Tuesday, October 4, 2022 / by Dave Magua
Mortgage is the new money pit for portals: Mike DelPrete
The largest global real estate portals are attempting to diversify and expand their revenue streams by offering mortgage — with mixed success.- Zillow, Redfin, and Australia’s REA Group have all made major forays into mortgage with large acquisitions.
- Despite being technology companies, revenue growth is closely tied to employee count, and profitability (in the U.S.) remains elusive.
Dig deeper: Redfin’s mortgage revenues jumped after its recent acquisition of Bay Equity for $138 million, but the overall business remains unprofitable.
Zillow’s mortgage business has been unprofitable for over five years, recently spending $1.85 for every $1 in mortgage revenue.
- It even lost money in 2021, when 96 percent of mortgage firms were profitable.
- Financial services now account for 6 percent of REA Group’s total revenue.
Behind the numbers: Mortgage growth is very much tied to people — mortgage brokers and mortgage loan originators (MLOs).
- REA has acquired legacy mortgage businesses with hundreds of brokers — the company currently employs more than 1,000 brokers.
- Redfin’s mortgage originations jumped in Q2 2022 after its acquisition of Bay Equity and its 485 MLOs.
- Redfin’s mortgage originations are up 10x while MLO count is up 12x after acquiring Bay Equity.
- REA’s financial services revenue is up 2.8x while its number of mortgage brokers is up 2.7x after acquiring Mortgage Choice.
- Some companies have shed MLOs through recent layoffs (Reali, Tomo, Homie, Knock and Flyhomes), while others have grown organically and through acquisition (Orchard and Homeward).
- Instead of leading to greater profits, mortgage has turned into a money pit for the big U.S. real estate portals.
- And at the end of the day, the evidence is clear: it’s the number of brokers and MLOs that drives meaningful business growth.
October 03, 2022
