4 Appraisal ethics rules Zillow may be breaking when they give your zestimate

Do appraisal guidelines matter?

In case you haven’t heard, real estate website giant Zillow is part of a current lawsuit that was filed by Chicago real estate attorney Barbara Anderson. The lawsuit was instigated because Ms. Anderson claims that the Zestimate provided by Zillow does not reflect the true market value of her home and it is preventing her from selling it for what it is really worth.

You can read the details of the lawsuit in the article Kenneth Harney recently wrote in the Washington Post. In the article Mr. Harney writes that the suit alleges the following:

“…despite Zillow’s denial that Zestimates constitute “appraisals,” the fact that they offer market-value estimates and “are promoted as a tool for potential buyers to use in assessing [the] market value of a given property,” shows that they meet the definition of an appraisal under state law. Not only should Zillow be licensed to perform appraisals before offering such estimates, the suit argues, but it also should obtain “the consent of the homeowner” before posting them online for everyone to see.”

The lawsuit brings up some very interesting things to consider. Although Zillow claims that the Zestimate is not an appraisal it appears that the majority of the public considers them as such. In my conversations with local real estate agents I hear countless stories about how home sellers believe in the Zestimate, and because of this, they pressure the agent to list the home for the value given, especially if it is higher than what the agent believes they can sell it for.

This reliance on the perceived accuracy of the Zestimate is at the crux of Ms. Anderson’s lawsuit. Potential buyers for her home are looking at what the Zillow Zestimate shows as the value and are then assuming that her asking price is too high, which has made it difficult for her to sell her home.

Zestimate vs. Appraisal

Because so many people do see the Zestimate as an appraisal I thought I would take a look at how the two compareuspap when it comes to what is required to be done from an appraisal standards perspective. Licensed real estate appraisers are required to follow the Uniform Standards of Appraisal Practice (USPAP). The Appraisal Foundation considers USPAP to be the generally recognized ethical and performance standard for the appraisal profession. Adherence to USPAP guidelines is required for all state certified and licensed appraisers.

It is unclear whether Zillow follows these guidelines when they provide their market value estimates. It seems like they should have to since they are essentially providing an opinion of value on your home and should have to do exactly what state certified appraisers are required to do.

Today I’m going to look at what USPAP requires state certified appraisers to do when providing property value estimates. Since most people believe that a Zestimate is an appraisal it seems Zillow should be required to do the same, right? Because the requirements are so numerous I will only cover the more prominent ones.

What are the ethics rules Zillow may be breaking?

1) Record keeping rule- Does Zillow have a file for every Zestimate they give which includes, among other things, the scope of work? Appraisers are required to maintain a work file for each appraisal. According to

According to USPAP the work file must include “all other data, information, and documentation necessary to support the appraiser’s opinions and conclusions.” I don’t know with 100% certainty if Zillow maintains work files but I highly doubt it considering the sheer volume of Zestimates they produce.

2) Confidentiality- When a licensed appraiser performs an appraisal the only person that can see it is the client, however, Zillow is making it available to everyone. This is one of the main complaints in the previously mentioned lawsuit.

The lawsuit suggests that Zillow should obtain the consent of the homeowner before it posts a property Zestimate online for everyone to see. This makes sense because if a homeowner knows what the true market value of their home is, say from a recent appraisal by a local appraiser, and the Zestimate is lower than this then they could request that it not be shown.

If potential buyers think a home is worth less than it actually is because they’ve seen its Zestimate they will not want to offer as much which can potentially hurt the owner/seller from getting true market value for their home.

3) Scope of Work must be summarized- The steps that are taken and analysis performed to arrive at the opinion of value must be disclosed. In order to develop a proper scope of work, you have to know who your client is, however it’s unclear exactly who Zillow’s intended user is.

It’s also necessary to know the intended use of the appraisal, which can vary from person to person. Another reason that a scope of work is developed is to determine the highest and best use of the property.

While the majority of properties that Zillow provides Zestimates for are residential in nature there are those outliers that may have another highest and best use, which makes us wonder how these properties are valued. What about that property in a changing neighborhood that could be used for commercial purposes based on the zoning? Are similar comparables, that offer alternative uses, being considered in valuing this type of property?

4) Standards Rule 1-1(c) requires appraisers to not render appraisal services in a careless or negligent manner- Appraisers must use due diligence and due care in performing appraisal services, including gathering factual data such as square footage and condition of the property. In a past blog post, I outline the steps Zillow WILL NOT take when providing an appraisal on your property.

Among these steps are two very important ones that seem to be left out of the Zestimate equation. Since Zillow does not actually visit each house they provide an estimate for so they do not know the home’s condition. If a home has been fully renovated or has had a remodeled kitchen or master bath it will not be factored into the Zestimate. Zillow tends to consider the condition of all properties as the same and makes no allowances for updates and renovations.

The second step that Zillow seems to leave out is verification of accurate square footage for both the subject property and the sales they use to develop their Zestimate. Since price per square foot seems to be one of the major metrics that Zillow uses to determine value it is very important to make sure that the square footage for all properties is accurate.

