By Jonathan Stempel
(Reuters) - Zillow Group Inc on Wednesday won the dismissal of a federal lawsuit in Chicago challenging the accuracy of the online real estate website's 'Zestimate' tool for estimating U.S. home values.
Homeowners had sued Zillow in May, complaining that its computer algorithm for Zestimates often undervalued their homes, sometimes by hundreds of thousands of dollars, making them harder to sell, and constituted illegal "appraisals."
U.S. District Judge Amy St. Eve, however, said Zestimates are a mere "starting point" that are unlikely to confuse homebuyers, pointing to disclaimers by the Seattle-based company that they may be inaccurate and are not official appraisals.
"The word 'Zestimate' - an obvious portmanteau of 'Zillow' and 'estimate' - itself indicates that Zestimates are merely an estimate of the market value of a property," the judge wrote.
St. Eve said the plaintiffs may try to replead three claims, including for Zillow's alleged invasion of privacy for posting their homes on its website without permission.
She also dismissed a claim that Zillow violated the Illinois Real Estate Appraiser Licensing Act, saying that law did not cover Zestimates or give the plaintiffs a right to enforce it. That claim cannot be brought again.
Barbara Andersen, a lawyer for the plaintiffs, said her clients are looking into amending the complaint, which she called the first proposed class action of its kind.
"Zillow has unilaterally imposed its opinions on the value of homes without the consent of homeowners," she said in an interview. "It impairs people's ability to sell their homes because the estimates do not comply with recognized appraisal standards, and some are way too low."
In a statement, Zillow said it was pleased with the dismissal, and called Zestimate "the most accurate computerized home value estimate anywhere."
Zillow recently estimated that 178 million people use its websites and mobile apps each month.
On May 24, less than two weeks after the litigation began, Zillow announced a $1 million Zillow Prize, to be awarded to an individual or team finding a way to most improve the accuracy of Zestimates.
The case is Patel et al v Zillow Inc et al, U.S. District Court, Northern District of Illinois, No. 17-04008.
(Reporting by Jonathan Stempel in New York; editing by Diane Craft)