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Should Zillow Be Licensed?

Deep in the heart of Arizona the state appraisal board believes that Zillow.com — an online site which provides estimated home values — is required to have an appraisal license under state law.

Zillow clearly says values found on its website are not appraisals. The ‘Zestimate home valuation is Zillow’s estimated market value. It is not an appraisal. Use it as a starting point to determine a home’s value.’

As well, Zillow recommends that buyers and sellers consult brokers and appraisers, visit properties and use the site’s home valuation tool.

In January, the Arizona Board reported in its minutes that ‘in addition to the two cease and desist letters issued by the Board to Zillow.com, the Criminal Division of the Assistant Attorney General’s office issued Zillow.com a letter advising of possible criminal violations.’

In the general case, an ‘appraisal’ can be seen as an independent estimate of value provided by a licensed appraiser. With residential real estate, such valuations are typically made on the basis of recent comparables as well as a physical examination of the home. The appraiser is paid for the act of appraising and not the attainment of a particular market value.

Arizona defines an appraisal as ‘a statement independently and impartially prepared by an individual setting forth an opinion as to the market value of real property as of a specific date and supported by the presentation and analysis of relevant market information.’

Reading this definition you have to wonder: Who isn’t providing an appraisal? If someone at a toga party in Tucson suggests that a home down the street might sell for $500,000 is that a violation of the Arizona law? What about a newspaper article which talks about local home values in Phoenix or a blog that discusses housing trends in Flagstaff?

As it happens, I think appraisers offer a valuable service, one that should be employed routinely in residential sales. The value of physical appraisals is that they are an important consumer protection because they effectively raise a red flag when homes are over-priced. It’s enormously useful to have a disinterested third-party with a strong knowledge of local pricing physically look at properties you emotionally value.

I also happen to think, forgive me, that automated valuation models (AVMs) have limited utility.

My view of AVMs stems from looking at huge numbers of properties. It is inevitable that each is different, some with delights and some with, er, surprises.

As an interesting example, there was the terrific home on a few acres with an absolutely wonderful location. If you fed all the appropriate data into a computer it would show a given number of bedrooms, bathrooms, the size of the property, out buildings, etc.

What the computer would not show and could not show is that the owners of an adjacent property keep livestock. Lots of livestock. Livestock which produces, shall we say, an overt, overwhelming farm-like fragrance which might cause one to never ever open a window at the very nice house located down-wind from the very nice (and perhaps edible) livestock.

I don’t know how the current debate between Zillow and the state of Arizona will be resolved, but I have thoughts:

First, the current Arizona definition of an ‘appraisal’ is so broad that it seems to encompass every real estate thought since the state was settled. State lawmakers need to update their definition of an ‘appraisal’ to include a requirement that the law is intended only to cover written real estate valuations made for another and for a fee.

Second, Arizona might want to consider what will happen if it goes to court and loses. Will there be any appraisal requirements to license if the current definition of an appraisal is too broad to be enforced? If Arizona wins in one court but loses in a higher court will appraisal licensure standards in many states be invalidated?

Third, so consumers might have a better understanding of what AVM sites offer, sites providing online valuations should include their ‘this is not an appraisal’ disclaimer on the home page and all result pages in readable type, in a highly-visible location and not just in the form of a link.

It doesn’t matter whether one agrees with or debates an online valuation as long as there is no fee, no requirement to provide any user information and no obligation to buy products or services. Such estimates are simply opinions; expressions and viewpoints which should not be regulated, taxed, licensed or limited in one state or any state.

Written by Peter G. Miller for www.RealtyTimescom. Copyright