Seattle real estate giant Redfin has announced that it will pay an estimated $135 million in cash and stock to purchase Bay Equity Home Loans, a Bay Area-based real estate lender operating in 42 states and employing 1,200 people.
The deal should provide a boost to Redfin’s lending business. Bay Equity closed $8.5 billion in loans last year, close to 10 times the size of Redfin Mortgage. It has also generated positive net income in each of the past three years.
Redfin will consolidate its operations at Redfin Mortgage within Bay Equity, which will retain its name and continue to work with other brokerages after the acquisition.
Redfin said it will reduce investment in lending programs and will also lay off 121 people as part of the deal, or less than 2% of its total workforce. The mortgage business employs about 250 people as of December 31.
Redfin will help place workers in other positions in the company, or provide between 12 and 26 weeks of termination. Bay Equity will not be laying off employees.
The purchase price represents a premium of $72.5 million over the estimated tangible book value of Bay Equity as of December 31.
“We view this transaction positively as it will allow Redfin to accelerate its goal of connecting mortgage (and other additional real estate transaction services) to the core brokerage business — an essential part of any good revolutionary thesis on RDFN,” Brad Erickson of RBC Capital Markets wrote in a report.
In a press release, Redfin CEO Glenn Kellman said the acquisition will help the company bring together lending and brokerage services under one roof, and support the company’s long-term vision of allowing customers to purchase homes they couldn’t get through stand-alone. broker or lender.
Redfin launched Redfin Mortgage five years ago in an effort to serve its customers from start to finish in the home buying process. At the time, some real estate professionals raised concerns about a potential conflict of interest between the brokerage and mortgage sides of Redfin.
Several real estate companies have attempted to offer multiple real estate services “under one roof,” including the Seattle-based giant Zillow Group.
Redfin Mortgage closed 24% more loans in the third quarter of 2021 than the same period last year. On the company’s third-quarter earnings call, Kellman said total mortgage revenue fell 5% due to lower revenue per loan sold.
Kellman said the percentage of Redfin homebuyers who choose a Redfin mortgage “remains very low.”
“We expect to make changes to our loan creation system in the first half of 2022 to support a broader range of loans,” he added. “With a full product suite, and as permitted by the laws of various US states, we can then trigger incentives for brokerage sales that also include mortgage and equity services.”
Jason Bateman, the old leader of Redfin Mortgage, left in August to become managing director at Goldman Sachs. Kellman said in November that the company had made “significant progress” in finding an alternative.
After a significant rise in its share price throughout 2020, Redfin shares are down nearly 60% in 2021. The stock is flat after trading hours.