On the heels of its announcement that it is allowing free API (Zestimates) on all consumer websites, Zillow was the subject of an FTC complaint filed by the National Community Reinvestment Coalition (NCRC,)

With quick damage control, the online marketing director at Zillow said, "We understand that individuals in the real estate market today, whether it be buying or selling a home, engage with real estate professionals on a local level. While there are a handful of national real estate sites on the Web today, many thousands of local real estate agents and brokerages also have home pages, and many are looking for ways to enhance these with relevant, free information for their customers. By opening up the Zillow Application Programming Interface (API,) we're putting more information in the hands of consumers, in more places."

Zillow's API reportedly has 68 million property records available, which will now be free of charge to third-party consumer websites. "By implementing the API, other websites can recreate Zillow's functionality on their domain, turning member sites into mini real estate portals that include detailed information from Zillow's extensive database on millions of homes."

The company explains that it is offering two different APIs: home valuations and property details. The home valuation API includes Zestimate values, home valuation charts, comparable sales, and market trend charts. The property detail API includes more detailed information about specific homes, including historical sale price and year, tax assessment and the number of bedrooms and bathrooms.

But that's not enough to cool the ire of the National Community Reinvestment Coalition, which has just filed a consumer protection complaint to the Federal Trade Commission (FTC) alleging that "Internet financial services and real estate provider Zillow.com is misleading consumers, real estate professionals and financial service providers in on-line home valuations."

NCRC charges Zillow with falsely representing to the public that its on-line valuations are within ten percent of the home selling price when the company really has "less than a 30 percent accuracy rate when offering the valuations for public consumption." The result for consumers, says John Taylor, NCRC president and CEO, is that "consumers are already at risk of being over extended due to the increased access to non-traditional loans, Zillow's misinformation exacerbates the situation. Practices like theirs undermines the critical importance of valuation protections that benefit consumers and lenders alike, and guide the actions of all valuation professionals."

The complaint specifically alleges that Zillow and its affiliated companies are intentionally misleading consumers and real estate professionals to rely upon the accuracy of its valuation services despite the full knowledge of the company officials that their valuation Automated Valuation Model (AVM) mechanism is highly inaccurate and misleading to consumers, including the general public, as well as to real estate and financial service providers," which could cause substantial injury to consumers.

The complaint goes on to say that the site provides "little or no benefit to consumers or the marketplace due to the high percentage of valuations that are significantly over or under the residential properties' true market value."

Zillow's practices, contends the NCRC, "violate the Federal Trade Commission Act and undermine congressional intent to ensure a healthy, precise, open and robust housing and mortgage market."

Further, notes NCRC, "the general public is unaware that AVMs are exempt from Uniform Standards of Professional Appraisal Practice" (USPAP) in the belief that "he or she is receiving a valuation equivalent to one conducted by a valuation professional."

Zillow's practices, suggests the NCRC, could place members of Fair Housing protected classes in urban and rural areas more at risk for discriminatory and predatory lending practices due to the limitations and inaccuracy of its "black box," a tool homeowners can use to submit information about their homes but which cannot necessarily be verified. Worse, NCRC alleges that over-valuations are prevalent in predominantly white communities, while under-valuations were more frequent in predominantly African-American or Latino communities.

Uh oh.

NCRC says it has "audited" Zillow's accuracy and has found that the site was within 10 percent of actual appraised value of properties less than one third of the time. That's little better than what Zillow spokespersons told BusinessWeek back in February, 2006 when the site launched -- that "estimates are typically on target, falling within 10 percent of the actual home-sale prices 62 percent of the time."

Only, it seems Zillow left the "62 percent of the time" off the website. The site, says NCRC, is "allowed to give free value estimates with no liability and no reporting or record-keeping requirements." Appraiser, by contrast, are fully liable with a "huge burden of reporting and record-keeping requirements ... ."

Well, it seems that consumers are getting exactly what they paid for -- free valuations that are allegedly worthless, according to the NCRC. The NCRC would like to see Zillow liable to USPAP regulations "just as an appraiser is."

NCRC requests that the FTC "act in the public interest and permanently enjoin and restrain Zillow.com from violating the FTC ACt in connection with offering its valuation services, and find Zillow jointly and severally liable for redress to all borrowers who were injured as a result of the company's violations of the FTC Act; and ensure that all affiliate sites, including Yahoo Real Estate and the Yahoo search engine, incorporate appropriate injunctive and consumer protection settlement terms as agreed upon by the parties."

Zillow's official responsimate is, "We believe these allegations are groundless. As we say consistently and prominently on our Web site, Zillow is a free research tool for consumers, and Zestimates are designed to be a starting point for consumers who want to learn about the value of homes. We make every effort to explain on our site the role of Zestimates as a research tool, as well as to clearly display our rates of accuracy for every area we cover."