Please Don’t Regulate Zillowtalk

Thom Lambert —  31 October 2006

Several months ago, Geoff posted about, a website purporting to provide “Free, Instant Valuations and Data for 67,000,000+ Homes (…and you don’t have to enter any personal info and no one will contact you).” Several of us played around on Zillow a bit and concluded that it’s not all that accurate at estimating home value (measured in terms of willingness-to-pay), but it’s fun and at least somewhat helpful.

As today’s NYT reports, the National Community Reinvestment Coalition (NCRC) is asking the FTC to “permanently restrain Zillow from providing home value estimates.” The Times report focuses on NCRC’s claim that Zillow’s practices have a disproportionate adverse effect on blacks and Latinos, whose homes are more likely to be undervalued by Zillow’s appraisal methodology. The complaint itself, though, is more general. NCRC basically claims that the valuations Zillow provides are so inaccurate that they ought to be kept from members of the public, who are likely to be misled. NCRC also seeks damages for “victims” of these inaccuracies.

I really hope the FTC stays its hand on this one. Any action it might take against Zillow would impair social welfare by chilling efforts to produce valuable information.

Information is costly to create, is easily transferable, and can be consumed without being depleted. Its creator, who bears all the costs of the information production, can’t capture all the benefits the information provides. Accordingly, information tends to be underproduced.

The Internet has ameliorated this problem to some degree. By publishing their creations on the Web, information producers can capture more benefit from their creative efforts. The benefit may be advertising revenue or, as in the case of bloggers, the psychological benefits associated with having more people read one’s ideas. This means that more information is likely to be produced, which is generally a good thing. Of course, much of the information on the Web is of limited value because it’s unfounded or affirmatively false. But “consumers” of free Web information are on notice that “you can’t believe everything you read,” and reputational considerations do a pretty impressive job of punishing websites that provide misleading information.

Any effort by the FTC to “enhance” the market discipline imposed on Zillow will likely chill the creation of information. Zillow–which doesn’t charge a penny for its “Zestimates”–has been very straightforward concerning the limits of the information it provides (see, for example, here and here). If it can get busted for amalgamating accurately compiled public data and providing its compilations along with a caveat about their reliability, then all sorts of information entrepreneurs are at risk. And as the risk of liability increases, the creation of information will decrease, to the detriment of society in general.

FTC: Please don’t “protect” us this time!

Thom Lambert


I am a law professor at the University of Missouri Law School. I teach antitrust law, business organizations, and contracts. My scholarship focuses on regulatory theory, with a particular emphasis on antitrust.

14 responses to Please Don’t Regulate Zillowtalk


    Like Thom says, Paul, the more needlers the better! Glad to hear you’ll be coming back.


    Ok. I’m on board … and not just because of the flattery about tennis. But I’ll be back.



    Needlers are welcome here — especially smart, non-nasty ones. Thanks for the comments. A couple of responses:

    I say Zillow is engaging in “truth-telling” because all it’s saying is, “If you aggregate publicly available information on this piece of property, you get a value estimate of $X. That value estimate may not correspond to willingness-to-pay, but it’s a starting point.”

    [For example, the website says:

    [T]he Zestimate is a starting point in figuring out the true value of a house. For one thing, the amount of data we have affects the Zestimate accuracy. Also, we’ve never been to your house, never seen your expertise with colors and landscaping. Only you know those things. …

    The Zestimate is not an appraisal and you won’t be able to use it in place of an appraisal, though you can certainly share it with real estate professionals. It is an estimate of the worth of a house today, given the data we have available. does not offer the Zestimate as the basis of any specific real-estate-related financial transaction. Our data sources may be incomplete or incorrect; also, we have not physically inspected a specific home.]

    It seems to me that if Zillow says, “Aggregated publicly available data suggest a home value of $X,” and the data do in fact do so, and Zillow warns readers that “Zestimate” does not equal willingness-to-pay, then that’s simply truth-telling. And if we permit legal rules that prevent this sort of truth-telling because hearers of the truth misuse it somehow (e.g., rely on it for more than it’s worth), then we’ll chill the creation of information. So I guess I’m arguing for a prophylactic rule that dissemination of true information over the Internet should not give rise to legal liability, lest we chill information-provision.

