Seattle real estate giant Redfin announcement that he will pay approximately $135 million in cash and stock to buy Bay Equity Home Loansa Bay Area-based mortgage lender that operates in 42 states and employs 1,200 people.
The deal is expected to boost Redfin’s lending business. Bay Equity closed $8.5 billion in loans last year and is nearly 10 times the size of Redfin Mortgage. It has also generated a positive net profit in each of the past three years.
Redfin will consolidate its Redfin Mortgage operations under Bay Equity, which will retain its name and continue to work with other brokerages after the acquisition.
Redfin said it would reduce investment in lending software and also lay off 121 people as part of the deal, less than 2% of its overall workforce. Its mortgage business employed about 250 people as of December 31.
Redfin will help place workers in other roles within the company, or offer between 12 and 26 weeks of severance pay. Bay Equity will not lay off staff.
The purchase price represents a $72.5 million premium to Bay Equity’s estimated tangible book value as of December 31.
“We view this deal positively as it will enable Redfin to accelerate its goal of tying mortgages (and other ancillary real estate transaction services) to the core brokerage business – a key part of any good bullish thesis. on RDFN,” RBC Capital Markets’ Brad Erickson wrote in a report.
In a press release, Redfin CEO Glenn Kelman said the acquisition will help the company combine lending and brokerage services under one roof, and support the company’s long-term vision of to let “customers buy homes they couldn’t get through a stand-alone system.” broker or lender.
Redfin launched Redfin Mortgage five years ago with the goal of serving its clients from start to finish through the home buying process. At the time, some real estate professionals raised concerns about a potential conflict of interest between Redfin’s brokerage and mortgage services.
Various real estate companies have attempted to bring several real estate services âunder one roof,â including fellow Seattle giant Zillow Group.
Redfin Mortgage closed 24% more loans in Q3 2021 compared to the prior year period. But overall mortgage revenue fell 5% due to lower revenue per loan sold, Kelman said during the company’s third-quarter earnings call.
Kelman said the percentage of Redfin homebuyers choosing a Redfin mortgage is “still too low.”
“We plan to make changes to our lending system in the first half of 2022 to support a wider range of lending,” he added. “With a full line of products, and as permitted by the laws of various US states, we can then launch incentives for brokerage sales that also involve mortgage and title services.”
jason batman, the longtime executive of Redfin Mortgage, left in August for a chief executive role at Goldman Sachs. Kelman said in November the company had made “great progress” in finding a replacement.
After a sharp rise in its share price throughout 2020, shares of Redfin have fallen almost 60% in 2021. The stock has been flat after hours trading.