While online tools can be a great way for consumers to gain information on products before they buy, they can be a hassle for sellers. Brick-and-mortar retailers have long complained about shoppers coming in to look over their merchandise before buying it for a lower price online. There have also been multiple scandals involving books and other goods that go on sale at one retailer, and because of Amazon’s automatic price check, they go on sale for that same price on Amazon. This can then cause a domino effect of other retailers selling the product for the lower price, which some people claim devalues the items being sold.
But what about houses?
Selling a house is problematic enough on its own, but now homeowners looking to sell have to deal with buyers who use Zillow’s online tool, Zestimate, to get an estimate of the price of their house. Zestimate takes the information on a house and uses a proprietary algorithm to calculate an estimated home price. Of course, Zestimate only has access to information on the house that’s publicly available, whereas an appraiser would have access to much more information on a property, making their appraisal different from Zillow’s online estimate.
Nevertheless, buyers come in expecting to pay the amount they saw on Zillow, even though the site warns consumers that the number is only an estimate and homes might very well sell for more or less than the amount provided by their online tool. It is not an appraisal and most of its estimates have a 4.6% error rate, meaning the price it gives could be 4.6% more or less than the actual price of the property. Zillow says the estimate is meant as a starting point, not a final number.
Despite these warnings, consumers who see a number are often reluctant to pay more than that amount. As a result, homeowners have filed a class-action consumer lawsuit against Zillow alleging its Zestimate tool makes it harder for people to sell their homes and constitutes an unfair business practice and consumer fraud.
Among other allegations, the complaint claims Zestimate gives homes being sold by the owner lower values than those being sold by a Premier Agent affiliated with Zillow.
But Judge Amy J. St. Eve, a federal judge in Illinois, recently dismissed the lawsuit for the second time. She initially dismissed it back in August but gave the plaintiffs an opportunity to amend their complaint. They did, and she again dismissed their allegations. Not only did she point to the fact that Zillow is very upfront about the fact that prices generated by Zestimate are not appraisals and should not be treated as such, but she also noted that Zillow is doing nothing to harm or try to deceive consumers. In this case, the consumers are the home buyers and the plaintiffs are homeowners who have had or are having a hard time selling their home as a result of estimates provided by Zestimate.
The Washington Post pointed out that Zestimate’s accuracy tends to vary widely depending on the area. In some Illinois counties, for example, the newspaper claims the error rate can be as high as 20% or even higher, giving just one more reason for consumers to tread carefully when pinning all their hopes on a price projected by an online tool.
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