The Arizona Board of Appraisal has issued two cease-and-desist letters to online home valuation and marketing company Zillow charging that the company’s automated estimates for properties in that state are appraisals and require a license, though the company has not complied with the notices and counters that it does not offer appraisals.
Lawyers for Zillow and the governor-appointed appraisal board have engaged in discussions about the letters, said Deborah G. Pearson, executive director for the board.
“The letters just ask that they cease and desist from the appraisal activities, and if they don’t the board will have to pursue injunctive relief,” said Pearson. The letters, dated July 31, 2006, and Nov. 28, 2006, state that the Uniform Standards of Professional Appraisal Practice, a generally accepted national standard for professional appraisers, “define ‘appraisal’ as an opinion of value” and that Zillow is “not a licensed or certified appraiser in the state of Arizona.”
The letters also state, “The board requests that you cease and desist from all appraisal activities in the state of Arizona until such time as they are performed by a licensed or certified appraiser in this state. If you fail to comply with the board’s request to cease and desist from these activities, the board will have no option but to pursue injunctive relief.”
It’s not the first time Zillow has come under fire for its value estimates. Some real estate agents and appraisers have been vocal in criticizing the varying accuracy and inaccuracy of the site’s estimates, and in October a coalition of groups filed a complaint with the U.S. Federal Trade Commission charging that Zillow does not adequately explain the limitations of its value estimates to site users.
Sarah Mann, a Zillow spokesperson, said the FTC “has not opened an investigation” as a result of that complaint. “We are in productive conversations … regarding their concerns.”
Also, Mann said that no regulatory body in any state other than Arizona “has issued a formal request for us to stop providing Zestimates.”
Zillow has said that the company clearly explains its estimations, called “Zestimates,” at its Web site. According to a description at the site, “The Zestimate is not an appraisal and you won’t be able to use it in place of an appraisal. It is an estimate of the worth of a house today, given the data we have available.” The company also states that the majority of its Zestimates “are within 10 percent of the selling price of the home” and that the estimates depend on “the accuracy of the home data we receive.”
The Arizona board had discussed the issue during two meetings. “They looked at it not once but twice and came up with the same result — that what Zillow was offering was an appraisal under Arizona law,” Pearson said.
The board’s mission is to protect the public, Pearson said. The board has not received any public complaints about Zillow. While there are several Web sites that offer automated real estate valuations — among them RealEstate.com, Eppraisal.com and Cyberhomes.com — the appraisal board did not issue cease-and-desist letters to any of these other companies, she said.
Lloyd Frink, Zillow co-founder and president, said in a statement that the company believes its Zestimates for Arizona are “completely legal and in fact an important public service, given that Zestimates are the result of our ‘automated valuation model’ and are not formal appraisals.”
Zillow’s Web site states in several places that Zestimates are not appraisals and that site users won’t be able to substitute Zestimates in the place of appraisals, Frink noted. “We have responded to the letters from the Arizona Board of Appraisal and hope to engage in a productive dialogue with them,” according to Frink’s statement.
Frink referenced an advisory opinion from the Uniform Standards of Professional Appraisal Practice that states, “The output of an (automated valuation model) is not, by itself, an appraisal.”
Ray Ferrier, a real estate agent and owner of Ferrier Appraisal Services in Mesa, Ariz., said some consumers do seem to think that the value estimates they receive from Zillow are appraisals. “As a real estate agent and real estate appraiser … (I) come across people who have used Zillow on almost a daily basis. They are typically under an assumption that they have been given an actual appraised value of the house. Those people believe that it’s an accurate value,” he said.
Ferrier said that there is “definitely a confidence level that the public puts in Zillow,” adding that the estimates can be misleading to consumers who aren’t aware that the site’s tools are not appraisals. “Many times when I’ve gone to list homes I’ve had people tell me that they determined their market value from Zillow — that’s the price point they want to list at.”
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