When Valuations Go Bad

As Inc. reported in August, Zillow.com has attracted millions of dollars from VCs for its highly addictive real estate valuation tool. Recently, its been getting a much less desirable kind of attention in the form of an FTC complaint filed last week by a housing advocacy group. The National Community Reinvestment Coalition charges that Zillow is "intentionally misleading consumers and real estate professionals to rely upon the accuracy of its valuation services" despite the fact that its valuations are "highly inaccurate." (Read the complaint here.) The group's basic point is this: while it may be tons of fun to scope out how much the boss's house is worth, consumers using Zillow as a substitute for a professional valuation could be making a big mistake. Worse, the group alleges, Zillow tends to undervalue homes in African American and Latino communities and overvalue homes in white ones.

If Zillow does favor certain communities over others, that's a serious problem. I also agree that the company's website, which emphasizes the accuracy of its "Zestimates," could use a bit of skepticism. (Read Zillow's response here.) However, it seems odd that a non-profit group that is supposed to empower homebuyers would go after a company like Zillow. Zillow, after all, seems to be more or less independent of the real estate and banking industries (it doesn't sell houses or make loans). Moreover, it provides its data free of charge. Why not welcome it as an added resource for cash-strapped consumers? Take a look at the complaint, find out how much Larry Ellison's house is worth, and let us know what you think.

Senior contributing writer Max Chafkin has profiled companies such as Yelp, Zappos, Twitter, Threadless, and Tesla for the magazine. He lives in Brooklyn, New York. @chafkin