The Arizona Board of Appraisal is threatening legal action against real estate estimate site zillow.com. Here's their letter to zillow:
To Whom It May Concern:
It has come to the attention of the Arizona State Board of Appraisal (the "Board") that you are operating a web site located at zillow.com.
The Uniform Standards of Professional Appraisal Practice define "appraisal" as an opinion of value. On the web site, you provide a "Zestimate," which is an opinion of value. You are not a licensed or certified appraiser in the State of Arizona. Under Arizona law:
A. All real estate appraisals and appraisal reviews performed in this state shall be performed only by individuals licensed or certified in accordance with the requirements of this chapter. No person, other than a state licensed or state certified appraiser, may assume or use that title or any title, designation or abbreviation likely to create the impression of licensure or certification as an appraiser by this state.
A.R.S. § 32-3603.
The letter goes on to demand that Zillow "cease and desist from all appraisal activities in the State of Arizona until such time as they are performed by a licensed or certified appraiser in this state," and threatens legal action.
It seems to me that the statute, as interpreted by the board, is at the very least constitutionally overbroad: It would bar newspaper articles expressing an opinion of some property's value, casual conversations about what some property is likely worth, or criticisms of property tax appraisals based on the speaker's own opinion of a property's value -- all speech that must surely be constitutionally protected.
A tougher question would arise if the statute were limited to commercial advertising -- not just providing information for money (newspapers, books, and other fully protected content does that), but providing information as part of an attempt to sell something else. In that situation, the state could at least bar misleading speech, though I doubt it could categorically bar all opinions of value other than by certified appraisers.
The question would also be tougher if the statute were limited to professional-client speech; such speech may well be less protected than other speech, though query whether that's right as a matter of first principles. But while the boundaries of the professional-client speech exception are vague, it strikes me that one has to have some personalized interaction for that, not just information provided to the whole world on a Web site.
But in any event, the statute is by no means limited to these scenarios; and, if the Board is right that any opinion of value constitutes an appraisal within the statute's terms, then the statute is constitutionally overbroad, even if a narrower statute might be constitutionally permissible in some situations.
If anything, legal opinions would be closer to core First Amendment speech.
Of course, that's not how the cases come out, because we lawyers have for some reason deemed it necessary to protect ourselves from anything which might present the potential of competition from non-lawyers.
Unless Zillow.com is physically located in AZ, how are their appraisal reviews "performed in this state [Arizona]?"
I agree about the statute being overbroad.
I also agree that the "performed in this state" language might cause some problems.
And I wonder about the personal jurisdiction issue. But I'm not up to speed on personal jurisdiction and generally available websites.
Do you have to wear a pointy hat when you give an appraisal or can you merely slaughter a goat and read its entrails.
"Appraisal" or "real estate appraisal" means 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.
From ARS 32-3601: link
The regulatory questions seems to be whether the Zestimate constitutes an opinion of value or not. The board says it does. Zillow's contention is that it does not.
--Abe Delnore
I've not seen any Assessor's offices in any state that use certified Appraisers for that determination. Certainly an appeal of value to a Board of Appeals would qualify as a "review" under the statute. Again, normally no certificated holders.
Might Zillow have some wiggle room, on the face of the statute, by arguing that it doesn't "perform" appraisals in the first place? Zillow doesn't know anything about the particulars of a home based on its own investigation; it just provides a price quote on the basis of an address. That's no performance.
Granted, an appraisal is apparently defined as an "opinion of value" (forgetting for now whet that even means--a valuable opinion or an opinion as to something's worth...), but even then it's doubtful that Zillow is performing that opinion. What would/could that even mean?
I also worry, as I worry with much of your work, that this is yet another example of us reaching for the First Amendment knowing full well we're reaching for a screwdriver to nail in a nail (to borrow Fred Schauer's example in his paper First Amendment Opportunism). This is a problem of senseless regulation, not free expression. If the best argument we can make is a First Amendment argument, I think that's a real shame. (Though perhaps you're not making this claim, but only speaking to this issue from the perspective of a First Amendment scholar.)
