The Zillow story can’t stay down. This time it’s the Grey Lady herself, the New York Times weighing in, saying that the complaint is racially motivated.

Zillow.com, the Web site that provides free home valuations, has been accused by a coalition of community activist groups of undervaluing the homes in black and Latino neighborhoods.

This story is just getting weirder and weirder.

One of my favorite blogs, the snarky Valleywag chimes in with this observation.

Zillow’s best defense is, “Our system is inaccurate all over,” only slightly mitigated by their other defense, “These numbers aren’t serious estimates.”

When you put it that way, that’s not much of defense.

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Technorati has seen a big bump in the number of posts since this story first came out. Unfortunately, the story shows no signs of going away either.

Los Angeles Times is the latest major media outlet to pick up on this story today.

In the tech media, CNET News has the story. So does Ars Technica.

Out in the blogosphere, Greg Swann continues to call this a shake-down, but seems convinced that Zillow will cave.

Except for people like Steve Jobs and Mark Kuban, corporations are run by cowards. Most likely, they’ll try to save face with a seven-figure bribe, then set up a fund to buy off future pirates, who will swarm not just Zillow.com but every set of deep pockets on the net.

Tech blogger Om Malik seems to think the push by the NCRC is coming from appraisers and bets Zillow’s VC backers are not sleeping so soundly right now. He says:

a lot of appraisal professionals can get dis intermediated by Zillow and their ilk, and that’s cause many a lot of sleepless nights.

Andy Beal from Marketing Pilgrim calls this bogus.

Finally, from the Zillow Blog, President Lloyd Frink has responded to the accusations.

We say in many places on the site (and next to the Zestimate on every home details page) that Zillow is not an appraisal, but a free research tool for consumers. We’ve also tried to be really transparent since we launched about Zestimate accuracy.

It’s nice to see Zillow is taking the communications challenge seriously and are out there trying to be part of the conversation. Case in point, a blog called Startup Squad says Zillow needs to evaluate the accuracy of its valuations – David G. from Zillow jumps right in with a comment asseting they already do.

Over the last few days, I’ve seen the Zillow folks commenting on a number of blogs, big and small, responding to these charges. It’s a great example of good public relations and how to engage this issue. Steve Rubel would be proud. By contrast, I’ve seen nothing or heard anything from the NCRC since they first leveled the charge.

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CNN has picked up the Zillow story about the NCRC complaint today.

I’m not surprised. This story was bound to get picked up by the big media. It’s timely and the issue of home valuations is an emotional one, especially right now when it’s announced Tuesday that the US house price fall was the steepest since 1970.

I have had a day to think about this a little bit more since the allegations first came out. And I believe my initial gut reaction was correct – this whole thing whiffs of opportunism.

The most telling part of CNN’s piece was Amy from Zillow’s comment:

That stinks. Even the Bloodhound and sellsius blog, two of Zillow’s most vocal blogger critics have lined up in their corner on this one, calling it a shakedown. I tend to agree.

Unfortunately, this story could “have legs” and if it does Zillow could have a big mess to deal with.

The problem for Zillow is this sort of publicity calls into question the very accuracy of their Zestimates. Now they’ve maintained all along that Zestimates are only a “starting point” – but the implication with that statement is while they are not entirely accurate, there is some validity in their data. That’s their hook.

Zillow depends on John Q. Public believing there is a nugget of truth in the home valuations it presents on his house. That’s why they’ve enacting such a sophisticated marketing and PR campaign to get their spread their numbers far and wide. To get as many people to buy into the Zillow reality field.

The danger in this kind of allegations, and if they’re not answered aggressively enough, is that that the existence of that nugget could be called into question. And if enough doubt is sowed, Zillow’s entire business could be jeopardized. Without a nugget, what do they have?

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John Cook reports that Zillow has gotten itself into hot water about its home valuations:

The National Community Reinvestment Coalition, a Washington, D.C.-based nonprofit that promotes equal access to credit and capital for underserved communities, has filed a 12-page complaint (PDF) against Zillow with the Federal Trade Commission.

You can read the full complaint here. [PDF]

The crux of their complaint is that Zillow’s valuations are misleading and place the “American dream of homeownership at risk.” According to the NCRC, some real estate and lending professionals have been using Zillow’s Zestimates to defraud consumers.

Zillow, for their part, have not responded publicly to the charge, as far as I can tell. Their Press Room and blog remain quiet on the issue currently. They have however, announced they’ve opened their API to all web sites today.

This is a fairly serious allegation in my opinion, and from a PR perspective, one that they should be fairly aggressive in countering.

Not being any kind of legal expert (heck, I’m a marketer after all), I will defer to others to pass judgement on the merit of this complaint.

UPDATE: Amy from Zillow emailed me with their statement:

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.

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