Federal Judge Dismisses Lawsuit Accusing Zillow of Conducting Appraisal Without License

This is a follow up to my post last week about some of the controversies surrounding the real estate website Zillow.  To bring yourself up to speed, click here

Welcome back to the post!  At the time of publication a lawsuit was pending against Zillow accusing the website of violating Illinois law by conducting appraisals without a license.  The Plaintiff in the lawsuit sought an injunction stopping Zillow from publishing its Zestimates in Illinois, as well as unspecified compensatory and punitive damages.

In what could be called a big win for Zillow, Judge Amy St. Eve held today that Zillow is not violating Illinois law, because Zestimates fall into an exception in the Illinois Real Estate Appraiser Licensing Act (the Act).  The exception provides that non-licensees may “procure an automated valuation model” from publicly available data without obtaining an appraisal license.  Judge St. Eve found that development of Zestimates by Zillow are clearly the procurement of an automated valuation model.  As such, Zillow does not need to be licensed.

The Court’s holding is significant, there was a substantive determination that Zillow is not breaking the law.  Had the Court simply based its holding on a technicality, it would leave the door open for further attack.  As such, the ruling provides a significant precedent for Zillow to rely upon should it be sued again, or if the State of Illinois were to bring an action against Zillow to enforce the Act.

So, it looks like Zillow is, in fact, here to stay.  Moreover, Zillow continues to expand its offerings with its “Instant Offers” pilot program.  (Hat tip to Cleo Aquino of Superior Realty for the heads up on this.)  The program launched in May 2017 in the Las Vegas and Orlando markets and allows sellers to make their property available for cash offers from 15 select large private investors with closing in as little as one week.  The program will expand to Phoenix next month.  Whether Zillow will see success with the program is anyone’s guess (it looks a bit predatory to me, to be honest…), but it certainly looks like Zillow is looking to take a more active role in the market.

As always, please do not hesitate to contact me at 773-632-8330 or patrick@loftus-law.com.  And finally, as always, I am honored by your referrals.  To learn more about my practice, please contact me!  And if you are looking to buy or sell property, I would love to set you up with one of my fantastic real estate brokers.

Is Zillow Helpful or Harmful?

Zillow is a real estate listing website with a twist — each listing has an estimate of the value of the real estate, which Zillow calls a “Zestimate.”  That twist has been controversial among homeowners, especially when the Zestimate is lower than expected. In April of this year, a homeowner (and lawyer) in Glenview filed suit against Zillow alleging that the Zestimate for her property is unfairly low and prevented her from selling her property for the market value.  The case has since been dismissed, but another lawsuit filed shortly after remains pending in Federal Court, and the larger debate about Zestimates continues to swirl.

For its part, Zillow takes the position that a Zestimates is a “prediction of sales price” and is not a substitute for a professional appraisal.  According to Zillow, although Buyers and Sellers can use the Zestimate as a starting point, they should work with a licensed broker and appraiser to determine an accurate price for real estate.  Does Zillow unfairly downplay the potentially negative effects of publishing Zestimates?

The controversy poses some interesting questions.  For instance, is there anything inherently wrong with Zillow taking publicly available data and publishing its opinion as to the value of real estate?  My knee jerk reaction is that, like all Americans, Zillow has the right to publish its opinions.  However, right to publish an opinion is not absolute, and opinions about the value of real estate (i.e. a real estate appraisal) are regulated by the State of Illinois.  If a Zestimate is an appraisal, Zillow must be licensed (which it is not and has no intention of becoming licensed).

The Illinois Real Estate Appraiser Licensing Act of 2002 (225 ILCS 458/1-1, et seq.) is the relevant authority, and it defines an appraisal as “the act or process of developing an opinion on value,” and the Act requires a license to “develop a real estate appraisal.”  Seemingly, Zillow may have an issue, a Zestimate is an opinion on value, the development of which seems to require a license.  Zillow takes the position that it is not subject to the Act, because it is not performing opinions of value in exchange for money for a particular client like a traditional real estate appraiser.

