A change to the way Zillow charges for mortgage rate advertising is poised to shake up the world of online lead generation — an increasingly important source of new business, but one where lenders face a constant struggle between quality versus quantity.
To be successful with online mortgage rate advertising, lenders usually must resort to the imprecise strategy of casting a wide net to gather — and pay for — a large number of contacts in hopes of finding a few nuggets that pan out as high-quality leads. It's a conundrum that has had them looking for ways to improve their return on investment for their lead purchases.
But this "pay-per-click" model that sites like Zillow and Bankrate have historically charged makes it difficult for lenders to know exactly how much they're paying for each individual mortgage lead. Other rate advertising sites, including LendingTree, charge on what's known as a "pay-per-lead" model, where lenders pay a flat rate to obtain a lead, regardless of how many clicks on its ads it takes to get it.
"We like pay-per-lead because pay-per-click is variable so you just don't know" the actual cost of a lead, explained John Walsh, the president and owner of Total Mortgage Services in Milford, Conn.
The certainty that a pay-per-lead customer is more likely to do business with TMS is important to Walsh. His company doesn't currently use Zillow Mortgages and currently only uses LendingTree for online lead generation.
"It might take you three clicks to get a lead, or it might take you 20 clicks to get a lead. Then the lead you get from that click may be a fake lead; it may be a lead from a competitor; it may a lead with a fake phone number," Walsh said. "So we definitely like the pay-per-lead options out there, because it is a fixed expense per lead."
In an industry that's dealing with
While the fee structure between the two plans are different — one lead costs more in the new model than one click in the old model — lenders that advertise with Zillow will end up paying about the same for a high-quality lead, said Erin Lantz, vice president of Zillow Mortgages.
"We think it brings more transparency to the business, it gives lenders more transparency into what they are buying," she said. "It gives us the chance to stand behind the quality of our contacts even more."
Lantz declined to provide details about the difference in pricing between the two models, and stressed that lenders should consider the total cost to obtain a lead with rate advertising.
"With this transition in pricing model, we're not trying to raise prices at all. We're attempting to keep the price where it was, but we're just charging at a different point in the funnel," she said.
So far, Keith Luedeman, CEO of goodmortgage.com, is pleased with the new pricing structure. Under Zillow's old pay-per-click model, the Charlotte, N.C.-based online lender would pay $6 to $8 per ad click, and it would take about 15 clicks to get a solid contact, for a total cost of around $100 per lead. Now with the pay-per-lead model, goodmortgage.com is still paying about $100 per lead.
In the pay-per-click model, goodmortgage.com would use different tactics to try to minimize the number of clicks it would take to get a lead, such as turning ads on or off based on the time of day and what other lender advertisers were doing. Now, that doesn't matter, and goodmortgage.com is able to advertise its rate quotes on a more consistent basis.
"We don't have to do things to minimize the cost because the lead is going to be the same price no matter what time it is," he said. "So I think in the end that will build for a
Despite Zillow's move to pay-per-lead, Bankrate is sticking with its pay-per-click model, in part because lenders don't have to pay for their rates to appear on Bankrate's listings.
The site takes a consumer-centric approach that offers "a comprehensive and agnostic look" at lenders, said CEO Don Ross. So rather than limit the rate quotes on the site to only lenders that have paid to advertise, Bankrate differentiates between paying and nonpaying lenders by providing features that make it easier for consumers to contact advertisers, like links to the lender's website and a phone number — though consumers can still choose to interact with lenders that don't advertise.
"That works well from the consumer's standpoint. We don't push consumers down any funnel that they're not interested in going down," Ross said.
With this type of platform, pay-per-click works better, as consumers are provided more comprehensive mortgage data that leaves them "poised to transact, and provide our advertisers with an extremely efficient way to convert these in-market prospects to locks and closed loans," Ross added.
Bankrate's per-click cost varies based on geographic region and time of day, but on average the cost-per-click is about $10. For consumers who call from the site's phone number, lenders are only charged for calls that last longer than one minute at a rate that averages out to about $25, Ross said.
While online rate advertising is well past its infancy, there are still questions about price transparency and the
When Zillow first began offering mortgage rate ads, it didn't charge for leads, and when it finally did begin charging for leads in 2009, it was a pay-per-lead model. At the time, lenders weren't used to paying for leads this way. Zillow got a lot of push-back and ultimately decided to switch to a pay-per-click model a year later.
Since it started charging for leads, Zillow has employed a dynamic cost structure, where fees vary based on lender demand and their preferences for certain loan attributes, like a specific range of loan-to-value ratios. The technology behind Zillow's rate platform has evolved over time, and has become more sophisticated in its ability to account for multiple inquiries by the same user.
Lead Quality vs. Consumer Anonymity
One key difference between the various mortgage rate advertising options available to lenders is how much information consumers provide to access quotes. Sites like LendingTree, LowerMyBills and others require consumers provide personal and contact information, sometimes even including a Social Security number, to access rates. That information is funneled to lenders, which can use it to verify a lead, but the requirement also limits the number of consumers who see an ad.
Sites like Zillow and Bankrate let consumers anonymously search rates, which gets advertising in front of more consumers, but offers lenders fewer details about potential leads.
Ensuring that consumers feel like they're in control of the rate shopping process is critical to helping lenders connect with quality leads, Ross said.
"We think that is the best consumer experience. And it probably converts better for the advertiser if the consumer have self-selected the way they want to engage" with a lender, Ross said.
While advertising sites have historically stuck to only one of these options, that's starting to change. LendingTree now offers consumers anonymous, generic rate searches, while Zillow recently launched its own "Long Form" product, where consumers provide additional information about themselves to get matched with a lender and receive a more detailed rate quote.
Long Form "is a more hand-holding, easier to use experience for consumers to quickly find a lender," said Lantz. Zillow charges lenders per-lead to reach consumers with Long Form. And while a similar offering from LendingTree provides the consumer lead to up to four lenders, Zillow Long Form is an exclusive lead for the lender that pays for it. (LendingTree did not respond to multiple interview requests for this story.)
Goodmortgage.com is about to become a Zillow Long Form advertiser, and Luedeman said other lenders that have used the service have been pleased with the quality of leads it generates.
Syndicating Rate Ads
Another aspect of the effectiveness of mortgage rate advertising is the syndication deals that the advertising platforms have with other websites. For example, Bankrate's listings are also available on Realtor.com, Homes.com, Yahoo Finance, CNN and approximately 80 other personal finance sites.
Sites like Bankrate conduct research across their syndication sources to track how much duplication of unique users happens across the different sources, which Ross said is minimal.
In February,
Syndicating the rate ads on multiple sites accelerates the pace that new leads come in, regardless of pricing model, said Lantz.
"In the cost-per-click world, having rates on Trulia generated more clicks and contacts to lenders who advertise with us," she said. "The same is true in the cost-per-lead model — more consumers shopping on [Zillow Group] brands means more clicks and contacts for lenders."
