Divergent Paths

Historically, the Internet real estate and mortgage industries have used different content and tools to attract consumers. The mortgage industry has relied on rate tables, mortgage calculators and, for lead generation companies, assistance finding the right mortgage by soliciting multiple lenders in one easy step. This approach is epitomized by LendingTree’s slogan: “When Banks Compete, You Win.”

Internet real estate companies have used for-sale property listings, assistance finding the right agent and, more recently, home valuations to generate traffic. For the most part, home-valuation sites like HouseValues have consisted of little more than a form that captures consumer information then relays it to a subscribing agent who contacts the consumer and provides a home valuation. This model’s simplicity has not limited its popularity.

Collectively, sites such as HouseValues, HomeGain and other lead-generation companies attract more than 8 million unique visitors per month. Some of these sites provide a limited amount of past sales or comparables data as well. 

Raising the Bar

The launch of Zillow.com in February 2006 has raised the bar. Zillow provides property data on more than 60 million residential properties and has built an automated valuation engine to render home valuations online without requiring consumers to fill out a form and be contacted by a real estate agent.

Unlike existing real estate sites that primarily target home buyers and sellers that are actively in the market, Zillow also appeals to a much larger audience – homeowners. In 2005, there were about 7.1 million residential resale property transactions and just under 1.3 million new-home property transactions, for a total of about 8.4 million total residential property sales.

However, there are approximately 75 million single-family detached homes in the country. The audience that Zillow targets is not just the 8 million home buyers and 7 million home sellers (roughly 15 million total), it’s all of the homeowners who are not actively in the market but are very interested in the current value of their home and homes in their area. They also happen to be prospective customers of many large Internet advertisers such as mortgage lenders. These same lenders carpet bomb existing homeowners with mortgage offers by mail but provide virtually no content or tools to attract them to their Web sites.

Organic is Better

The beauty of the Zillow approach is not only are they targeting a large audience, but they also are using valuable content and tools to generate “organic traffic,” meaning Zillow doesn’t have to pay another site to send it traffic. Zillow has collected its attractive content, which includes public property records for more than 60 million homes, and then developed its home-valuation application internally. Consumer traffic is attracted by the content and tools, not heavy advertising. Zillow licensed its attractive content, which includes public property records for more than 60 million homes, and then developed its home-valuation application internally.

How valuable is that organic traffic? In February of this year, advertisers paid more than $4 per click for a top spot in the search results for the search term “mortgage” on Yahoo! and Google. On Feb. 21, Countrywide was paying $4.03 per click to Yahoo! to be ranked in the seventh position. If Zillow can attract roughly 1 million site visitors per month, and each visitor clicks on a paid search link just once, the value of that organic traffic is approximately $4 million per month or just under $50 million annually. A site with very attractive content and tools can be created for a fraction of that kind of money. Now you know why smart venture capitalists like Benchmark Capital, Technology Crossover Ventures and Accel Partners have invested in Zillow, Trulia and the like.

The Lender Opportunity

Very few large mortgage lender sites provide anything more in the way of content and tools than online loan application forms, some elementary home-buying tutorials and a secure administration area for existing mortgage customers. Two notable exceptions are Wells Fargo and Bank of America.

Wells Fargo offers its “Home Sales Monitor” as a monthly service delivered via e-mail. Consumers are provided with recent sales comparables displayed in order of closest within a radius area. Data fields for each comparable are: address, radius from the subject property, sales date, sales price and square footage. A neighborhood high, low and average are displayed for each set of comparables.

Bank of America’s “Home Value Search” displays a valuation range online, but with a limited set of just three sales comparables. The Bank of America functionality is powered by First American and the Wells Fargo functionality by DataQuick. These tools were innovative when they were launched but are now somewhat dated.

The opportunity exists for mortgage lenders to invest in market-leading content and tools rather than just paying advertising dollars to sites like Zillow, Google or Yahoo. Lenders are already large existing customers of one or more of the major vendors of public property records data — Fidelity NDS, First American RES or DataQuick — and usually work with several automated valuation model (AVM) vendors. Lenders simply need to extend the scope of their existing relationship to encompass what is known as a ‘bulk file’ license for use of the data in the consumer market not just for mortgage origination purposes.

The home-valuation application developed by the lender using this bulk property data and a licensed AVM engine would provide some or all of the following functionality:

  • Property Valuation. Consumers enter a street address and city/state combination or ZIP code and are provided with a value range and associated set of 10-12 sales comparables. The value range makes more sense than a value point because an automated valuation model cannot take into account factors such as condition of the specific property. A value range is therefore more realistic.

  • User Registration. Consumers should be able to register to receive value updates via e-mail on either a calendar basis (weekly or monthly) or as the valuation changes by more than a certain percentage based on new comparables or other new data points.

  • Integration with Available Mortgage Programs. The lender can automatically notify the consumer of its available mortgage programs that may better meet their objectives for lower payment, lower interest rate or cash-out refinance than their existing mortgage.

  • Estimated Equity Balance. Recorded mortgage information can be pulled from the public records data and an estimated equity balance calculated. The consumer can update that information manually to reflect additional payments made, etc. For existing customers of the mortgage lender, this information can be automatically updated as the customer makes their mortgage payments. Consumers can better understand their home as an asset similar to a stock portfolio, albeit one that is a great deal less liquid.

  • Integration with a Home Banking Tool. For existing customers, this represents a unique advantage that can be provided by the lender. By integrating home banking and home-valuation applications, consumers can readily understand current LTV and appreciate their checking and savings accounts, mortgage loan balance and home equity line of credit all in context of their available home-equity balance. For most consumers, this represents a substantial portion of their household balance sheet.

This type of home-valuation tool can provide important value to lenders along several dimensions:

1. Attract prospective customers without paying high advertising rates. Organic traffic is a lot easier on your marketing budget than paying Google or Yahoo $4 per click.

2. Build a base of potential customers who register as users of your home-valuation tool. Ongoing marketing programs can be established to convert these registered users into future mortgage customers.

3. Strengthen existing mortgage customer relationships by providing valuable content and tools, not just providing the nominal benefit to customers of allowing online payment of their mortgage.

Real IQ believes that forward-thinking mortgage lenders can benefit from broadening consumer awareness of and interest in online real estate information. By providing greater transparency into property data and valuation tools that lenders already use in their daily operations, they can both grow their customer base and strengthen existing relationships.

Note: Real IQ has assisted clients to structure and negotiate bulk file licenses with property data vendors as well as advising on market entry strategy and product development. Statistics cited in this note are referenced at the industry level and are not specific to any financial statements or business planning documents of Real IQ clients.

Stephen Bedikian is a Partner with Los Angeles-based Real IQ Consulting, which provides marketing analysis and consulting services for the mortgage industry. He can be reached by e-mail at sbedikian@realiq.com.


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