502 Bad Gateway
It’s 2013 business planning season and Monday at lunch I was kicking off those discussions with a friend and mentor who runs a large real estate brokerage firm. I was telling him that I’m becoming more intrigued by what’s going with mortgages at Zillow.
Typical of many real estate pros, his initial response was skeptical: Zillow is a great reference point for consumers but they don’t come close to having all housing inventory in a given market, so home buyers and owners don’t get a full picture of their local market.
My retort: Yes but Zillow’s stats are undeniable. In October 2012, 150 million homes were viewed on Zillow’s mobile platforms alone. That’s 56 homes per second on mobile devices alone, and it’s up from 100 million in December 2011. As for mortgages, 7 million people have used Zillow mortgage calculators on their mobile devices since summer 2011. And borrowers are submitting more than 1 million loan requests per month to lenders working on Zillow. So it seems like it’s only a matter of time before Zillow becomes a meaningful player in mortgages.
When I got back to my desk, it was as though Zillow was listening to my lunch conversation.
They had sent me (aka TheBasisPoint) their announcement about paying $12m plus 150k shares of restricted stock to acquire mortgage technology firm Mortech, which makes rate pricing/quoting and lender lead management software.
It was Zillow’s fifth acquisition in two years, its second in a week, and its first in the mortgage sector.
I asked Zillow some follow up questions about the Mortech acquisition (announcement linked below), and here’s a rundown of my questions (in bold) and Zillow’s answers. As a lender, my questions are rooted in a similarly dubious mindset as my realtor friend: how could Zillow Mortgage possibly displace or even disrupt the mortgage industry?
Q: What exactly does Zillow define as a “loan request”?
A: We count a loan request when borrowers fill out our loan request form which includes questions about the loan they’re looking for and their financial situation and then selects “Get rates.”
Q: Does each borrower really receive 25 rate/fee quotes per loan request? If so, isn’t that overkill for borrower?
A:Yes, on average, borrowers receive 25 loan quotes per loan request. We think giving consumers a lot of choices is a good thing. When a consumer goes to book an airline ticket online, for example, they want to get back a lot of different options, they then narrow down all those options and make a decision based on the factors that are important to them – price, flight times, number of stops, and airline carrier. It’s the same idea with Zillow Mortgage Marketplace. We don’t expect borrowers to sort through all the quotes they receive; rather we sort to the top the quotes that best match the borrower’s loan request, sort preferences and also has the lowest rates/fees and most highly rated lenders.
Q: How is it useful to a lender if they’re up against 25 other lenders for each quote?
A: Qualified consumers come to Zillow Mortgage Marketplace for the choice, ratings, reviews. Lenders don’t have to quote every request that comes in. They can choose which loan requests they’d like to quote and what margins they’d like to maintain for their quotes. With this flexibility, lenders can choose how to build their business on Zillow in a cost-effective way and gain access to Zillow’s 1 million loan requests per month. Lenders want to quote where the borrowers are.
Q: What is the endgame for Zillow with a move like this? Is it to provide origination software solutions to mortgage originators overall? Or just to enhance the functionality of the Mortgage Marketplace quoting service?
A:This acquisition lets Zillow deliver marketing and productivity solutions to mortgage lenders to help them grow and manage their business. It also translates to a better consumer experience.
Q: What if an originator is quoting rates on Zillow and uses their own software (like Calyx Point, Encompass, Dorado, et al)? How do they reconcile what’s happening on Zillow with their own software?
A: Lenders on Zillow can select whichever pricing, lead management and loan origination software or software combinations they’d like. For lenders using Mortech to quote on Zillow, many use Mortech’s software for quoting/pricing and lead management and then use Mortech’s integration with loan origination software companies like Calyx, Ellie Mae and others to transfer the borrower data to their own software for underwriting and approval. For lenders using other partners to quote on Zillow, they have similar options – they can use any partner they’d like to quote on Zillow and can transition the borrower information to their lead management and/or loan origination software whenever they’d like to do so.
So I came into my first 2013 business planning meeting intrigued by the sheer volume of home buyer and owner traffic on Zillow. Now I’m starting to see more clearly what it means for lenders, realtors and consumers.
A quick point I also made to my realtor friend at lunch Monday is that Zillow bought a firm called Buyfolio last week which is a service where home shoppers can search, track, organize and discuss listings with their family and real estate agent. That acquisition is intended to suck realtors in deeper into the Zillow machine.
And as a lender, my hesitancy to build a model around the Zillow mortgage platform has been twofold:
(1) I’ve got a few key business lines that are each standalone models requiring budgets, staffing, and focus. Nothing where you’re working with consumers daily is for dabbling. You have to be all in or the experience you create for consumers is going to fall short.
(2) I’ve been concerned that whatever client acquisition activity happens on Zillow can’t immediately and easily be integrated into the loan origination software I’m already required to use.
Zillow’s move this week goes a long way toward addressing item 2. So as a business planning consideration for me, it’s really more about item 1: do I want to build a new business line around the Zillow platform?
I’ll continue monitoring and budgeting it for myself, but one thing is becoming very clear:
Real estate and lending pros who ignore Zillow are doing so at their own risk.
As for investors chattering about how Zillow took a hit this week after issuing weaker 4Q earnings guidance, consider what you’re reading here, and dig a little deeper on Zillow’s monetization plans in residential real estate and lending sectors.
– Zillow Buys Mortech To Enhance Lender Services On Zillow Mortgage
– Follow $Z on Stocktwits for realtime Zillow company and stock price news
Disclosure: I don’t quote rates on Zillow. I don’t own any Zillow shares.