup de grace in that essay is a presentation of the Zillow.com Zestimate of a house that had burned to the ground.

I have written quite a bit more about Zillow.com, but my one complaint with the company is simply this: Portraying AVM results as being the equivalent of an appraisal is deceptive. Were Zillow.com to put a prominent disclaimer on its home page and on every Zestimate stating that a Zestimate is not an appraisal, my objections with the company would be at an end.

But it is important to note that such a disclaimer, should they make it, is essentially redundant. There are no thoughtful people who conflate reading Phoenix Magazine with preparing to move from Boston to Phoenix, and there are no thoughtful people who confuse AVM results with a full-blown home appraisal.

But what about thoughtless people?

This is what disclaimers are for, to indemnify vendors from people who are thoughtless or who claim to have been thoughtless in pursuit of financial gain. Who doesn’t know ladders are dangerous? Who doesn’t know coffee is hot? Zillow.com should have a disclaimer — even though the information it is disclaiming is obvious even to fools — to indemnify itself from people who pretend to be fools for money.

Enter the National Community Reinvestment Coalition, a “non-profit” group whose primary source of funding seems to be pretending to be fools for money. The NCRC has filed an FTC complaint against Zillow.com, and it may yet file other complaints with other government agencies, notably HUD. The complaint consists of three bogus claims:

Bogus claim number one: Zillow.com’s results are “fraudulent.” The charge is absurd on it face, but Zillow is not without culpability here, since it has made such a point of bragging about its “accuracy.” In fact, no AVM can take account of all the disparate factors that cause a particular home to sell for a higher or lower price. As we have seen, an AVM cannot even know if the house is actually there, since it evaluates not homes but possibly erroneous and always outdated records about homes. But even if the records happen to be correct and reasonably current, the most important facts about the home will never have been recorded. For example, were you to move to Phoenix from Boston, you would want to learn from an expert where the late-afternoon sun is going to hit your home on August 15th, to pick a particularly sultry date on the calendar. Yes, we have endless, boundless, soul-enriching sunny skies — but the sun will impoverish you in the Summer if your home gets too much light.

Bogus claim number two: Zillow.com is racist. This is completely specious. The government-collected records Zillow.com works from do not contain any demographic information. The only way Zillow could escape its “guilt” for evaluating homes (that may or may not be owned by members of Federal Fair Housing law protected categories) according to their assessed value and recent nearby sales would be by introducing demographic details into its algorithms. In other words, the only way Zillow.com can prove it is not being racist is by being racist!

Bogus claim number three: Members of Federal Fair Housing law protected categories are suffering financial losses due to the fraudulent use of Zillow.com Zestimates by unscrupulous lenders, Realtors or real estate investors. First, it is reasonable to presume that if NCRC could produce an actual victim, they would have done so by now. Second, I would be amazed if any secondary-mortgage-market loan (underwritten by Fannie Mae or Freddie Mac, as regulated under RESPA) had been issued on the basis of a Zillow.com Zestimate. There are lenders who are willing to work from AVM results in certain cases, but those AVMs are quite a bit more robust than Zillow.com. Finally, if there actually are con-men using Zillow.com Zestimates as props in their confidence games, the culpability is their own, not Zillow’s. They would be using some other prop if Zillow’s Zestimates were not available.

An AVM’s results are not the equivalent of an appraisal. Nor of a Broker’s Opinion of Value, nor of a Comparative Market Analysis, nor even of an off-the-cuff guesstimate from a well-seasoned Realtor. A Zillow.com Zestimate does have value, but its value in determining a home’s worth is exactly analogous to that prized issue of Phoenix Magazine in making your relocation plans: It’s a starting point, that’s all.

Based on a cursory examination of the history of the National Community Reinvestment Coalition, I believe their motivation is wholly mercenary. I think their purpose in leveling these charges against Zillow.com is to shake the company down for some kind of financial settlement, possibly disguised as re-education classes or a consulting contract. In any case, whatever their motivation might be, the charges they bring against Zillow.com are wholly specious and without merit. I might wish that Zillow.com would add the disclaimer language discussed above, but their not having done so is not fraudulent, is not racist, and is not larcenous.

