Pull the veil back around performance related metrics relative to market baselines for practicing real estate agents. Establish a Bar, establish accountability, demand greater transparency and Raise The Bar along the way.
There’s been a storm of activity in and around Zillows mortgage community (ZMC) since they launched a mere 72 hours ago. Based on David Gibbons’ claim that Zillow has received over 4500 ‘leads’ in their first 48 hours, consumer interest is definitely there. Reading Zillows blog, they’ve done their research and are delivering what the consumer wants: an anonymous, transparent vehicle to receive mortgage quotes.
A fact worth reiterating about Zillow before addressing the wants and needs of the other half of this community, the mortgage professionals, is that Zillow is an advertising and media company. Advertising and media companies are keenly interested in the demographical nature of their traffic, the more refined this data is the more valuable it becomes to their paying customers: 3rd Party Advertisers.
By collecting and ‘cookie’ing’ the web-browser of (almost) anonymous members relatively succinct financial and credit information, Zillow is aggregating some very valuable data for sale, just not to mortgage originators. Advertisers will pay a premium to appear in front of people who represent they can afford and are likely buyers of their products. Very well thought out by the brass in Seattle.
Mortgage originators on the other hand seem to be less than enamoured with Zillows offering for reasons identified in my last post…they will likely have to farm through a mountain of rate voyeurs to find a client. Some well respected Mo-Pro’s feel that consumers should be held accountable to a degree of transparency as well. I’m a staunch advocate in transparency for the mortgage industry (read my very first post from 19 months ago, not the best written piece but I’ve left it unedited for effect) and agree the sword must cut both ways in order for a ‘transparent marketplace’ to work. Both sides must open the Kimono.
The dilemma with transparency has traditionally been: ‘How can one be transparent without being taken advantage of?’ For too long consumers have been forced to strip in front of a consortium mortgage originators, ZMC switches this around, making Mo-Pro’s disrobe first, and they don’t like it.
Things have obviously changed, so here we are today pointing fingers, losing business and otherwise trying to figure out the best way to make a business a successful one out of the business that’s left.
For their own clever benefit, ZMC is turning the transparency buzz into advertising dollars. If ZMC does nothing else, it increases traffic to their domain. They’re pleasing the consumer and pissing off the top notch Mo-Pro in the process. This may work for awhile but it would appear to be a matter of time before the good Mo-Pros turn their head to ZMC because the lead pool is deemed a dead pool, even though it has all the attributes of viable transparent marketplace for consumers and originators to conduct good business. As stated, Mo-Pros simply don’t have the capacity to work within ZMC very effectively, yet.
An ideal form of transparency, one that serves both consumer and professional, is akin to being naked with a bag on your head. You get to see all the goods but can’t put a face to the…well, you get it.
Take the time to read Mortgage 2.X and the concept called C2B (Consumer to Business) marketing. The company that was tooling with this concept is now out of business but was ahead of it’s time. In 2003, during a time when mortgage (and interest) rates (in general) were plumeting, transparency wasn’t even a thought because Mo-Pros could charge four points and lower a consumers interest rate by 2%.
So here’s where the novel idea comes in, for all I know Zillow may have already considered what I’m about to suggest, if they haven’t…I’m not in a position to do anything with the thought and someone might as well…
The consumer transparency theory…
In order to enter the ZMC a Mo-Po must submit some verifiable information to prove they are viable. Coupled with the promise of anonymity, the dynamic is very alluring to a consumer.
Zillow can require something similar of consumers. Offer two levels of consumer participation, the current low barrier level and an ‘authenticated’ designation.
Upon enrollment into ZMC from the consumer side, validate their credit score by having them acquire their ‘score only’ from the repository of choice, all three offer this service for free to the consumer. This is often the biggest unknown from a consumer standpoint, I can’t tell you how many times someone’s self-estimated vs actual credit scores were off by over 100 points. I’ve had people tell me they’ve had credit scores ranging from “one hundred fifty, I think” to “one thousand something”. Zillow wouldn’t be privy to a members social security number under this scenario either, the information goes straight to the repository, score returns, consumer fwd’s repository doc (minus ss#) to Z…
Have consumers send over signed verifications of income, assets, type of employment et al (could all be done electronically). Although these aren’t meant to replace the docs what a mo-pro will require in any way (see Zestimate), the docs would foster a stronger commitment level and code of coduct enforcement policy by consumers.