    You question whether reliance on true information can ever be “misuse.” It can if the user construes the information to mean more than it does. For example, if I were to say to you, “Paul, you’re one of the best tennis players I’ve ever played,” I would be telling the truth. (Really, he’s quite good.) If you were to quit your job and pursue a professional tennis career on the basis of my statement, you would have misused a true statement. Any harm you suffered would be your fault, not mine. Similarly, if a lender or homeowner makes an important property-related decision based on a Zestimate — despite Zillow’s insistence that the Zestimate is only a starting point — that person has misused true information.

    Thanks for provoking lots of thought. I look forward to having you kick my butt on the tennis court soon.


    Hi Thom,

    A few things.

    First, on the assumption: I don’t know anything about this issue except what I read on your post. I have no clue as to what Zillow’s influence is, how many people rely on it, etc. So I really have no opinion on that. I just wanted to go with the assumption to see if it would represent an example of when you might think regulating the free market might be justified by a consideration of justice. I’m here to needle.

    Second, when I asked (and doubted) whether the chilling effect of info production could outweigh harm to the poor/minorities, I conceded there might be other reasons why a restriction would be unjustified — and I think that’s what you’re providing here — another argument for why the restriction would be unjustified.

    Third, regarding that argument, I’m not sure I understand. How would restricting Zillow from publishing data on low-income areas, which we know are unreliable, be a restriction on truth-telling? Is it that the government would be prohibiting Zillow from declaring the true statement, “We know these valuations are unreliable”? I mean, you can’t mean that prohibiting the publication of bad data is a prohibition on truth-telling, right? And it strikes me as, at least, counterintuitive to say that prohibiting the declaration of the caveat is a prohibition on truth-telling.

    Finally, given that you characterize Zillow’s activity as “truth-telling,” it’s hard to see how reliance on it could be an instance of “misuse.” So I’m not sure I see the alternative route you spell out.

    Anyway, perhaps I’m needling too much here. Like I said, I just poked my head in here to challenge the view that letting the free market reign is always consistent with what justice requires. Perhaps this was not the best case to raise that kind of conversation! Talk to you later.



    I understand your question to be: “If we assume (and it’s a huge assumption) that poor/minority folks are harmed by Zillow’s publication of Zestimates on their properties, would it be proper for the government to restrict the publication of Zestimates on such properties in order to protect those people.” Josh says that assumption is unwarranted, and I’d agree with him on that point. But even if we start with that assumption, I’d say government intervention is improper. Here’s why:

    What Zillow is effectively saying is, “Here’s our estimate of the value of your home based on various publicly available information sources, which are often fairly incomplete. Sometimes our estimates are off. You should take this estimate with a grain of salt.” (Zillow then goes on to explain in what geographic areas its data are most incomplete.)

    If the government were to restrict Zillow from making these sorts of statements, then it would essentially be restricting truth-telling. I find that troubling. In general, I’d say that any governmental restrictions on truth-telling may be justified (if at all) only in the most extreme circumstances, and they should be VERY narrowly circumscribed.

    Here, a restriction on truth-telling by Zillow could not be justified, even if some folks were harmed by Zestimates, because there’s a less restrictive alternative: regulate the behavior of those who (mis)use the true information. Harm from Zestimates (if there is any–and, again, I don’t think there is) could result only because a third-party (e.g., a lender) misused the Zestimate in some way. If the government is concerned about this sort of harm, then it should go after the real culprit: the information misuser, not the truth-teller. If telling the truth can subject one to liability, then information-provision will certainly be chilled. And, as noted in my original post, information already tends to be underproduced because of the positive externalities associated with efforts to produce it. The government should not exacerbate that problem by imposing overly blunt regulations.

    I’ll leave to the philosophers any moral problems that would result from a governmental mandate denying some groups of people (poor folks, who are disproportionately minority) access to what Josh calls “noisy” information.



    I don’t think we even disagree as to what makes an interesting question. I agree with your first and second paragraphs (after the first initial sentence). Of course, both the benefits and costs have to be considered; and second, I’m buying the claim that “increased liability will reduce the supply of information” even on the margin. I just think a difficult issue is raised *if* it is indeed true that the worst off are harmed by the publication of the bad info – and given what Thom argued, I was asking whether he thought the potential chilling effect to information production caused by a “narrowly tailored” regulation (if you will) would outweigh the moral good of reducing harm to the already-disadvantaged.

