A More Perfect Union: Why Cities Are Still Racially Divided And What We As Real Estate Brokers Can Do About It

 In From our CEO, Redfin and Our CEO

As real estate brokers, we do everything in our power to give our customers an advantage. This is what we’re supposed to do. But what if our powers unfairly benefit rich folks or white folks? And what if that affects where children grow up, which friends people make, or whether a city comes apart or comes together?

These are the questions we wanted to take up over the July 4 holiday, to explore how we as real estate brokers can contribute to the American experiment, of strivers from all over living together. Professor Elizabeth Korver-Glenn gave us a way to think about these questions in a recent study on how real estate brokerages unwittingly perpetuate housing discrimination; the study appears in print until next month. The professor followed 10 real estate agents in three Houston neighborhoods for a year. Two agents were Black, four were white, and four were Latinx. She chronicled 125 encounters with buyers, sellers and other real estate agents.

The study is remarkable for its thoughtfulness on how the real estate industry can support fair access to housing, but also for its first-hand accounts of what real estate agents think and do. We contacted Professor Korver-Glenn, who gave us permission to highlight some of the study’s findings. It’s a tricky issue to discuss, because we don’t want to characterize every white agent as racist, nor do we want to minimize concerns about bias. We also want to be candid about how we can get better as a brokerage at serving customers of all types.

Is It About Money or Race?

What Professor Korver-Glenn found isn’t, at one level, surprising: agents of all races pursue the most lucrative customers, when often white customers are either wealthy or presumed to be so. And then these agents deliver to their customers a network of services that sets the agent apart: access to listings that haven’t been marketed to the public, and access to developers, lenders, contractors and architects who work near-miracles to keep deals together. The result is that white folks see properties, get loans and close sales that others don’t.

Some Agents Avoid Serving Lower-Income Customers of Color

The study argued that when people of color had at least some money, some agents still presumed that serving them wouldn’t be worth the trouble. As one example, the study cited an agent’s reluctance to serve a customer buying a home in a mostly Black neighborhood:

You have to do 15% more work, for houses under $200,000. The people over there aren’t qualified [for mortgages], their houses haven’t been maintained… This lady called not too long ago and wanted to look at a house in Third Ward [another black Houston neighborhood]. She said she had a good job and everything. I asked her if she was [pre-]qualified, and she said no, and I explained that she needed to talk to a lender to find out what she would be pre-qualified for, and that I would send her a list of lenders, and then she got all defensive! I mean I’ll show her the house because it could result in a sale. But I know she’s not qualified. And it’s not because of race, it’s because she doesn’t know anything about the process, doesn’t know about property taxes, and so on.

None of us can feel good about the agent’s reference to the “people over there.” The customer had to wonder if the agent was questioning her credit based on her race or just where she was looking for a home. The customer said she had “a good job,” but still the agent thought she wouldn’t qualify for a loan. Reading about this and other examples in the report has spurred Redfin to invest more in our training on unconscious bias; 90+% of our employees have participated in the program we already have, but we need to update it to address a larger number of real estate-specific scenarios, and we’d be open to collaborating on it with other brokerages trying to address this problem.

That said, there’s more than unconscious racial bias at work here: the agent’s first concern was the price of the home the would-be customer was buying, which he presumed would be under $200,000. Wealthy customers get better service in every industry, and the effect is only stronger in real estate, where the fee is typically a percentage of a home price. This means an agent earns 100 times more selling a $10-million home than a $100,000 home. In fact, critics of real estate commissions often argue that the service for selling a $10-million home should be much better than that for a $100,000 home, to justify the more-expensive home’s fee.

The problem with giving the millionaire much better service is that the consequences of this preferential treatment aren’t just a better table at a restaurant, but a different life, in a safer neighborhood, with a different peer group and better schools. For America overall, Professor Korver-Glenn argues, the consequences are even simpler: segregation.

Why It’s Hard to Take the Money Out of Real Estate

What can we as an industry do? The folks at Redfin know from our own experience that it’s hard to take the money out of real estate. On principle, Redfin for many years charged the same flat fee for selling an entry-level home or a mansion, and paid agents the same bonus. The problem was that the Redfin agents in wealthy neighborhoods left for better pay at other brokerages.

Redfin also found that the wealthy customers, used to getting the best of everything and anxious for us to recognize the relative magnitude of their sale, actually wanted to pay Redfin agents more than what Redfin charged the owners of more-modest homes. Once Redfin moved to a fee that was a percentage of the home price, which is now 1%, the company found that what we made from high-end clients subsidized our service to entry-level clients. And this was a major reason why Redfin, which started in coastal markets but has since expanded to small towns in the South and Midwest, could start serving customers buying $200,000 homes, and not just $400,000 homes.

But Redfin needs to keep expanding the range of customers our own agents can serve, mostly by investing in technology to make Redfin even more efficient. Today, Redfin refers people buying or selling homes priced below $200,000 to partners; in some markets, especially when our agents get busy, that price threshold is even higher.

Redfin wants that threshold to be lower, but we’re the only major brokerage that pays agents a salary and benefits, and we also have other priorities, which are largely focused on lowering brokerage fees generally. Reading this article has re-invigorated the management team to explore how, in at least some markets next year, our own agents can serve customers buying or selling homes for $150,000.

