Released: October 31, 2006

Zillow appraisal site accused of discrimination

Source: By Damon Darlin, New York Times (Free Registration)

Zillow.com, the Web site that provides free home valuations, has been accused by a coalition of community activist groups of undervaluing the homes in black and Latino neighborhoods.

In a letter sent by the National Community Reinvestment Coalition to the Federal Trade Commission last Thursday, the group asserted that Zillow’s Web site misrepresented home values and placed residents in low-income neighborhoods “more at risk for discriminatory and predatory lending practices.”

The organization also asserted, but would not provide substantiation for the accusation, that real estate and lending industry professionals use Zillow’s information to “perpetrate fraud.”

An improper appraisal could force a homeowner to borrow more than the value of the home and put money invested in the home at risk, according to the group. It urged the F.T.C. to start an investigation and permanently restrain Zillow from providing home value estimates.

Zillow said the charges were groundless. Zillow collects data from public sources on a home’s characteristics, tax assessments and recent sales and uses computers to make its estimate. It has not disclosed the algorithm that it uses, but the company, which is based in Seattle, said it did not use demographic data in the calculations. On its site, it notes that the estimate is not an appraisal, but a free research tool.

The coalition, based in Washington, said that its review of the site found that Zillow’s estimates of home value were within 10 percent of appraised value less than a third of the time and that in low-income neighborhoods the inaccuracy was much more frequent. The group, however, would not release that data.

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