If you've ever searched for homes online, you've probably used Zillow.
Zillow Group has a market cap 7.580 billion, and Zillow Group reported a record $266.9 million in revenue for the second quarter of this year, a 28 percent increase over the same period in 2016.
Sounds like investors should be pretty happy with the results doesn't it?
Well--one investor has filed a class action lawsuit alleging Zillow and it's top executives of defrauding investors by not disclosing it was being investigated by the Consumer Finance Protection Bureau (CFPB), the most powerful Federal Agency ever created.
The CFPB investigated Zillow for 2 years to see if Zillow's "co-marketing" program for agents and lenders violated RESPA laws.
Zillow is now in settlement talks with the CFPB.
So, what's the big deal with Zillow's co-marketing program?
Zillow touts the program as a way for it's real estate advertisers to "partner with lenders to provide the best experience for your clients."
What lenders have discovered is that real estate agents use "co-marketing" as a way to extort lenders, who risk losing referrals from people they've worked with for years.
Essentially, the lender must pay for the real estate agent to advertise on Zillow or the agent will find another lender who will pay. It doesn't matter to the agent if the lender provides excellent service, has great loan programs, or has 2 kids in college.
The Unicorn has seen some desperate lenders offer agents up to $5000 per month to co-market with them instead of another lender.
If the lender is paying for a portion of the real estate agent's advertising, the agent then reinvests those funds to pay for more advertisng on Zillow.
The reality is that there is no benefit to the consumer. The ultimate benefit is only to Zillow, who is able to increase their revenues by allowing agents to extort lenders for advertising money.
It is also illegal according to RESPA and the CFPB.
The next time you use Zillow to search for a home, just remember that Zillow is not doing what's in the best interest of the consumer. They are not doing doing what's in the best interest of real estate agents and lenders. They are not even doing what's the in best interest of their shareholders. They are doing what's in the best interest of Zillow executives.
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