The prevailing thought here is Zillow could substantially firm up the quality of consumer information to the community and still insure their anonymity. From a business model position this would be a brilliant move for Zillow as they could then represent the same to both mortgage originators and advertisers.
Quality mo-pro’s would flock to the marketplace to serve this quality of ‘lead’, consumers would be incentivized to provide the information based on the increased likelihood of attention an ‘authenticated lead’ and (most importantly to Z) advertisers could be compelled to spend more $$ for uber-high quality consumer financial and credit demographic placed ads. There is an opportunity here for Zillow to become the trusted marketplace to begin a mortgage transaction and make a lot of $$ in the process while holding to their current business model.
Theoretically, this would create a quality of mutualism and transparency not available in any other online mortgage community. From an advertisers standpoint, one would think they wouldn’t mind paying to promote their products and services in front of such refined, targeted eyeballs.
For fundamentally the same reasons mo-pros can’t effectively service ZMC today, they would have a tough time servicing this Zutopian marketplace as well. Most mo-pro shops are not equipped for volume based loan production, thus cannot afford to charge less per transaction. Typical mortgage industry business and commission split models make the economics of only charging $2000 in broker/banker fees impractical…this another thread for another post, although the topic has been covered previously on this site.
Zillow could be on the cusp of something special…an anonymous transparent credit and personal information eXchange between mortgage professionals and consumer, to create a highly trusted mortgage transaction community…and they could make a lot of money doing it without charging for ‘the good leads’…
Real Time Paradigm Shifting in The Real Estate and Mortgage Industries
Very few will argue that we are in the midst of an historical era of change, largely leaving the Industrial Age heading steadfast and firmly into The Age of Information.
Transitions between era’s have traditionally taken anywhere from 100,000,000,000 to 100 years, with each succeeding ‘period’, ‘time, or ‘age’ shrinking rapidly compared to the prior by a factor of ~10.
If the above is true then it’s not contrived to think that we may be passing through multiple periods of relative historical significance during our own life, whereas prior such ‘times’ have lasted for >10 generations. This is a remarkable reflection if you really consider it. Change is happening at a far faster pace than any of us are used to because it can.
‘The Times’ change so fast they now call it Real Time (as in the time before real time was fake time, or something like that).
Change is also something that does not feel natural thus most don’t adapt to it well, especially over very short periods of time. Over 10,000 years? Sure. Over 5 years? Maybe. 6 Months? What just happened..?
People within a society affected by change can be generally classified as:
• Innovators
• Adapters
• Adopters
• Laggards
• Haters
The Moral: Business is moving, evolving, changing faster than ever. Real estate and mortgage used to resist such rapid change, today embracement is necessary for survival.
It’s pretty well accepted that in the Information Age, withholding information for money has diminishing value.
It took real estate and mortgage (to a greater degree) longer to understand this, which is evidenced by the initial industry aversion to sites like Zillow et al (Innovators). Many agents understand that wider distribution of their inventory is in fact a good thing (Adapters and Adopters); placing ones product in a place where there are a lot of potential buyers is likely to increases the chances of selling that product. Other agents are just now realizing and acting on the same (Laggards).
New technologies start big then get smaller and better.
Zillow launched in February of 2006 offering tools and services that draw in consumers and feed participating professionals using intuitive user interfaces (UI’s). Trulia evokes similar qualities; single site with all the tools (and the list goes on). To one extent or another Zillow, Trulia et al have exponentially improved the real estate Search experience over the past two years. They’ve blazed a wonderful path.
They’ve also raised and spent capital that exceeds some Nations GDP to foster a technological paradigm shift towards information transparency coupled with uber-intuitive UI’s with regards to real estate listings, a map and other relevant local data (also called a mash-up).
Today the same tech driven mash-up UI’s that drive gobs of traffic to the Zillows and Trulias of the world are available and affordable to individual real estate professionals (rePros) at pennies on the dollar.
Different Agenda’s
Zillow and Trulia are advertising/media websites. Their business models depend primarily on traffic so advertising may be sold for a premium and each have numerous vehicles for an agent to spend their money on.
They’re kind enough to offer tools (widgets) that add a coolness factor to an agents individual site and create social conversation forums to leverage participating agents experience/knowledge for the community as a whole. But make no mistake; they depend on the traffic a rePros personal knowledge and information draws to embolden their respective brands. Every tool provided is inherently designed to increase their traffic first, yours second.