    As for your last paragraph, let me first admit that I’m not 100% sure I follow – that could easily be my shortcoming. But this is how I’m reading you: I think you do agree that whether low-income persons are harmed is, indeed, an empirical question. You just think that the fact that *they* are not bringing suit, but rather the rivals are, is a good sign to us that the low-income consumers are *not* harmed. That could be; I do, however, find it hard to believe that a lack of suit brought by low-income persons reveals that they’re not really harmed. But regardless, there’s a fact of the matter – and we both agree that to even get the request off the ground, a party asking for regulation has to produce good evidence/good reasons to believe there really is harm.


    Paul, I think I agree with most of what you wrote, but perhaps we just disagree as to what makes an interesting question.

    Thom raises the point that increased costs mean less supply of information. This is an important point, and relatively straightforward. Even if one imagines a world where one could prohibit only information supplied to poor folks without otherwise increasing Zillow’s costs, and therefore could be implemented at a small cost, the important question is whether there are any potential benefits whatsoever to overcome even trivial costs. By my lights, the question is completely uninteresting if we do not look at both the costs and potential benefits of the regulation.

    Now you’re certainly right that if it is empirically true that low-income consumers aren’t hurt then there is not much leg to stand on here for proponents of prohibiting Zillow. But whether or not this claim is true, the argument that increased liability will reduce the supply of information on the margin is likely true.

    Of course, we also know that the question of harm to low-income consumers is not just an empirical question. Theory also tells us a good deal. Information is valuable. And perhaps the most telling piece of information is that it is potential competitors bringing suit. When rivals complain by themselves, but not consumers, it is typically the case that competition is working.


    That’s an interesting empirical question, but it’s not the interesting question raised by Thom’s post. If it turns out to be empirically false that Zillow harms low-income people, then we’d be left without any reason to regulate Zillow at all, and thus, Thom would have *no need* to appeal to any argument about chilling information production.

    As said, whether Zillow harms low-income people is an interesting matter — and if someone wants FTC regulation, he or she needs to have good evidence to support the claim. But for Thom’s argument about information production to raise an interesting issue – which it does – you have to assume that the empirical claim is true.


    Isn’t the question whether the assumption that there is harm to low-income persons is warranted, i.e. whether such a restriction would produce any benefits at all — much less to the worse off? It is tough to see how prohibiting Zillow from giving away this information protects anybody or produces any benefit regardless of whether the chilling effect would be negligible. Noisy information is not worthless.



    Given your answer to B.C., do you think that there would be a serious chilling effect on information production if a very limited restraint were placed on Zillow – ie, one restricting it from using its algorithm to publish home values in low-income areas, on the assumption that such publication actually does harm low-income persons? I’m not saying such a restriction would be justified — maybe it would be unjustified for other reasins — but it is hard to see how the chilling effect from such a limited restriction would be great and also outweigh the good of protecting the worst off from further disadvantage.



    It doesn’t. NCRC’s complaint doesn’t suggest that Zillow’s algorithm uses demographic data, and Zillow says that it “d[oes] not use demographic data in the calculations.” The discrimination claim is based entirely on disparate impact, not intentional discrimination of any form. The algorithm (NCRC says) does worse in low-income census tracts, which means that minority individuals’ free Zestimates are more likely to be inaccurate.


    But what if Zillow’s algorithm does use demographic data to reduce the value of homes in predominantly black and Latino neighborhoods, thereby effecting a discriminatory impact on the housing market?


    My favorite part of the complaint is Para. 10 (c), which laments that Zillow has “a distinct consumer focus, and company officials have publicly stated that they hope the site will become the portal of choice for all real estate transactions. This consumer focus is leading consumers to believe falsely that the comparable information on the site is accurate.”

    Shame on Zillow for their consumer-focus! Free signals of the value of one’s home, even if noisy signals, do not amount to fraudulent and deceptive practices — especially in light of the disclaimers linked above. The public choice story of complaints by a group representing competing appraisers is fairly obvious, and a story the FTC has a good amount of experience in sniffing out and distinguishing from conduct that harms consumers.

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