pageok
pageok
pageok
Zillow and the First Amendment:

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.

SV:
How, if at all, is this statute constitutionally distinguishable from "unauthorized practice of law" statutes which prohibit non-lawyers from expressing opinions about what the law provides?

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.
4.30.2007 5:47pm
DeezRightWingNutz:

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.


Unless Zillow.com is physically located in AZ, how are their appraisal reviews "performed in this state [Arizona]?"
4.30.2007 5:56pm
Duffy Pratt (mail):
I don't think Zillow is doing an "appraisal" anymore than I am practicing law by saying this statute is hooey. Use the site some and you can get a feeling for what they do. Anyone who relied on their "appraisals" to actually do some business would be sadly disappointed, and Zillow doesn't seem to pretend otherwise.

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.
4.30.2007 6:06pm
Ella (www):
To be blunt, what crack-addled lunatic would use a Zillow estimate for anything you NEED an appraisal for? Are banks taking these estimates now? Tax assessors? Are they admissible in any domestic relations or other legal proceeding? It's useful for people considering selling their home or who just want to get a ballpark figure on where property values in their neighborhood are, but that's it. It substitutes for informal conversations with neighbors or real estate agents, not anything anyone would pay an assessor to provide an opinion on.
4.30.2007 6:07pm
Houston Lawyer:
If I list a property, am I not stating what I believe the value of the property to be?

Do you have to wear a pointy hat when you give an appraisal or can you merely slaughter a goat and read its entrails.
4.30.2007 6:07pm
tjvm:
It seems odd that the Board cites the Uniform Standards of Professional Appraisal Practice for a definition of "appraisal," when the statute in question provides its own definition:

"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
4.30.2007 6:18pm
Abe Delnore:
I don't think the board's interpretation of the statute is nearly as broad as Professor Volokh does. "Opinion of value" is a technical term. I would assume it has here precisely the meaning given in the Uniform Standards of Professional Appraisal Practices. According to USPAP, the appraisal process results in an opinion of value. In other words, what laypeople might refer to as "the appraised value of my house" or "what the appraiser said it was worth" is called by professionals an opinion of value.

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
4.30.2007 6:19pm
Eugene Volokh (www):
SV: I'm unaware of any unauthorized practice of law statutes being applied to publicly expressed "opinions of likely legal outcome," absent an individualized lawyer-client relationship. If they were to be applied that way, I'd criticize them on the same grounds.
4.30.2007 6:25pm
BobNSF (mail):
I can see where the Board would have a case if it were called a Zappraisal...
4.30.2007 6:27pm
Bob Leibowitz (mail) (www):
I wonder if they apply the law to staff of the local counties that provide estimates of real estate value for tax purposes?

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.
4.30.2007 6:45pm
Justin Levine:
SV nails it. The "unauthorized practice of law" should also be deemed unconstitutional.
4.30.2007 6:58pm
HA (mail):
Eugene,

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.)
4.30.2007 7:00pm
Abe Delnore:
Many municipalities in Wisconsin have contracted their assessment functions to real estate appraisal firms. Here's a list.

Again, opinion of value has a technical meaning that would preclude confusing it with assessment.

--Abe Delnore
4.30.2007 7:11pm
A. Zarkov (mail):
You don't have to pay Zillow to get an estimate of the value of a specific property. So how can they be considered as giving out a professional estimate? Anyone can give out an estimate of the value of a property; they just can't charge for it without having some kind of certification or licensing. A non-lawyer can give out legal opinions, but he too can't charge for his non-professional opinions.

It seems to me this is a non-issue.
4.30.2007 8:08pm
anonVCfan:
This reminds me of the post where some state passed a law making it illegal for men to rearrange their own furniture.
4.30.2007 8:49pm
anonVCfan:
The statute says: "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."

It seems to me that the word "Zestimate" isn't likely to create the impression of licensure or certification...
4.30.2007 8:50pm
Hastings Law Student:
Second HA's comments above. If the due process clause was applied to invalidate senseless (and liberty-denying) economic regulation such as the licensing standards here, then we wouldn't have to make such a strained First Amendment argument.
4.30.2007 9:18pm
Greg Swann (mail) (www):
There is on-going news about this controversy. If you would like to follow it, the most-recent events are detailed here.
4.30.2007 9:31pm
nevins (mail):

...define "appraisal" as an opinion of value

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.
4.30.2007 9:51pm
R. Richard Schweitzer (mail):
What ever happened to basic logic?

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.
4.30.2007 9:54pm
BT:
USPAP is a national standard so it will be interesting to see if other states will join AZ in their attempt to reign in zillow. I happen to be a certified appraiser and according to USPAP if I give say any of you an opinion of the value of your property even in casual converstion I can be held legally liable should the value not hold up. That is not true for your neighbor who is not an appraiser who says, Hey man, my house just sold for X dollars and I bet yours is worth twice as much!! And for the record Houston Lawyer is correct about the goat entrails but not the pointy hat. That is reserved for lawyers, particularly ones from Houston.
4.30.2007 9:58pm
Jutblogger:
First, opinion of value does not mean to me that it was paid for or "professional". It means to me: opinion on the value of something; i.e., property.

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.
4.30.2007 11:15pm
Brian N. Larson (mail) (www):
OK, my first post and I'm going to rattle on here:

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
4.30.2007 11:16pm
Blue (mail):
From the link above, it is shameful, just shameful, that the AG of Arizona got sucked into an industry protection racket and sent a cease and desist letter to Zillow.

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.
4.30.2007 11:22pm
Kazinski:
I don't think "you" means what the Arizona State Board of Appraisal thinks it means. The "you" in this case is a computer program that runs an algorithm and spits out a calculation. I have heard of similar cases where computer programs have been accused of practicing law, and I think it is an area where the states and feds should crack down. The thing that makes the problem easy to solve is that it is possible to incarcerate a large number of computer programs on a single hard disk or optical drive with very low overhead.
4.30.2007 11:58pm
Lev:
Without reading any of the stories, I might opine that in major metropolitan areas there are statistical "mass appraisal" techniques that, presumably, by now, use computer programs to compare sales prices, house characteristics etc. etc. to come up with a market value from which an assessed value is derived.

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.
5.1.2007 12:48am
Shawn-non-anonymous:
I'm going to imagine most readers here have purchased a home at least once. The first thing a realtor does (who is not a licensed appraiser) is get the "comps" for the area you are buying or selling in. The comparible structures that are similar in size or setting to your own home are researched for their last sale price and date and the resulting information is used as a ballpark figure to start pricing negotiations with. This is nearly exactly what Zillow does--it reaches into public sales records for residential property, gathers up this information, and averages it out in some manner.

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.
5.1.2007 10:44am
Abe Delnore:

That "Appraisal" is defined as an "opinion of value," does not mean that every "opinion of value" is an Appraisal.


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.


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.


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.


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.


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.
5.1.2007 12:24pm
Anthony A (mail):
Isn't there a Commerce Clause defense available to Zillow? So long as Zillow is not located in Arizona, its offering of estimated valuations, even if they charged money for them, is interstate commerce, and not regulatable by the states.
5.1.2007 1:58pm
Joe Doaks (mail):
I am a Certified General Appraiser in Oregon.

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.
5.1.2007 5:48pm
arbitraryaardvark (mail) (www):
As I recall Clint Bollick (sp?) semi-retired to Arizona and there is now an active IJ state chapter there.
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.
5.1.2007 6:02pm
Aleks:
Re: How, if at all, is this statute constitutionally distinguishable from "unauthorized practice of law" statutes which prohibit non-lawyers from expressing opinions about what the law provides?

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.)
5.2.2007 8:13pm