A couple weeks back, I posted about Zillow’s looming entry into the mortgage industry, and lobbied for opinions from all of you as to how you thought Zillow might, or should operate. Today I want to reflect upon how I think they should do it.
I think it’s important to first look at how Zillow has approached the real estate side. Their approach has been to create a community driven platform that helps buyers and sellers become more informed. Real estate agents have criticized the accuracy Zillow’s content, specifically, the infamous Zestimate. In many cases these agents have a pretty good argument. Even Zillow’s representatives will tell you that a Zestimate is no replacement for an appraisal. Further more, I’d argue that the Zestimate is no replacement for a consultation with a competent real estate agent. Zillow might even agree. However, appraisals cost money, and consultations with an RE Agent usually end in the inevitable pressure of a sales pitch from the agent.
I think the reason Zillow has gained such popularity is that they allow their visitors to start down the road to a real estate transaction in anonymity.
So how do you apply the Zillow model to mortgages? Despite what seemingly every online mortgage origination company seems to think, the most important issue that prospective borrowers first want to acquire is not interest rates. Consumers no longer believe those rates will apply to them (nor should they). They realize that those numbers mean nothing unless they can qualify for them. Further more, many consumers feel that mortgage professionals will tell them they don’t qualify, even if they do (I wish I could dismiss it, but they have pretty good reason to think that as well). What these consumers want is to be empowered before they speak with a loan originator.
Borrowers own nearly all the information they need to know how well they might qualify for a loan. They know how much money they can put down, earn every month, and pay in credit card bills. What they don’t know is their credit score.
My first step to building Zillow mortgage would be to offer consumers a free way to get their credit score. Call it a Zcore, or maybe not. This simple number is every bit as powerful as the Zestimate and far cheaper to accurately implement. This is not a new idea. E-LOAN has offered free credit reports for years. But in the eyes of a borrower, asking E-LOAN for your score is like asking an RE agent for a consultation of value on your house. There’s no anonymity.
I think the Zcore model could possibly operate in the black, or at least close to it. The key would not to give away an entire credit report for free, just the score. To begin a mortgage transaction, the score itself is often all they need. Zillow could pretty easily partner with Fair Isaac to offer the score for free, and then act as a reseller of myFico products. Ideally, the sales of these products would cover the cost of giving away just the score, but even if they didn’t, Zillow still gets something very powerful in return for offering a free Zcore.
Free is never free. Business models like FreeCreditReport.com offer up a free credit report in return for enrollment for their credit monitoring system. There’s always a catch. Zillow can’t just approach a free Zcore as a free score on it’s own because consumers will want to know what the catch is. They need to package it as part of a larger, and more powerful way for consumers to begin the process of shopping for a qualified loan in anonymity. I’ll talk more about that in Part 2.
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{ 11 comments… read them below or add one }
With ideas like yours for free, Todd, why does Zillow need R&D?
For the record, annualcreditreport.com is the ‘true’ free credit report set up by the FACTA (report is free, not score). Experian’s been sued a couple of times for misleading consumers about freecreditreport.com
Todd, I think you’re onto something with this.
Paul - Good point. The problem with annualcreditreport.com is that it’s a big long report that’s hard to read. All most potential borrowers need to get started is just the score itself.
Dan - I’ll still be interested to see what Zillow comes up with. Hopefully it will brake the mold.
Todd, yes I agree, the score will suffice.
And hey, where is that Zillow fellow anyway?
The Google Alert has sounded!
The credit score is intellectual property. Somebody has to pay for the score, whether it’s a business or a consumer.
A snapshot blended credit score is a good idea. If Fair Isaac was going to offer a blended credit score without the full report, they would want some sort of transaction fee.
I don’t think today’s consumer would be averse to this. There are companies today that offer to sell a full mortgage credit report directly to the applicant without them re-selling their information for marketing purposes. The only way for someone to be truly anonymous is to pay the fee themselves, because if someone else picks up the tab, they are going to capture their information as a lead, and sell it.
Gavan, I agree. In my plan, Zillow would pay for the scores, then give them away.
I think you are all hitting on a critical area of the mortgage/real estate market that has been missing for too long…anonymity.
It should go without saying that a consumer doesn’t want his most personal financial information shared with strangers until he’s good and ready to actually move on applying for a home loan. It should also go without saying that the anonymous nature of the web is what makes it so successful. Instead of fighting this fact, we need to embrace it as Gavin suggests. Connecting consumers to existing and fast-emerging companies and technologies that will increase, not decrease anonymity. And Zillow is a great portal through which to start doing this. The future our our business has to be more about marketing and delivering stellar customer service, not about being an information hoarder.
Todd, why would Zillow pay for the scores, give them away to the consumer, and then not sell the information for leads?
How can they resist that healthy profit if they paid the repositories for the score?
Where is their profit coming from currently, and where is it going to come from under this Zcore model?
Mark, the Zcore would be a loss leader. You’d know better than I would, but but I don’t imgine that Zillow would need to pay more than a few dollars each for the scores. Being able to buy millions of them will give them some pretty serious leverage.
Give away the score to get a subscriber. Not just any subsciber either. We’re talking about someone ready to entrust their financial identity to you. They wouldn’t give it to you if they knew you were going to sell it. they may as well shop at Lending Tree.
Each subscriber has a far higher earning potential than just selling the information as a lead.
This is explained further in Part 2 of this article. I posted it earlier this week
Offerinf a free credit report is very easy. It’s a nice gift to visitors and can also provide you with data about that visitor.
More transparency is more important. This enable people to go around the bait and switch. But how provide or enable more transparency? Start with user feedback; comments, ratings, etc. These are strong incentives for lenders to provide more accurate information. I think a platform such as Smart Hippo can provide more granular data points to lenders and visitors.
From my brief comparison of lenders rates on Smart Hippo and other site the same lenders on the first site provide more accurate rates than other site.
With the mountain of data Smart Hippo can have they could present the information in any way they want or the visitor would want to search and see results.
As for the issue of having people only look for rates every few years there are ways to make it relevant more often to users. Just think about it!
It’s a great idea Todd, but like you said, they’d have to convince folks their information would not be used in any other way…preserving the anonymity.
Anonymity was the key to the success of Zestimate.
I’m not sure anyone given a free real credit score would ever really believe their info. would not be used down the road.
Maybe the solution is to tell folks they have built a ‘credit score modeler’…where the client answers a bunch of anonymous question about their credit histories…and the modeler “estimates” their score.
Bankrate offers something like that…Zillows would have to be “better” somehow…but then folks could play around with it at will and actually do it anonymously…
My 2 cents…
Great post!
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