If you agree with me about this, say so in a comment or write an essay of your own and make it public on your weblog or web site. Whatever small differences we might have with Zillow.com, there is no justice in their being railroaded in this fashion. People are fond of quoting Edmund Burke — “All that is necessary for the triumph of evil is for good men to do nothing” — when the evil is distant and abstract. Here is evil — or, in the best light, a vile calumny — at our neighbor’s own door. What will you do about it…?

Our story so far:

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26 comments

26 Comments so far

  1. Richard Riccelli November 2nd, 2006 11:59 am

    The truth is still putting on its (over)socks while the lie races ’round the world.

    Zillow should fire their lawyer and file your brief.

    You are doing a better job. It’s worrisome they are not racing to do it as well…

  2. Richard Riccelli November 2nd, 2006 12:09 pm

    Now that I think about it, the expression is “putting on its (over)pants” … not (over)socks — or as we spell it here in Boston, where we have six months of winter and six months of baseball, “Sox”

  3. Joel Burslem November 2nd, 2006 12:20 pm

    Well said Greg. The accusation by the NCRC is not only specious but ludicrous. Zillow needs to be far more vocal then they have been in fighting this allegation.

  4. Greg Swann November 2nd, 2006 12:26 pm

    > Well said Greg

    Bless you. Thank you.

    > You are doing a better job.

    And bless you, too, Richard.

    No shoes dropped today. Cross your fingers, maybe this will end well.

  5. Kevin November 2nd, 2006 1:03 pm

    The story is starting to appear with regularity in non-real-estate blogs as well, and and in some cases the NCRC is being conflated with the real estate industry — ie. “Realtor industry takes on Zillow.”

    To the extent possible, Zillow (and those of us concerned about the case) should also monitor those blogs and straighten out any misconceptions.

  6. John K November 2nd, 2006 3:36 pm

    You lost me at, “consider you live in Boston and want to move to Phoenix”.

    As if.

  7. David G November 2nd, 2006 4:57 pm

    Thank you Greg!

    Joel and others – I understand your criticism. Please see my response to it on Greg’s previous post. Zillow has nothing to gain and everything to loose by arguing against unsubstantiated opinions and we’re unfortunately not on the juicy side of this story.

    Your voices are greatly appreciated. Thank You.

  8. Greg Swann November 2nd, 2006 5:03 pm

    > Thank you Greg!

    Check. The charges are so obviously bogus that it hadn’t occurred to me that I might actually need to say, “These charge are bogus.”

  9. russell shaw November 2nd, 2006 7:38 pm

    Genius! Loved all of this but my favorite line had to be, “Enter the National Community Reinvestment Coalition, a “non-profit” group whose primary source of funding seems to be pretending to be fools for money.”

  10. Geri Sonkin November 2nd, 2006 8:29 pm

    I have to agree that Zillow would have more to lose than gain by fanning the flames, and would do well to stay clear of this conflagration. The charges are outrageous and your statement “I would be amazed if any secondary-mortgage-market loan (underwritten by Fannie Mae or Freddie Mac, as regulated under RESPA) had been issued on the basis of a Zillow.com Zestimate,” says it all. The mere thought of it is laughable.

  11. John K November 2nd, 2006 8:41 pm

    Greg, I posted pieces of your essay on my own blog.

    If you’d prefer I write it myself, I’ll do so, but you put it pretty eloquently, so I figured I’d just cut and paste.

    Thanks.

    John

  12. […] Here’s the situation, in a nutshell (Part of my argument is based on a blog entry on Greg Swann’s BloodhoundBlog. I’ve included his argument in italics). […]

  13. Greg Swann November 2nd, 2006 8:57 pm

    > Greg, I posted pieces of your essay on my own blog.

    Excellent, John. Thanks!

  14. […] Did I read this right?? Greg Swann over at the BloodhoundBlog has a post titled “DEFENDING ZILLOW.COM“?!? […]

  15. Lee November 5th, 2006 6:57 am

    Greg,

    I have been critical of Zillow; but, I am not in the same camp with those who would like to see Zillow shut down. I personally find Zillow to be rather remarkable. A central database of (free) property information could be quite useful, if used properly.

    Isn’t the real issue here a question of whether the casual user of Zillow can really understand the reliability of this information and could a lack of understanding cause public harm? This is where I feel the complaint filed against Zillow has merit because it relates to the question “Is Zillow being responsible in the manner in which it is providing information?”

