The other day I received an email from the Zillow Mortgage Marketplace that they were going to begin charging for contact from borrowers that have submitted loan inquiries. My initial thought was "Man, are they going to catch some heat for this!" Not because they were finally doing what any prudent business person would do being attempting to monetize an apparently successful idea, but because the thousands of Mortgage Brokers and Loan Officers were going to feel like Zillow had just stolen their lunch money.
Just for a bit of context, when I was in the mortgage industry, I set my company up as one of the first lenders on the marketplace. I have personally met Drew Myers and David Gibbons. I have spoken to Mary Miller who manages the marketplace, and followed Spencer Rascoff via his blog and twitter. These are good folks who have taken an enormous amount of risk to deliver cutting edge products. For example how many millions of dollars have they poured into Zestimates so that you can get a ball park guess at the value of of a home, and to what extent has this been replicated in the marketplace? How much time and money has this saved Loan Officers for which they have never given Zillow a dime. Anyway, I digress.
So eighteen months ago the leads (a.ka. contacts) were free, in the near future they will be charging for them. Since this announcement many mortgage professionals that have TAKEN leads from Zillow began some very child-like name calling as well as ridiculous statements and completely irrelevant comparisons. Mortgage Brokers and Bankers have been so beat up over the past year, I guess now it's their turn to kick sand in someone elses face. Unfortunately it's Zillow.
Here is the primary issue, in my mind, regarding what a Loan Officer should asking about Zillows proposed strategy. How many leads will I receive, and what will it cost?
The only answer I can find to this question was posted by my former boss Owen Raun with RMC Vanguard on his blog. On his blog he states "Of the 7 actual customer contacts I received we closed 2." According to Owens calculation, that's a close rate of 28.6%
So let's do a little math. If seven "contacts" cost an average of $50 each that's a total spend of $350. If you close two loans, that's a cost per closed loan of $175.00.
Here's a bit more math using the Mortgage Bankers Association average profit calculation from September 2009 press release. If you close two loans and your net profit is $1,088 each your total net profit is $2,176. The ROI Calculation in (2176-350)/350=5.22. Any ROI north of 4:1 in my book is a decent risk. If you read the entire MBA Press Release, you will understand that $1,088 is their net profit calculation.
The next phase of Zillow's plan will actually be the most interesting to watch, that being who hangs around to play along. For the Lenders that play along and get it, my expectation is that they will be well rewarded.
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