Homeowner sues Zillow for allegedly undervaluing her home

Zillow's housing price estimate tool is facing its first legal challenge.

An Illinois homeowner filed a lawsuit against the online real estate database this week, claiming the company's "Zestimates" feature lowballed the value of her house.

Since Zillow obviously can't take a tour of every house in the country, "Zestimates" are based on tax data and other public records that are fed into the company's proprietary algorithm. That means they don't directly account for factors like remodels and the individual merits of each home.

Zillow makes this clear in a disclaimer in which it says estimates are not meant to be taken as formal "appraisals."

It's also possible for anyone to "claim" their house on the site and update information manually.

Nevertheless, the tool frequently irks homeowners who feel their properties aren't being fairly assessed.

Cofounder Rich Barton admitted to GeekWire that the feature is “very provocative and personal and a little voyeuristic.”

One of those dissatisfied homeowners is plaintiff Barbara Andersen, who also happens to be a real estate lawyer.

Andersen contests that because Zillow's estimates are based on market value and promoted to potential buyers as a resource in assessing a property, they meet the legal definition of an appraisal under state law. Zillow is therefore an unlicensed appraiser, the lawsuit argues.

But Zillow's lawyers point to another section of the law which makes an exception for auto-generated estimates like Zillow's and those of a handful of other sites.

The Zestimate of Anderson's own house in a Chicago suburb has proven to be a major impediment in her effort to sell it, the suit says.

She is asking for $626,000 but Zillow values the home at $100,000 less. Andersen says that assessment is wrong because it's based on data from a less expensive part of town.

The suit is not seeking monetary damages; Anderson just wants Zillow to fix or remove her listing. It's unclear whether Anderson has edited her home facts on Zillow, which can make the estimate more accurate, and if she has, if it's had any effect.

A Zillow spokesperson claimed the suit is "without merit."