    You describe those users that misuse the Zestimate as “thoughtless”. Using your “hot coffee” analogy, what if the warning on the coffee said the coffee was “warm” rather than “hot”? Or, what if the warning stated the temperature of the coffee in Celsius rather than Fahrenheit? Would you still think of the harmed consumer as “thoughtless” if they read and relied on that disclosure and consequently got burned?

    I disected the Zestimate accuracy stats in a recent blog post.

    http://valuation411.blogspot.com/2006/11/im-no-william-tell-but.html

    Any thoughts or comments?

  16. […] Bloodhound blog refutes some of the ridiculous claims against Zillow by the National Community Reinvestment Coalition in Defending Zillow. […]

  17. […] The whole Zillow FTC complaint deal is a bad joke. The notion that people are harmed by Zillow’s Zestimates in some way is an obvious shakedown. Anyone who depends on Zillow’s queries for anything more than a cursory overview of housing information, like taxes or recent sale amounts, probably also thinks that Google is some form of omnipotent deity. […]

  18. […] Bloodhound blog refutes some of the ridiculous claims against Zillow by the National Community Reinvestment Coalition in Defending Zillow. […]

  19. Charleston Real Estate Blog December 7th, 2006 1:42 pm

    Zillow makes a big move

    The biggest real estate news of the last few days is Zillow, first the Zillow announcement and commentary

  20. MANYA December 17th, 2006 1:42 pm

    Everyone in the real estate business is frozen with fear that their MLS and big real estate company commission shakedown will come to an end. The bankers will know if you are paying to much. For now, Zillow can give you a point of referance on value based on local sales. They gain nothing from giving wrong information.Zillow and others are a work in progress. Once they start selling millions of properties without a commission, there will be a shake out. How many brokers lie to a seller to get a listing? How many brokers make inside deals on a properties listed to low? How many brokers keep the listing in house to the to max out their cut? The people that are making the money are the ones you need to watch the most.

  21. John Michailidis April 8th, 2007 10:51 pm

    The true victims of racism suffer because of the extortion artist race-baiters like those going after Zillow. I agree with you wholeheartedly.

  22. […] Soon afterward, Greg Defended Zillow in an article that made me very proud of him, especially after his article Debunking Zillow had brought so much attention to BHB. Both articles demonstrated his veracity, with no concern about whose ox might be gored. […]

  23. Wayne Long November 10th, 2007 11:54 am

    I think Zillow was big news but has just become irrelevant. No one cares. I am not in the camp of having them shut down and I think that anyone who relies on them deserves whatever they get.

  24. Angel December 3rd, 2007 5:18 pm

    Zillow appraiser can not be unbiased if they are paid for their work zones and also get a bonus for finding new clients for zillow. They have a monetary gain before the report, is ever done. They offer payback for clients, which I hope those appraiser are putting in the reports they are doing if not that’s a law breaker.

    Also a good appraiser should physically inspect a home inside and out on full appraisal, nothing on Zillows site ever mention that or the fact you cant guarantee a report back in 30 minutes if its a true 1004, that my sir is up to Zillow and when they want their inspection, not the appraiser , nor the lender, but the homeowner alone decides that.

    Zillow states on their site these are appraisal they are not, if they have not been inside a home you can not get the full value or lack of it.

    Finally how can a appraiser stay unbiased if the loan officers are asking for a value of the property the appraiser has only seen from the outside before he does an actual full report, Zillows site states they can do that and they never mention an interior report. According to USPAP any report be it oral , written, texted , emailed it’s a appraisal.

    We work for a company who lenders hire to get their property appraised, we stay unbiased by not talking with the lender about values. We do the appraisal send it to the company who hires us that company does the review and then sends it to the lender. This allows our appraiser to work without the pressure of a loan officer screaming I need this value.

    Our reports include photos of each room, foundation and all sides of the home,neighborhood photos and any photos of needed repair or things that could help or hurt value, so I think a treue appraiser is much more safer then Zillow when we are talking about some ones largest investment. Those who use Zillow get what they paid for!! Good Luck

  25. Vancouver Washington Real Estate Guy December 18th, 2007 12:21 am

    I think zillow is a great tool. I have worked with it many times and would recommend it. I would always double check the subject property against comparable properties, the computer sometimes misses very crucial things when it comes to determining the exact true current market value. But still one of the best tools online.

  26. BPO December 24th, 2007 6:06 am

    Its just a tool. You need that human touch to get just right.