Under the Gun: Zillow, Preferred Lenders, and the Dangers of Co-Paying for Leads

I very rarely envy real estate agents. The perception that they have all of the free time in the world, collect insanely large checks, and do relatively little work, a perception held by a large swath of the general public, could not be more false. From the time I entered the world of real estate I have been absolutely impressed by the work ethic of the professionals in the field. Both Loan Officers and Agents live incredibly cyclical lives, constantly having to marry working on deals and salvaging contracts with prospecting for their next clients, over and over and over again. There are many different options of prospecting, some that bear incredible fruits. Sometimes though, those prospecting efforts lead to problems.

One of the most popular ways that agents and lenders co-market is through the real estate website (and behemoth of the industry) Zillow. Agents can pay Zillow to become a “Premier Agent.” This means that when a Buyer goes to view a page, the agent’s information is there with that specific tagline. It appears to give the agent credibility. Additionally, if you click that agent’s name, they will have one or more “Premier Lenders.” Zillow describes this as Agent/Lender Co-Marketing. From Zillow’s Website:

A Premier Agent® can invite a lender to share marketing costs with them. The agent specifies the dollar amount they would like each lender to contribute, up to 50 percent of the agent’s total spend per lender. Once the lender confirms, they will immediately start appearing alongside the agent on Zillow. 

Note that the relationship between the agent and the lender is strictly limited to a co-marketing arrangement under which the lender pays Zillow to appear in advertising alongside the agent. Within the Zillow Co-Marketing Program, lenders may not refer business to agents and agents may not refer business to lenders. This restriction does not apply to referrals by agents and lenders that are completely separate from the Zillow Co-Marketing Program.

So far this sounds great right? What an excellent way to defray the costs of marketing! Where do you sign up? But let’s look a little deeper at paragraph two there, along with the next section on Zillow’s site.

Within the Zillow Co-Marketing Program, lenders may not refer business to agents and agents may not refer business to lenders. This restriction does not apply to referrals by agents and lenders that are completely separate from the Zillow Co-Marketing Program.”

But this appears to be at odds with the explanation of who the co-marketing program is aimed at:

Agent and Lender Co-marketing is for professionals who want to share marketing costs on Zillow. By sharing these costs, agents and lenders can often reduce their marketing spend and increase their ROI. 

Typically, the agents and lenders who share marketing costs already have an established professional relationship. Now, we provide these professionals with an easy method to market themselves on the same pages throughout Zillow.

So Zillow expects people who already have a relationship to utilize this program, but once they enter the program they can no longer refer to that individual? Seems a little backwards and not at all how the practice would work. In fact, it seems like this might be an effective way of (wink wink nudge nudge) getting around RESPA. And you know who else felt that way? Apparently the CFPB’s Office of Enforcement. Because at the end of its last Earnings Call report, Zillow Group finally admitted that they have been under investigation by the CFPB for the better part of two years. For what? The Co-Marketing Program being a de facto RESPA violation. 

So what now? While an official enforcement action has not been filed, if I were an agent that had a plan with Zillow for co-marketing, I would cancel as quickly as possible. Following the Prospect Mortgage, Keller Williams, and ReMax Gold Coast case, it has become clear that the CFPB has its eyes on the brokerage level – and that also means at the agent level. Until it becomes clear as to the extent of the CFPB’s investigation, I would stay away and market the old fashioned RESPA compliant way.

Remember, stay in the loop!

Austin Buchanan

 

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