Another question is whether there is any harm done to homeowners as a result of the publication of Zestimates.  In other words, are Zestimate actually hurting people?  This is a difficult question to answer.  Among real estate professionals, Zestimates are not considered to be reliable.  I am comfortable in saying that Zestimates have almost no effect valuations made by real estate brokers or appraisers.  The more difficult question to answer is what effect, if any, do Zestimates have on the general public.  To the extent that there are brokers involved in the transaction, probably not much.  As for those not working with brokers, I would be interested to hear your opinion, because I am too far inside the industry to know!

Perhaps there is room for compromise.  Perhaps there is a need for an appeal process whereby an owner could request a manual review of the valuation.  Zillow could allow for homeowners to voluntarily opt out of publishing valuation entirely.  Maybe new laws or regulations are needed to provide legitimacy and oversight for this relatively new aspect of the real estate market.

Interestingly, other sites, such as Redfin and Trulia, have joined Zillow in publishing opinions on the value of real estate.  Even the National Association of Realtors publishes value estimates at Realtor.com.  In other words, potentially inaccurate internet values are probably here to stay.  Buyers and sellers can avoid the possible pitfalls by working with an experienced broker, who will be able to sniff out bad information and give good advice.

As always, please do not hesitate to contact me at 773-632-8330 or patrick@loftus-law.com.  And finally, as always, I am honored by your referrals.  To learn more about my practice, please contact me!  And if you are looking to buy or sell property, I would love to set you up with one of my fantastic real estate brokers.

Condo Rental Caps – How The Board Can Prevent You From Renting Your Place

Most condo owners prefer that their neighbors are owner-occupants.  As a result, many condo boards enact rental restrictions or even outright ban rentals.  If validly done, the condo board can levy fines and file lawsuit to stop you from renting your unit.  Here is how to determine whether your board’s restrictions are enforceable.

Most buildings don’t start off with rental restrictions.  Developers want to cast the widest net possible for buyers, which means they want to be able to sell the new units to both owner-occupants and investors.  Rental restrictions tend to scare off investors.  As a result, rental restrictions tend to be enacted only after the condo board has been turned over to the unit owners.

On its face, rental restrictions seem counterintuitive.  Why would anyone voluntarily give up that right?  One reason is that it is a way to maintain unit values.  Most buyers cannot qualify for a purchase loan if a condo is less than 50% owner-occupied, which severely restricts the pool of potential buyers.  Property that is difficult to sell tends not to be particularly valuable.  In addition, renters tend to be less invested in the quality of a building long term and can be rather transient.  This can have the effect of lowering the quality of life for owner-occupants.

Restricting or banning rentals in a building is not a simple matter.  In order to be valid and enforceable, such a restriction requires an amendment to the condominium declaration.  Amending the declaration requires the vote of at least 2/3 of the ownership interests to pass.  Obtaining a super-majority in favor of a rental restriction can be quite a difficult task, and many initiatives to institute rental restrictions fail.  Interestingly, until recently, it was an open question whether a rental restriction could be enacted  by the board as a condominium rule rather than an amendment to the declaration.  About a year ago, the appellate court in Illinois made it clear that a rule without an amendment is not an enforceable rental restriction. Stobe v. 842-848 West Bradley Place Condo. Ass’n, 2016 IL App (1st) 141427.

The consequences of an enforceable rental restriction can be significant.  Renting a unit in violation of a restriction will probably at least get you fined.  Worse, the board will probably also sue you for possession of the unit or an injunction against renting it.  If your tenant is evicted, they will probably sue you for breach of contract.  The whole thing quickly becomes expensive and messy.  Before that happens, it is crucial to understand whether your association has a valid rental restriction, and what your rights are to rent your unit.  Before you buy a condominium that you intend to rent out, make sure you review the board’s rental policies before making a costly mistake.

As always, please do not hesitate to contact me at 773-632-8330 or patrick@loftus-law.com.  And finally, as always, I am honored by your referrals.  To learn more about my practice, please contact me!

 

Per Crain’s: South Works Site Has New Developer On Board

Vacant since 1992, the former U.S. Steel South Works site is set to be purchased by WElink and Barcelona Housing Systems.  Both companies specialize in environmentally friendly construction.

Thanks to Crain’s Chicago Business for reporting the story.  Any comments on how you think this news will affect economic development in South Shore neighborhood are appreciated!