Other real estate Search sites like Roost will re-skin, redisplay and replace your current ugly IDX then charge you for the privilege of the traffic they direct back to your site. This is certainly a better alternative to what’s been available in the IDX market and more importantly another step towards blending technology seamlessly with an individual rePro’s Brand…yet not quite ‘there’.
In most every case, a top level domain real estate Search portal seeks to profit from advertising and by building their Brand first, yours second.
Roost claims that they ‘Support Your Brand’:
Claim #3, receiving your own URL on Roost, isn’t the highest and best way to support your brand. This also leads to a similar experience outlined above where a consumer is bedazzled with one slick UI, only to eventually fall into a foreign place called your website.
Roosts business model message:
Very Googleicious…carefull, if you don’t keep the traffic tank monetized, it’s possible to be the Star one minute and invisible the next.
Where is there?
When consumers begin their quest for a home, they’re after one thing: listings—all of them. Trulia, Zillow, Roost et al face a perpetual problem with the ‘available to in-house listings ratio’. Big players in this space like Realogy and Prudential are picking sides, contributing listings to one site or another. Some agents choose to contribute their listings while the vast majority do not. This leaves consumers with a choice between bad and worse: Try and search all the listings with inferior tools, or perform cutting-edge searches on ~20-30% of the listings available in a given area. Thats not an acceptable ratio in my book. Pretty soon we’ll have an aggregator of the aggregators, and so on.
It seems ironic though, with all these brokers now lining up in different camps to feed their listings to the big consumer search destinations on the Internet, that it’s ultimately the consumer that suffers from these alliances being formed.
If I’m trying to search for a house in Portland, I still have to have to go to multiple destinations (Frontdoor has X, Zillow has Y, Trulia has X & Y but no Z) just to get an accurate picture of the complete inventory available on the market.
Either way and any way, this would be another big win for Trulia, but as Joel notes, Michael agrees, (and I’ve said before), it is note self-evident that at the end of the day, the consumer wins with broker-fed listing sites.
While penning and researching this post, I came across the above snippets and couldn’t agree more: A viable solution could be a website that hosts robust Search UI’s and engages social networking as well as SEO strategies under a rePros personally owned and controlled domain.
BlueRoof360.com is about as close to ‘there’ as I’ve seen. The only aspect that I question (and this is being very nit-picky) is the platform that they are using…is it proprietary or open source? In other words, can I snap pieces in and out? If I don’t like the property search UI, can I swap it out with a better one? Can I add plug-ins and other features vis-à-vis WordPress? Realivent and Incredible Agent deserve mentions here as well.
As a rePro on the Listing side of the relationship, if you are going to ‘give’ your listings to the Zillows of the world, your personal website had better be on par with the site that the link came from, otherwise that ‘link’ will likely leave your site and go back to more beautiful and userfriendly pastures.
As a rePro on the Buyers side of a potential relationship, a website with real time information and a solid property Search UI is mandatory for future survival.
RePro’s can offer consumers via their personal websites a vital claim that the big players will always chase: 100% of the information located within a local MLS’ database. Days on market, sold data, and a glut of other valuable information to consumers that currently is not available on the big players sites can be displayed on a licensed pro’s site. Regardless if one person (consumer or professional) thinks that such info is important or not is irrelevant. Someone does, it’s the long tail consumerism that dominates the current and future markets terrain. In any case, the more information you make accessible the larger your potential audience. Redfin gets this, they offer their agents and consumers best of breed technology and information.
In case it’s not evident i’ll point out that consumers are getting smarter about how the real estate industry internally works due to this new real time access to information phenomenon thingy. Better to be deemed transparent and open rather than a shifty salesperson.
To keep in line with change in real time, the best strategy is a likely mash-up of all of the above, sprinkled with a little bit of this and that.
Also See:
In case anyone missed this over at Inman TV…and never being one to miss an opportunity to self-promote 
Few people like to entertain the guy who trashes their business model as antiquated, especially those within the industry who currently enjoy a comfortable margin of success doing business under the self-prescribed ‘right way’. So, let me simply say that I am here to help, not just pee in your Cheerios.
Maybe I’m guilty of a little too much self-promotion, but you can’t get mad at the kid who tries to answer the tough questions, whether invited or not, and offers a solution for everyone else to openly poke holes in/at/through.
