What happens if artificial intelligence guesses property prices wrong?


US property portal Zillow faces suit over undervalued listings

Does real estate platform Zillow make illegal appraisals? Brad Coy/Flickr

Artificial intelligence is not infallible when it comes to valuation, as Zillow must have realised this week.

The Seattle-based property portal has found itself defending against a lawsuit alleging that its signature Zestimate tool not only makes illegal appraisals but also undervalues homes.

The plaintiff, Glenview, Illinois homeowner and real estate lawyer Barbara Andersen, charged that the Zestimate valuation system is flawed, having valued her townhouse for around USD100,000 less than her asking price of USD626,000.

Comparing her property to newly built houses from a less costly neighbourhood, the Zestimate of the townhouse has made a “tremendous road block” to its sale.

In its defense, Zillow charged that a Zestimate is just a “starting point” to determining a home’s value and must not be construed as an official appraisal. “We believe the claims in this case are without merit,” Zillow said in a statement.

“What’s more, the plaintiff can update her own Zestimate by adding the square footage of her home to her for-sale-by-owner listing. If she did that, she would see an immediate adjustment to her Zestimate.”

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However, the suit insisted that Zestimates are appraisals by nature, per Illinois statute, since they are market-value estimates and “are promoted as a tool for potential buyers.”

Zillow should get a licence for conducting such appraisals, the complainant further charged. In addition, it must obtain the homeowner’s consent before publishing an estimate online.

“They’ve been playing appraiser without being licensed for years and doing a bad job,” Pat Turner, an appraiser in Virginia told the Washington Post Writers Group. “It’s about time they got called on it.”

On its website, Zillow explains that Zestimates, offered since 2006, are calculated using “a proprietary formula.” The algorithm allows room for inaccuracy, with a median error rate of 5 percent.

“Estimating value based on public information and statistics in the industry is a well-accepted practice that Zillow, as well as numerous of our competitors, engage in, and which consumers find useful and interesting,” Zillow said in a statement. “In fact, even the Illinois appraisal statute that the plaintiff mentions in her complaint approves of these practices. It acknowledges the difference between an appraisal (an assessment of the value of a specific home, based on a physical inspection by a licensed professional) and a statistical estimate based on public information.”

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