An interesting email went out today to the lenders on the Zillow Mortgage Marketplace (ZMM). The letter, shown below, makes the announcement that they will be now charging for the leads generated on the ZMM.
The new initiative will charge for “customer initiated contacts” and prices will fall into a very wide range of $0-$100.
This move goes against everything ZMM stood for or at least I thought they stood for. Just last week there was a Tweet that quoted a Zillow representative at the MBA saying, “Internet leads are dead” “Leads are so 1995″. Zillows war against traditional mortgage lead generation just took a huge step back with this new implementation of their new fee based model. They just became a whole lot more similar to the LowerMyBills and LendingTree’s of the industry then they set out to be. There are now hundreds of skeptics saying, “I told you so!”, including me. In my review over a year ago I made a quick comment: “Of course the leads will be free, but who knows for how long, though.” My thought was that the lack of price would increase the amount of fraud and spam that would occur on their network. I don’t know if a high level of fraud or spam ever occurred and I did not publicly write about the challenges they would face monetizing the network, but they did take place.
According to Zillow, the pricing will be implemented to facilitate the growth and expansion of the network. I got to say I did get a kick out of this comment:
We won’t know for sure where prices will settle out, but given that Google clicks for mortgage keywords typically range from $7-$25, Zillow contacts should be significantly more valuable.
Yes, clicks for mortgage related terms on Google can range between $7-$25. So are leads from any one of the hundreds of lead providers in the industry and leads from these providers will be sold to a max of 5 people, which in this market the leads are being sold to maybe 2 lenders at a time. On the ZMM I don’t think there is a limit to how many lenders a consumer can reach out too. The argument that Zillow will make is that these are inbound calls and buying traditional leads will require you to call the consumer. There is merit to this argument and the value of leads that call you is more valuable then a lead that you have to call out too. This is why Hot Transfers work so well.
It is hard to imagine a world where they did not see this coming. Did they really think they were going to be able to monetize the marketplace with banners ads only while at the same time hundreds of thousands of potential dollars were slipping through their hands? They also chose to give a very wide estimation of the price of each lead. They have got to know the average price each lead will cost. It is my guess they are trying to reduce the sticker shock of this change by being as vague as possible.
It is crazy to me that they chose to wage war against “leads” and then to become a lead generator is simply mind boggling to me. I don’t think this is going to end pretty for Zillow. Yes, they will make money, but I think they have lost a lot of credibility with their core supporters.
What are your thoughts about their choice to charge for the inquiries? Has Zillow just joined the group they were so much against?
Dear [Confirmed Lender]
As a confirmed lender and valuable member of the Zillow community, we’d like to give you advanced notification of an important upcoming change in the way lenders participate on Zillow Mortgage Marketplace. Namely, we are introducing market-based pricing for customer-initiated contacts that will roll out over the coming months.
When we launched the marketplace in April 2008, it was an experiment to see if we could build a service that successfully connected borrowers with lenders. The results exceeded our wildest expectations: borrowers are submitting an average of 50,000 loan requests per month, and thousands of lenders are helping these borrowers close loans.
While we are thrilled with the outcome, it has been a resource cost to build this vibrant service. In order to continue to grow the marketplace, make it better for consumers, and create more value for lenders, we need to continue to invest in the business. We talked with multiple lenders to discuss options for supporting the marketplace, and we believe we’ve settled on a method that is fair and beneficial for both Zillow and our participating lenders. In a few weeks, we will be introducing a new fee system within Zillow Mortgage Marketplace.
What is it?
Until now, confirmed lenders have been able to submit unlimited quotes and receive contacts from interested borrowers for free. Under the upcoming new system, lenders will still be able to submit an unlimited number of loan quotes for free, but will be required to pay a market-priced fee when borrowers contact them regarding their quotes.
How will it work?
Just like today, borrowers will submit loan requests and review quotes provided by lenders. When a borrower decides to contact a lender, he can either e-mail or call the lender. When that contact is made, the lender will be charged a market-priced fee.
Lenders will be required to pre-fund their Zillow accounts with a minimum of $250. When a lender receives a contact, Zillow will subtract the price of that contact from the lender’s account balance. Lenders can add more funds to their accounts or request their unused account balances back at any time.
How much will it cost?
The market will determine the price for each contact; Zillow will not be setting price. We anticipate prices will adjust as participation increases, and will likely settle out in the $0-$100 range. The price will be shown as part of the loan request, so lenders can use this information to decide which requests to quote. Lenders will also be able to set a maximum price to pay per contact.
We won’t know for sure where prices will settle out, but given that Google clicks for mortgage keywords typically range from $7-$25, Zillow contacts should be significantly more valuable. Zillow customer-initiated contacts are borrowers who are ready to close a loan, having already reviewed multiple quotes, ratings, and lender profiles before making contact.
When will it go into effect?
We plan to roll this out in multiple stages. The first stage will begin on November 4 (subject to change). During this set-up period, lenders will familiarize themselves with the new pricing system and pre-fund their Zillow accounts. All contacts will be priced at $0 during the first stage.
The second stage is scheduled to launch on December 9 (subject to change). The market pricing mechanism will be turned on during this stage, and while it will still be free to quote, lenders must have funded accounts in order to continue quoting. Lenders who fund their accounts prior to December 9 will receive 25% off all contacts received during the launch month.
When the first stage launches in November, we will notify you by e-mail. At that time, you can go directly to the Lender Home page to add money to your account. When pricing is initiated on December 9, lenders who do not have funded accounts will not be able to quote.
Are you using the automated Quote API?