To the best of my knowledge, it appears that Zillow obtains square footage information from public records. It is common knowledge that county records leave a lot to be desired when it comes to the accurate square footage. While there are some properties that are fairly accurate the majority are not.

Whenever you use the inaccurate square footage for the subject property, and the sales comparables, you multiply the inaccuracies in your projected value estimate. Using the wrong square footage for the sales gives you a flawed sale price per square foot.

When you multiply this price per square foot by the subject’s inaccurate square footage to arrive at the properties Zestimate you get a value that is far from accurate. You can find out the accuracy of the Zestimate in your area by reading this post and watching the video.

I’ve only considered four possible ethics considerations here but there are more guidelines that appraisers must follow. Don’t you think that Zillow should have to follow these guidelines as well considering the fact that most people believe in the Zestimate and are making decisions about their largest asset based on the information Zillow gives?


Do you have any additional thoughts on other ethics rules Zillow may be breaking? Leave a comment below and we’ll keep the conversation going.

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  1. Lawrence Fenimore says

    Zillow includes their total square feet measurement which includes a house’s finished below grade square feet. This is not the rule for appraisers. Appraisers follow strict rules when measuring and calculating the total square feet of a home being appraised. Appraisers must separate the below finished square feet from the above grade square feet. If this is not being done by Zillow one is putting bad data in and getting bad data out. The reason is that one is not comparing apples to apples if they include both. Why is that wrong you may ask? Consider that first of all above square foot is better quality in most homes, especially older homes that finished their basements as an after thought. If you have a home with above grade square feet that is double another home that is the same square feet but half of the square feet is below grade or in a basement, do you think the above grade should be valued the same. In many cases the house with the above grade square feet also has a huge basement that can be used for other purposes where the finished basement house does not. So the design of the house is not considered in Zillow’s estimate of value either resulting in yet more inaccurate market value results. Appraisers are required to follow regulations and procedures which are national rules established by ANSI. (American National Standards Institute)

    • I agree with you 100% Lawrence. This is something that most people do not realize but something I have attempted to educate people on through my blog. I think a lot of people are starting to understand how Zillow can be so inaccurate. As appraisers, we need to strive to educate the general public about these things.

  2. Zillow and other AVM’s, BPO’s, CMA’s and any number on a napkin written by a machine, computer program, dart board or anyone OTHER than a certified or licensed appraiser does not have to comply with USPAP.

    I’ve grown very tired of this argument. Appraiser’s have continued to mis-manage their industry since leaving NAR and never questioning the AI. Not only is the battle lost, but the war is over and history is written.

    Let it go.

    • I’m sure you are correct, Joyce, however, when a company is putting out a product that the general public believes to be true and accurate but is in fact not, and that the public uses to transact business and make a financial decision on then I believe it is the companies responsibility to do everything in their power to educate the public about how inaccurate the Zestimate is. It is with this in mind that I believe the ethics of the company should be questioned.

  3. For the reasons I explained in my post on the things Zillow will not do when they give you your Zestimate is the explanation. They have a faulty model that gives no reliable value estimate but most people believe that it is accurate. This is why the Chicago attorney is ticked off. Zillow is valuing her house for less than what it is worth and she is asking more than the Zestimate and people are thinking it is not worth what she is asking. I hope this lawsuit will make Zillow get rid of the Zestimate.

  4. As a realtor the word Zillow is not one I want to hear. I am a professional. I hate constantly having to explain Zillow to people and show them the real facts. I hate having to explain that house sold 4 years ago but it is still on zillow. I hate having to explain that house is not listing for that this is the real sales price then explain why. Zillow makes our job so much harder and does not bring value to our profession

    • Robyn, you echo what I have heard from agents in my area also. The Zestimate has gotten way out of hand because a lot of people think it is more accurate than what it really is. Thanks for sharing.

      • Nicole Fox says

        I agree! If a Zestimate is listed onna home-I believe it should be a “rounded, ball-park” figure. Ex: 310-315,000. I am dealing with this issue , myself now. It’s not only the general public, that thinks these are the home’s value, some banks are also. I just experienced this, less than a week ago. I specifically asked the lender, what they use to determine home values, for HELOC. I was told, they use Zillow it realtor.com. YES-Zillow NEEDS to clarify more clearly or remove.

        • Wow, Nicole. I did not know that banks are using them. I assume they are using them to get a ballpark figure. This is still dangerous because the zestimate can change overnight, especially if the property is for sale.

  5. Thank you for starting the conversation. It is interesting to me that the center of the lawsuit is privacy. That seems to be the angle for high tech lawsuits. This is one to watch how it plays out.

  6. Thought provoking post Tom. While Zillow says they are not providing a value, I do agree with you that the public perceives it as a value (or an appraisal). Even if they would say, “Well, it’s just a ballpark,” the truth is in the world of valuation we can do something specific, give a range, or even a ballpark based on more limited criteria. This will be interesting to follow.

    • Thanks, Ryan. I’m not sure Zillow thought that the Zestimate would become what it has whenever they came up with it but the truth is that most people perceive it to be accurate and you know what they say about perception and reality. Some people believe that it is just like an appraisal but you and I know that is not the case. I think that if more people have the same experience that Ms. Anderson has had, and they choose to do something about it, then Zillow may change their tune.


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