Another Reason to Limit Pocket Listings: It’s Unfair to Homebuyers of Color

Even as brokerages reach out to more underserved communities, it will be hard to prevent wealthy customers from paying for preferential treatment, or agents from delivering it. But we can at least limit some of the most egregious forms of preference, such as the pocketing of listings. The study cited two different agents who estimated that half their clients considered selling their listing or sold a listing without marketing it to the public.

The agents may have exaggerated these claims, but even if the claims are only half true, that level of private dealing probably surprises most of the brokers reading this essay. Today, Redfin sometimes promotes listings on our site before publishing those listings via the Multiple Listing Service to other brokers’ sites, but either way these listings are still available to every homebuyer via the Internet.

I had always evaluated pocket listings in terms of their effects on the seller of a home, and on homebuyers generally. But the study makes the case that homebuyers of color are less likely to have access to pocket listings, because white agents often don’t know or don’t solicit customers of color. Seen in this light, Redfin’s recent campaigns to motivate listing agents to market their listings publicly are important not only for fairness within the industry, but for fairness to buyers of all colors and creeds.

Broad, Intense Hostility Toward Discounting

The study’s finding that surprised Redfin the most was largely incidental to its focus on race; it was the casual, widely shared hostility to price competition. The industry has long argued that there’s no standard commission, and that brokers freely compete on price. Redfin has certainly noticed that the hostility toward lower-fee brokers has declined, to the point where Redfin has felt accepted within the industry.

It was thus jarring to hear an agent in the study describe another agent as “a real douche bag.” “I made a big stink about him [at my brokerage],” the agent said, “because how he got the listing was he went and reduced his commission.”

Another agent discouraged a peer from giving a $1,000 commission refund, saying that even if you won over that client, you wouldn’t want their referrals. “These are not the people you want referrals from. These are people you say, ‘Bye bye, have a nice life.’” A third agent was reluctant to serve Asian-American customers who, the agent said, are more likely to ask that “you drop the commission lower… they’ll blatantly ask you . . . that you lower your commission.”

Professor Korver-Glenn observed that white agents and agents of color were equally committed to a 6% fee, but when agents of color did charge a different fee, it was more likely to be as an accommodation to people of color. A Latino agent charged a $6,000 flat fee to sell a $60,000 home. This of course is more than 6% of that home’s price, but the agent reasoned that charging a higher price was better than refusing to take the client on at all, as owners of homes at that price often struggle to get representation.

A Black agent said that “everybody here charges 6%, of course. Sometimes I may go 4%, 5% if I have a buyer that’s marginal, I will—I’ll give in. We’re not supposed to but I do, because I’m a social worker at heart.” White agents also discounted, though Professor Korver-Glenn observed that this was often to build loyalty from clients already within their network, who were also largely white.

Diversity Among Real Estate Agents

The study found that the Black agent’s sense of social purpose was common among agents of color, many of whom had experienced racism themselves, and that this social commitment offset some of the incentives to focus on wealthy, white customers. For example, one Latino agent invested in redeveloping low-income Latino areas because he perceived most agents ignored these areas. When asked about the incentives to focus on more lucrative customers, a Black agent repeatedly said, “It’s not about the commission. It’s about the people.”

This is one reason why it’s important for agents of color to succeed. The study’s findings about how white agents draw their customers from white social networks affected not only the service customers of color got, but the careers of agents of color. Agents of color struggled to assemble the same networks of partners that white agents used to give their customers an advantage; a Latino agent in the study noted that a white architect in a desirable Houston neighborhood refused to work with him.

Minority agents were more likely to work with minority customers, including those outside their own race, and had to cover a larger territory. A Black real estate agent said she had not been mistreated because of her race, but believes she is less likely to connect with million-dollar clients because of her race. “They don’t touch us,” she said. This was heartbreaking to read.

At Redfin, we believe that the Internet can counter the tendencies of white agents to pursue white customers, and the unconscious preferences white customers may have for white agents. In our experience, a white homebuyer is more likely to hire a Black agent when a website such as Redfin.com or Zillow.com recommends that agent based on her reviews and sales performance. This is why Redfin has been successful at hiring Black real estate agents, and why those agents are well represented at President’s Club, a group of Redfin’s most highly paid agents.

The Internet is often a channel for exacerbating racism, and race-based differences in Internet access are well documented. But all of us in the real estate industry hope that the Internet can help agents of different races succeed, and that it can connect customers of different races with agents who can get them into neighborhoods where no one like them has lived before. What this study makes clear is that Redfin and other real estate brokers have all sorts of problems to solve, but we also have an amazing opportunity to make life better, for our customers and for our country.

Glenn Kelman is the CEO of Redfin, a technology-powered real estate broker. Many thanks to Professor Korver-Glenn for reviewing this essay, and for giving us permission to synthesize her research. The professor has published a second article on race and real estate, focusing on lenders and appraisers.

(Credit for photo of Houston: Kate Haugland Bowen on Flickr)

The post A More Perfect Union: Why Cities Are Still Racially Divided And What We As Real Estate Brokers Can Do About It appeared first on Redfin Real-Time.

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