With this change, our Quote API will be updated. If you are using a third-party pricing engine, they will make the necessary changes to accommodate this new pricing system. However, if you have built your own API integration, please contact us for an updated specification guide.
Who can I contact with questions?
We’re happy to help you better understand this new system and help answer any questions you have. You can reach our mortgage team at mortgagesales@zillow.com or by calling 1-877-661-3171.
Thanks for using Zillow Mortgage Marketplace.
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Hi Michael, it’s David G from Zillow,
THANK YOU for recognizing the value of Customer Initiated Contacts vs. traditional mortgage leads. It’s quite simple really; when the consumer chooses to call you you convert more calls to closed loans than when you call them.
Your math regarding traditional lead ROI assumes that consumers trust lead-gen sites to the extent that they don’t investigate other options while they’re waiting for their phones to ring. You’re being generous. I actually believe that this is the main reason warm transfers work so well; because, just like with CIC’s, they maintain forward momentum in the shopping experience with a single provider.
So to clarify, and for better or worse, we still do distinguish between CIC’s (customer initiated contacts) and traditional mortgage leads. I don’t want to get into a semantic debate but Zillow’s starting point on this remains unchanged; that Customer Initiated Contacts will perform better than traditional mortgage leads; BECAUSE the mortgage shopper experience is better when the consumer is in the driving seat. Our product’s user experience isn’t changing here. Borrowers still request loan quotes anonymously and choose which lender(s) they wish to contact (on average they contact 2.1. lenders.)
[Reply]
Hi David,
I completely agree that when a consumer initiates the contact and subsequently is connected to the company offering the service they are interested in, the “lead” or consumer will convert into a sale at a higher rate. This is why, as I said, Hot Transfer leads do so well and why they have been around for such a long time. Customer initiated inquiries are nothing new to the mortgage lead generation industry.
I agree with you also that consumers will continue to shop until they find what they are looking for and many of the consumers shopping are looking for an instant response. This is why, for all you lead buyers, it is important to call the leads within 5 minutes of receiving a lead.
The bottom line for me is that a Zillow that charges for leads looks a lot like any other lead generator in the market.
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So it looks like LT, LMB or whomever. So they went back on their “word”. So? Let’s get over it. They can do what they want to. Like you said, that this would happen(and that more money-making ideas are in the works, surely) should have been obvious long-ago.
Zillow provides a service. And it’s value will be determined by each and everyone that uses its services(whether buyer, seller, agent, broker, lender). If we find it “not worth it” then we won’t pay(because if you pay for something you think not worth it, then you deserve to lose your money). If that happens, then CIC costs will come down to reflect this. It’s how the free market works.
If you don’t want to use it, don’t use it. It’ll sort itself out in time. Zillow wants to make money but they surely want to be in business for at least a few more years(IPO? sell to someone, etc) so they’ll adapt, take in feedback, etc. Who wouldn’t?
So, sure, there some degree of resistance, but that’s CHANGE for ya. There will be a big hoopla and all sorts of outrage. Some will leave but most will stay. The kinks will be worked out, the growing pains will be felt and dealt with, and the world will keep spinning and Zillow will keep humming, and lenders/agents will keep making a living(whether with or without Zillow).
Let it happen. Because it will, regardless. Throw $100 into your account and get a few CICs and see if it works. If not, then move on(that’s the strongest form of feedback anyway). If so, then you just took your business to another level.
Change happens.
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Actually, I wanted to emphasize that I wasn’t really repsponding to you(LeadCritic) specifically. I think your points were mostly right on. I just see this sort of resistance so often as though the end of the world was coming and then, sure enough, “this too shall pass” and we adapt and adjust and move on(with or without Zillow).
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Z,
You state the all too obvious. So I agree with you!
Although I am sure those small time agents that believe in “Free” and disagree with buying leads do think the world is going to end, if it hasn’t already ended for them.
By the way, what type of tea are you drinking these days? Your so nonchalant and optimistic. Must be nice. I am always so “critical”
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LeadCritic thanks for your comment on http://www.theleadblog.com on this comment. I think we are probably agreed that as long as Zillow don’t expect to charge in the exact same way for leads; supply and demand will dictate that there is a fair price for their leads that is more than free. I think both of our guess is that to start off the price will be lower than the price paid for leads with a limited number of recipients but it will be fascinating to see what the market decides. As always pricing offers arbitrage opportunity that separates the strong and weak buyers…
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No tea. I live in Starbucks land, after all
I can be nonchalant only because we have people like you being “critics”. We’re both needed and both make the world go ’round 
We’ll be OK, folks…we’ll be OK
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LOL — Zillow reinvented mortgage lead gen in 2008 and then took it back to 2002.
Are they licensed in each state allowing them to sell leads to lenders? I hope the State of New York doesn’t hear about this, or Zillow will have to put an office there (among other states…)
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Maybe this will help slow down the Zillow burn rate though
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Leave it to JB to bring up a very good point everyone has been overlooking.
They certainly do not have any licensing information on their website.
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@ JB
Please elaborate on licensing requirements…thanks
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Plus one for the calling out the obvious side of the coin.
This is from a piece I wrote on 4/08:
“Anytime I hear “FREE LEADS”, I have to call BS. Unless the conversion rates and contact rates are so phenomenally low that quality lenders refuse to participate or Zillow experiences record breaking advertising revenues as a byproduct of the traffic mortgage marketplace brings to Zillow, these leads will not remain “free”. No smart company leaves money on the table and I think that if mortgage market place gains traction, the revenue opportunity will trump the revenue / page views generated by the free service. It is inevitable.
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