‘Disintermediation’ is an act of progressive business practices that are more debated by the day in this ‘underground’ real estate related community. As these industry’s move towards the path of greater transparency, outsourcing for less expensive products and labor is becoming a required task more than an option or debatable topic.
Globalization hit the mortgage service industries a few years ago, if you hadn’t noticed. Anyone can outsource file processing (from Indiana to India) at far less expense than employing an in-house processor, with less errors 
This is only the tip of the iceberg, the risk (or opportunity) is far greater.
Much like the traditional stock broker middleman, the mortgage broker/banker and real estate professional middleman is a species who is facing a slaughtering wave of attrition, and for very similar reasons. The mortgage bubble has popped, and as the market scales from historical demand back into some balance with supply, only the strong and/or adoptive will survive…specifically…those who can do more for less, in less time. In the case of the mortgage industry, new and inexpensive technology is mandating transparency and forcing disintermediation from traditional ways. Instead of looking over the entire landscape, many within the industry refuse to look further than past what they can currently see.
Too often I hear comments like:
‘No piece of technology is going to replace me!’, ‘I’ve been very successful for years, why would I change?’ ‘It’s not practical to do business like you suggest’, ‘My customers love the way I do business’, ‘People don’t mind paying my fee.’
The internet has only been around for apprx 11 years, it is still in it’s infancy. There were plenty of people 10 years ago that dismissed Information Technology in a similar fashion, and PC cynics before them.
The demographic that has grown up online is just now entering the mortgage marketplace. They don’t value the traditional relationship as much as information. It, not you, is recognized as the most valuable resource. If they can get around you on the cheap, they will, and someone will be there to sell it to them for less than you’re capable of. Think of it this way, fathom doing business without the net and still being as efficient and effective as you are today? Impossible.
Dot com era businesses (and their plans) blew up at the introduction of transparency into it’s inflated numbers and projections. Company’s with P/E ratios and other fundamental baseline measurements that made 0 economic sense imploded.
The stock brokers who were making huge rips under cloak were exposed and marginalized or eliminated from the industry. I got along great with my stock broker, that didn’t mean I felt obligated to pay him 2-3 times the amount I now pay to buy and sell my securities. I found a way to do it faster and cheaper. His job and fees were marginalized to the point he joined the mortgage industry. Now he’s looking at me like, ‘What’s next?’.
Quid pro-quo; What is the benefit of changing how you do business now? Market share, and alot of it. However, early adoption of disruptive technologies that promote transparency and as a result, increased loan volume, requires disintermediation from current mortgage broker labor compensation models and business processes.
The new mortgage market consumer will demand more efficient, less expensive, point and click, intuitive interfaces to gain their business. If your cost per loan acquisition is $1,200+, you have a shelf life of about 1 year. Insist on continuing to charge points instead of a fixed fee for (multiple) services? Get relegated to fighting for ‘whats left’. Own or working for a brokerage that pays some type of 30%-70% split? You’re pricing yourself out of competition.
Seth Godin postulates that integration of new technologies, business ideas, products, and paradigms generally move into general usage/acceptance along a traditional bell curve, which seems more than reasonable to believe.
Lets put the transparent, efficient, cost effective, and intuitive mortgage business model into the curve as a whole, assuming that what I have laid out becomes remotely true.
Where will you or your Company be in this curve? Among the late majority, or cynical laggards who die a slow death or play perpetual catch-up?…or among the innovators and early adopters who are positioned to capture significant market share….a market that is primed for a huge correction, the beginning of which we are just now seeing.
The e-myth demonstrates that a business owner, and thats all of us in mortgage services nowadays, must work on his/her business, not in it, to become successful. The Innovators Dilemma discusses the dangers of getting too comfortable in your current success model, and why the big traditional players in the market fail to innovate, recognize, or implement disruptive technologies, to their detriment. The dot bomb explosion has demonstrated what happens to those pimping overvalued products, impractical revenue models, and non-transparent policies.
Disintermediation and/or transparency aren’t nouveau business process concepts whose effects have never been studied, they can be seen in a number of recent events . Considering the mortgage market is many times the size in volume over it’s equities counterpart, totaling some $8+ Trillion dollars, the overall effects and shift of wealth will be proportionately huge.
Which side of the wave will you be on?
