Zillow took the fun out of mortgages

My take on Zillow has always been that accurate Zestimates was never particularly important to their business… What mattered was that people were talking about them. Zillow’s first strike of brilliance was that they took something that was traditionally complicated (getting a home value) and made it better than simple for consumers; they turned it into a fun game (“Honey, let’s go check how our home value changed since yesterday!”).

With mortgages, Zillow went to the other extreme. They took a process where consumers view it as somewhat of a game (“Honey, how is the broker advertising this low rate going to screw me over now?”), and made it boring. Before you get mortgage rate quotes, a consumer has to fill out a long form with all kinds of financial information (boring!).

But the result is that pre-vetted lenders will view an (anonymous) version of a consumers profile and then make appropriate quotes. Brokers are expected to stick by their quotes, because if they don’t then consumers will give them bad ratings.

Here’s what I like about Zillow Mortgages:

  • It’s a well-thought out idea that appears to be well-executed
  • It’s awesome that consumers are in control of their information throughout the process and their personally identifyiable information is kept private. And eBay-style ratings of lenders will (over time) give consumers a great indication of how well a lender performs
  • Zillow is not charging any transaction or referral fee to lenders (only $25 to run a background check), so lenders have almost no reason to not try it out.

The problems I see have less to do with the product itself and more to do with some of the business and marketing implications of the project. Here’s the two main issues I see:

  • There’s something to be said for mortgage companies that optimize their operations so much that they can not only provide competitive rates but also consistently acceptable service. However, the very nature of the program seems designed to create a downward spiral for lenders where they need to find the lowest possible point that they can bid and still stay in business. While this is great for consumers, it can be dangerously addictive for companies that are looking to create a viable long-term business. A great case study of the danger of this type of behavior comes from a story where Vlasic went bankrupt after introducing low-priced pickles at Walmart. Either way, this really isn’t a problem for Zillow, since there will always be other mortgage lenders willing to take their chance at providing an efficient mortgage product to consumers.
  • There’s nothing sexy about this tool. Unlike Zestimates, which were relevant to almost every homeowner, mortgage quotes are relevant to a much smaller population. And without the benefits of voyeurism (“Honey, let’s have fun with a few lenders today and fill out a fake mortgage profile on Zillow!”), I just can’t see how they will achieve the buzz that they got with Zestimates.

As you can see, even the negative stuff is just not that bad. Compared to the existing situation, the fact that Zillow made mortgages boring is obviously a plus for consumers who want to get the most value out of the loan process.

(Full disclosure: Zillow is a sponsor of my 4RealzEd seminars, and so are many other companies in the online real estate space, so assume that this article, and pretty much most of the articles I write, come with a clear bias!)

12 responses

  1. […] Luther posts “Zillow took the fun out of mortgages.” Last 5 posts in ZillowZillow is Starting it’s Venture into The Mortgage Industry – March […]

  2. Hi Dustin
    We at HomeGain applaud the concept of what Zillow is doing. We have been utilizing a similar concept since 1999 for real estate agents.

  3. Louis,

    As I’ve said to you before, I love having you in the blogoshere! 😉

  4. Thanks Dustin

    Happy to be here! Still getting the hang of it…

  5. […] Lenderama; RCG (Rhoda Porter); SeattlePI (John Cook); Blown Mortgage; TechCrunch; 4realz.net; Lenderama (again); HomeGain […]

  6. This sounds like a breakthrough lead-generation model (sarcasm.) Mortgage brokers will pay Zillow for the leads. This is the most crowded market there is. This strikes me as a desperate attempt at trying to find a reasonable revenue stream. To date, I don’t think anything has worked for Zillow in bringing in dollars. The EZ ad product simply hasn’t caught on…(see if anyone is paying in your town.)

    The notion that agents and sellers will submit listings en masse has quietly given way to a strategy to get direct broker feeds (ala Trulia). I sincerely doubt if revenues have exceeded $10 million in 2007; I doubt they have. Traffic has only grown at 20% year over year (this is anemic for a company with $87 million in funding).

    Other than money raised at a high valuation, there is nothing that screams success about Zillow. $30 million raised from Legg Mason? Legg Mason also owns 20% of HouseValues and has taken a bath on CountryWide and Bear Stearns. Not exactly smart money or prescient of the conditions of the real estate market. Zillow’s post-money valuation of $300+ million is comparable to Realtor.com (MOVE), which has over 10% market share, wide name recognition, $300m+ in revenue at breakeven, and all the listings. I can’t for the life of me see how

    In terms of real estate conversation, City-Data forums are 10x better. Trulia is better in real estate search. Realtor.com is more comprehensive. Revenues have to come in for Zillow. And they simply aren’t.

    Here is a prediction all of you will look at as being spot on: Big layoffs at Zillow in October. Or a major down round (lower than current valutation). Probably both. I’m sure they missed their first quarter internally, told the board that it’s macro. 2nd quarter, they will miss again, and explain it as time needed for mortgage lead-gen and other initiatives to gain traction. 3rd quarter, that will be the last straw. 150 employees..if they don’t generate $5-7 million in the 3rd quarter, it’s lights out for 50 employees.

  7. jd –

    It’s free. Yes, free. No plans (or need) to change that. 🙂

  8. Zillow is an excellent resouce and a great site. I’ll be watching closely to see how this pans out.

  9. Look at my post from April…last paragraph:

    I guaranteed layoffs in October at Zillow. Care to comment, David G?

  10. JD: Where’s the post?

  11. Sorry, Dustin, I meant comment. Look at the comment on this very thread at 5:21 AM…last paragraph. 4 comments preceding this one.

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