Zillow announced earlier this month that it has officially become a mortgage lender, a move which some fear could transform its platform into a competitor for established mortgage lenders who use Zillow for marketing and advertising.  

But while the online real estate giant’s foray into mortgage lending might seem scary initially, it is unlikely to have too much of a detrimental impact on local, more personalized lenders. 

That’s according to experts who say the lead generation model Zillow operates on is not one that many local lenders rely on or find effective at drumming up business.  

“Zillow takes leads they drive and sells them to other mortgage companies,” said Shant Banosian, branch manager at Guaranteed Rate in Waltham. “Whether they are closing mortgages or not does not make an impact on somebody like us. … Our referrals come from past clients and mortgage professionals.” 

Local Lenders Generate Leads Differently 

Zillow makes money in a few different ways. Property management companies, real estate agents and brokers pay for advertising and a suite of marketing services on the platform, and mortgage lenders pay to have their mortgage terms and interest rates listed on Zillow’s mortgage marketplace. 

The company’s move into home financing is likely to have only a marginal impact on traditional lenders because the platform does not add much value for these players, said Patrick Boyaggi, CEO and co-founder of Own Up, a fintech firm that helps consumers evaluate mortgage lenders. 

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Guaranteed Rate has done some co-branding with other mortgage companies on Zillow, but otherwise does not advertise on the platform, Banosian said. 

Boyaggi, who previously worked as a senior vice president in the residential lending division at Arlington-based Leader Bank, said he never used Zillow for lead generation throughout his lending career.  

“Fundamentally, I disagree with the lead generation model, where a company says, ‘We are going to sell people’s information to whatever lender will pay the most,’” Boyaggi said. “The quality of leads from Zillow are really low. You have to work really hard to get any of them to actually convert and costs are high because you basically pay per lead.” 

While consumers spend more and more of their time online, some traditional loan originators believe the human touch they bring to the mortgage process and the experience they have in certain loan products will help them compete against Zillow Home Loans.

Where is Zillow Going? 

Zillow made its website a go-to resource for the general public, but now the company is trying to figure out the best way to monetize that audience. 

A few years ago, in 2015, former Zillow CEO Spencer Rascoff declared the company a media company saying, “We sell ads, not houses,” and “We’re all about providing consumers with access to information and then connecting them with local professionals.” 

But in early 2018, the company began to venture into the real estate business. 

It launched Zillow Offers, which allows homeowners to request a no-obligation cash offer from Zillow to buy their home. When homeowners accept it, Zillow directly buys a seller’s house, prepares it for showings and lists it for sale.  

Zillow purchased Mortgage Lenders of America for $65 million in November 2018, and is now rebranding the company as Zillow Home Loans. 

Lenders Put Faith in Relationships 

While Zillow cannot force a customer to use its mortgage subsidiary for financing, it has no obligation to allow lenders to advertise through Zillow, Boyaggi said. 

Zillow reported earning $80 million from mortgages revenues in 2018, which the company described as revenue primarily from advertising sold to mortgage lenders and other mortgage professionals. At the same time, the company made nearly $900 million of its $1.3 billion in revenue in 2018 from its premiere agent services, according to a recent earnings release. 

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In the same release, the company also said it wants to eventually purchase 5,000 homes and originate more than 3,000 loans per month. 

Zillow could morph into a company like Quicken Loans, a lender that cuts out the middle man using advertising to drive leads and ultimately make loans through its call centers, Banosian said. 

But even if this becomes the case, Banosian isn’t worried. Zillow would be going after homebuyers that are more comfortable going online and getting a loan from somebody they don’t know, he said, whereas customers of local lenders are looking for the opposite experience. 

“Buying a house is such big deal these days that working with someone you know and who has a good reputation in a specific area is very important to a lot of borrowers,” he said. “Having someone who is experienced, trusted and knowledgeable in a certain marketplace or product type is super valuable and that will never go away.”