A recent study led by Georgetown Professor Steven C. Salop highlights that borrowers using Zillow Home Loans endure higher mortgage costs compared to those opting for other lenders. This report aligns with ongoing lawsuits accusing Zillow of steering clients through affiliated real estate agents to its own lending arm. According to Salop’s analysis, which was supported financially by Co-Star (owner of Homes.com), Zillow borrowers are paying a substantially higher annual percentage rate (APR) on 30-year loans. The study, while questioned for its validity by Zillow, reveals that borrowers end up overpaying in net present value terms by about $2,900 on average.
The research indicates that in 2024, the higher APR translated into an “overcharge” of approximately $4,600 on an average loan amounting to about $337,000, marking an increase from previous years. Conversely, in 2022, Zillow’s rates were reportedly cheaper. However, the cost differential grew in subsequent years, with 2023 showing expenses $3,213 higher than competitors, surging further in 2024 by $4,579.
Government-backed loans, such as VA and FHA, also exhibited significant cost discrepancies in 2024. Furthermore, the study underscores disparities in charges based on borrower demographics. Notably, Black borrowers incurred more substantial overcharges relative to White borrowers, while Hispanics experienced lesser charges in 2022 and 2023 but not in 2024.
The financial impact of these findings is evident as Zillow originated nearly 11,000 30-year conventional loans between 2022 and 2024. The cumulative overcharge equates to roughly $31.6 million in present-value terms, underscoring the broader economic implications for Zillow’s clients. Despite Zillow’s objections to the study’s conclusions, Salop maintains the independence of his analysis, asserting the objectivity of the findings independent of Co-Star’s financial backing.
