A federal appeals panel has upheld a federal judge’s decision to end a lawsuit accusing Zillow of breaking state consumer fraud laws when it uses its “Zestimates” to assign values to homes across the country.
On Feb. 8, a three-judge panel of the U.S. Seventh Circuit Court of Appeals backed the ruling of then-U.S. District Judge Amy J. St. Eve, who in May 2018 dismissed the lawsuit brought against the Seattle-based real estate website by Glenview attorney Barbara Andersen and Waukegan attorneys David Novoselsky and Charles Jeffrey Thut.
Named plaintiffs in the action included Vipul Patel, Bhasker Patel and Jyotsna Patel, and their business CastleBlders.com, of Schaumburg.
Judge St. Eve has since been appointed to serve on the Seventh Circuit. She did not take part in the appellate court’s decision.
The Seventh Circuit panel that heard arguments Oct. 29, 2018, included Judges Frank Easterbrook, Michael Scudder and William Bauer. Easterbrook wrote the opinion.
The lawsuit centered on Zillow’s practice of using its computer algorithm to estimate the value of about 100 million real estate parcels throughout the U.S., and publishing that estimated value on its website as a dollar amount.
The attempted class action said the so-called “Zestimate” is just a “marketing gimmick” to drive business to Zillow’s preferred real estate agents and undercut home sellers’ ability to sell their home for what they believe it should be worth.
The Patels’ suit alleged the Zestimates are inaccurate, leading potential buyers to believe a home may be worth more or less than it actually is, harming home sellers seeking to secure a sale amount close to their homes’ actual market value.
Vipul Patel said he listed his home for almost $1.5 million, but alleged a Zestimate of only $1.33 million scared off potential buyers. The plaintiffs said they asked Zillow to either increase the Zestimates or take their homes off the database, but the company refused to meet either request.
According to Easterbook, St. Eve dismissed the complaint for two reasons: an automated valuation algorithm is different from a formal appraisal and the plaintiffs lacked the right to enforce the appraisal statute. Easterbook said the panel affirmed St. Eve’s finding on the latter clause and therefore ignored the first.
Unlicensed appraisals are a Class A misdemeanor on first offense and a Class 4 felony on any subsequent offense, and administrative agencies can levy fines up to $25,000. St. Eve “found that the multiple means of enforcing the licensing act, and the stiff penalties for noncompliance, show that a private action is not necessary to make the statute effective,” Easterbrook wrote. “We concur.”
He also explained St. Eve was correct to note the trade practices act deals with factual statements, whereas Zestimates are legally opinions “which canonically are not actionable.” Although the plaintiffs argued Zillow wouldn’t alter or remove Zestimates, he continued: “This does not make a Zestimate less an opinion … And plaintiffs are mistaken to think that the accuracy of an algorithmic appraisal system can be improved by changing or removing particular estimates.”
Removing only estimates too low compared to asking prices would skew Zillow in favor of sellers. Removing at a seller’s request estimates that prove to be accurate would skew distribution and increase the average error of estimates, depriving buyers of valuable knowledge. Removing an estimate a seller knew to be accurate “would degrade the accuracy of the database as a whole without any offsetting benefits to the real-estate market,” Easterbook wrote.
Even using the word Zestimate is proof enough the company isn’t trying to present a factual statement, Easterbook explained, moving the company outside the scope of the law in question. The panel likewise said the claim under the Illinois Consumer Fraud and Deceptive Business Practices Act failed on similar grounds, as well, because the plaintiffs aren’t buying real estate.
Zillow is represented in the action by attorneys with the firm of Perkins Coie LLP, of Seattle and Chicago, and by the firm of Mayer Brown LLP, of Chicago.