Again, opinion of value has a technical meaning that would preclude confusing it with assessment.
--Abe Delnore
It seems to me this is a non-issue.
It seems to me that the word "Zestimate" isn't likely to create the impression of licensure or certification...
An opinion of value suggests that the opinion is valuable. Perhaps the board meant to define appraisal as opinining a value or an opinion regarding valuation. Since most people don't stake much to the valuations assigned by Zillow, then their opinions might be considered opinions without value, absolving them of conflict with the Board.
That every (or any) A is a B does not mean that every (or any) B is an A.
That "Appraisal" is defined as an "opinion of value," does not mean that every "opinion of value" is an Appraisal.
Second, I don't think it bars ads in a newspaper at all. When you post an ad with a "price", you are not giving an appraisal, you are telling people that you would sell your property at a certain price. However, would you appreciate if your neighbor took out an ad in a newspaper that said your house was worth a certain price? How is what zillow does any different than that?
Also, can noone see the inherit danger with this site? The web is the most powerful shopping tool in the world right now. That definitely includes real estate, the most valuable items for sale (generally). People do base their real estate shopping opinions on a site like zillow, which is totally unregulated (and highly inaccurate, if you have any experience with it). Arizona is merely protecting its homeowners and, yes, its real estate agents.
I think the statute is not overbroad, but very specific and actually covers all speech that we would deem acceptable in this particular industry.
More recent news: AZ Senate passed the legislation to clarify that Zillow is not providing appraisals. It now goes to conference committee. See article on Inman News (dated tomorrow?). (This is a subscription site, so you may not be able to read it later than May 1).
Two interesting things in earlier Inman articles (which you will only be able to see if you're a subscriber there):
1. AZ has not complained against other companies providing free automated valuations. This makes me wonder what singles Zillow out. Is it just the biggest? Or is there another story here?
2. According to an advisory opinion of the Appraisal Standards Board (ASB), the folks who wrote the USPAP, "The output of an AVM [automated valuation model, like a Zestimate] is not, by itself, an appraisal." See the full advisory letter.
BTW, many segments of the housing industry use AVMs for all sorts of things: Insurance companies verify the value of insured properties, banks identify customers who have lots of equity by subtracting loan balances from AVM-projected values, mass marketers use them to micro-target marketing. The AZ regulators' efforts, if extended to all AVMs, would have quite an interesting impact on commerce. (I have no citations here, just experience advising my own clients.)
In response to A. Zarkhov's comment that could be paraphrased "no fee - no professional/client relationship (PCR)": That's a contract theory of PCR formation. "You pay me, and I'll advise you." With regard to attorney/client relationships, at least some states also accept the "tort theory" of formation. Under the tort theory, if the atty should reasonably conclude that the person being advised may rely upon the advice, then an atty/client relationship exists. Similarly, if I give you a property valuation with the expectation that you will rely on it, I'm probably acting as an appraiser (or as a real estate broker, but they are excepted from the application of the AZ reguation from the outset). I don't think Zillow falls in this category, because of its frequent disclaimers. (There is perhaps an argument to be made if Zillow knew that consumers were likely to rely on the estimates in spite of the disclaimers.)
HA's comment is really on though: This is not so much a First Amendment issue as it is a quirky regulatory agency issue. That's really the only thing that explains the AZ legislature's hasty and decisive response to the situation.
Last note: Some posts seem to mix "appraisal" and "assessment." I think the latter is the result of a taxing authority (like a county) determining the value of a property for purposes of taxing and assessing the owner. (Some counties use AVMs for this purpose!) An appraisal is supposed to be an opinion of value upon which the recipient may rely in making a financial or business decision of one kind or another. (I think the appraiser usually expects to know that the use will be before providing the analysis and opinion.) See the USPAP for more.
