Please Don’t Regulate Zillowtalk

Cite this Article
Thomas A. Lambert, Please Don’t Regulate Zillowtalk, Truth on the Market (October 31, 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!