Laterz,
-b
The reading of the statute suggested by Abe and jutblogger above suggests to me that even a real estate agent (unless a licensed appraiser) would be unable to advise a client on the price of a house they seek to sell or to purchase. "I'm sorry, Mr. Client, but the Appraisers prevent me from offering my opinion on the possible sale price of the home we just toured."
Please.
Zillow's price seems to be derived from the same general approach, although not with the same detail as an actual appraisal district would use, Zillow being national with general information, appraisal districts being local with very detailed information.
My home in Tampa is undervalued by Zillow, even given the current market drop, because of low turnover (lots of elderly residents).
To add to the list of its uses: People who are planning on relocating can get ballpark information on where the might afford to live.
Someone else might correct me, but USPAP seems to say that "opinion of value" is exactly equivalent "appraisal" as it is commonly used. Properly, USPAP uses "appraisal" to describe the process (examining the property, gathering data on comparables, etc.) and "opinion of value" as the product (here's what your home is worth). The Arizona statute uses "appraisal" to mean "what it's worth" whereas the warning letter uses USPAP terminology at least in part.
No, because, as Brian Larson points out, real estate agents are specifically exempted from this regulation. Also, a real estate agent takes into account (or ought to) a number of client-specific concerns that an appraiser cannot--what can the buyer afford, how much does the seller need to get out of the home, features of specific value to a particular party,
how long can I let this house sit before I get my commission, etc. Conversely, a real estate agent does not go around appraising homes as her primary business activity. Now if a real estate agent offered as a professional service, free or otherwise, that she would tour a home, apply some methodology, and tell you what it might sell for, she might get into trouble, particularly if you relied on that valuation for purposes beyond a particular transaction.Indeed, in some areas, there is a legal requirement that assessment (ascribing value to property for taxation purposes) use different methodology from ordinary appraisal. For instance, here in Wisconsin agricultural property has to be assessed according to a scheme that results in a fairly low assessment and specifically bars considering that the property could be converted to non-agricultural use. Most parcels of real estate have a "fair market value" listed as part of publicly-accessible tax rolls, but agricultural property does not.
The crux is in the last sentence. The intent of USPAP is generally taken to mean that APPRAISERS give up the right to a casual opinion. USPAP, enforced by State regulatory agencies, does not govern the actions of non-appraisers. Zillow could try putting WE ARE NOT APPRAISERS - DO NOT RELY ON THIS INFO - SEEK COMPETENT ASSISTANCE on every page. The State of Az may disagree. (NOTE that I am NOT a lawyer - seek competent assistance in legal matters!)
We used to offer clients market data, which we plainly marked as un-analyzed public record, available to anyone. The State of Oregon, where I live, now forbids this, which we live by, but consider overreach. Realtors can still do it.
Licensing of appraisers is a fairly new and pointless activity - the right legislative approach is not a bill to protect zillow, but a bill to abolish the board. It doesn't need to pass, to get the point across.
There are problems that result from incompetent or crooked appraisers, but those aren't problems that licensing solves.
The industry term for the kind of ball park figures zillow provides is a "market analysis". It's a marketing tool,and you don't charge for it or try to get bank to base a loan on it. If the board tries to assert, ultra vires, authority over every market analysis, it will find itself up against serious players who have more clout than zillow.
It would be interesting to get a quote from the AZ AG on their current position on this issue. It's possible the letter the AG's office sent was from some flunky who doesn't fully get it.
Would such laws prohibit non-lawyers from partipating in this and similar blogs? In any event, since you still need a formal appraisal to get a mortgage I donkt see what the Arizona Appraisal board is worried about. It's livelihood is not endangered by zillow.com.
Re: To be blunt, what crack-addled lunatic would use a Zillow estimate for anything you NEED an appraisal for?
If you're comparison sjhopping for homes, or are starting a bargaining process to buy a home, then zillow gives you a starting point. That's about it. (The website does provide useful public records information though about property taxes, previous sale prices ,etc.)