Simple Solution to the Redfin Fair Housing Lawsuit

It appears that Redfin, the wokest brokerage in real estate, has been sued by a coalition of fair housing organizations for what they say is a violation of fair housing laws. Specifically, these organization claim that Redfin’s failure to provide services in lower priced areas that happen to be majority-minority, is a form of redlining.

From the Chicago Tribune (although many other papers are carrying to story as well):

SEATTLE — Several fair housing organizations accused Redfin of systematic racial discrimination in a lawsuit Thursday, saying the online real estate broker offers fewer services to homebuyers and sellers in minority communities — a type of digital redlining that has depressed home values and exacerbated historic injustice in the housing market.

In a complaint filed in U.S. District Court in Seattle, the organizations said that during a two-year investigation they documented the effect of Redfin’s “minimum price policy,” which requires homes to be listed for certain prices to reap the benefits of Redfin’s services.

The company was vastly less likely to offer real-estate services, professional photos, virtual tours, online promotion or commission rebates for homes listed in overwhelmingly minority neighborhoods than it was in overwhelmingly white ones, the investigation found.

That meant homes in minority neighborhoods were likely to stay on the market longer and sell for lower prices than they otherwise might have, the lawsuit said.

“Redfin’s policies and practices operate as a discriminatory stranglehold on communities of color, often the very communities that have been battered by a century of residential segregation, systemic racism, and disinvestment,” the lawsuit said.

Here is the actual Complaint, thanks to a reader who sent it to me:

I think this is a tough case, and an interesting one. I can’t really imagine the plaintiffs winning here on the merits, but the lawsuit will hurt Redfin.

Redfin? You Went After Redfin?

The irony is, of course, that Redfin is the company in real estate that is the most sensitive to issues of inequality and diversity. As the Chicago Tribune story above notes:

Redfin might seem an unlikely target for such a lawsuit: It has previously said it is devoted to eradicating systematic discrimination in the industry and that enabling people of color to find listings online — rather than relying on an agent to show them what homes are available — could help end segregation. Two years ago Kelman hosted a symposium on racial prejudice in real estate.

Here’s the recording of the symposium on race and real estate that Redfin hosted:

Those of us who have been in the industry know that Glenn Kelman has been preaching on the issue of racial disparity in housing for years now, before Long Island Divided, before George Floyd, before any of this current focus on all things race in real estate. In fact, before hosting that Symposium, Glenn Kelman got on stage at Inman Connect in 2018 and used his time slot (where he was supposed to “provide a vision for what’s going to happen to real estate over the next few years”) to talk about race and real estate.

He says in that Inman talk: “Real estate agents are still hesitant to serve people of color because of biases they have that are explicit, or more likely, unconscious.”

Redfin as a company has been utterly transparent about its diversity efforts. It has openly discussed the demographics of its workforce, of its agents. It has a whole section on its website talking about its diversity efforts, about its training (which includes training on unconscious bias), and so on.

This is something you find on Redfin’s official Twitter profile:

Redfin is not Douglas Elliman, who saw no fair housing violation despite video evidence of what experts and New York State senators both point out are clear fair housing violations. Glenn Kelman is not Allan Eldridge, who was okay with “you can walk to buy your crack” because apparently 45 minutes of context justifies that statement.

Quite literally, there is no company or organization that is more concerned about avoiding racial bias, more concerned about social justice, more concerned about equality than Redfin. Not just in real estate, but in American business overall.

And this is the company that the fair housing organizations went after?

Glenn Kelman must not only be pissed off at being sued, but also despondent that they went after him, one of the actual good guys in the industry on the question of race. Talk about stabbing your allies in the back… wow.

Is There an Affirmative Duty to Provide Services?

I’ll have to think about this more, and research a bit, but it seems to me that the key issue here is whether Redfin has an affirmative duty to provide real estate services in poor minority neighborhoods if it provides real estate services in rich white neighborhoods. In a blogpost released mere hours ago, Glenn Kelman obviously answers no:

Redfin Hasn’t Broken the Law

What we know now is that Redfin complies with the Fair Housing Act, which clearly supports a business’s decisions to set the customers and areas it serves based on legitimate business reasons such as price.

Our Challenge: Paying a Living Wage

Our long-term commitment is to serve every person seeking a home, in every community, profitably. The challenge is that we don’t know how to sell the lowest-priced homes while paying our agents and other staff a living wage, with health insurance and other benefits. This is why Redfin agents aren’t always in low-priced neighborhoods. It’s why Redfin doesn’t serve many rural towns.

What the plaintiffs are claiming, however, appears to be that the Fair Housing Act requires that brokerages provide services in non-white areas, even if doing so is unprofitable:

By implementing policies that disproportionately deny real estate services to communities of color, Redfin creates and perpetuates separate and unequal housing markets, providing a higher level of services for homebuyers and sellers in white neighborhoods and a lower level of service in non-white areas. Redfin’s policies and practices violate the Fair Housing Act. (Complaint, p. 3)

The key claim is one of unequal treatment:

Redfin does not offer its brokerage services for every home, even in the markets in which Redfin operates.

For some homes, Redfin offers no service, for some it makes its agents available to buyers and sellers and provides its best available service, and for others, Redfin directs customers to partner agents instead of giving customers the option to buy or sell using a Redfin agent. (Complaint, p.10)

Furthermore, the plaintiffs think that it is significant that the Minimum Price is different from one neighborhood/area to the next:

Similarly, in June 2020, it was Redfin’s practice not to offer its brokerage services to buyers and sellers in the City of Detroit unless homes met a minimum price threshold of $700,000. In the rest of Wayne County, outside of City limits, and in adjacent Oakland County, Redfin offered its brokerage services to buyers and sellers of homes beginning at a listing price of $250,000. (Complaint, p.11)

Following this logic, it appears that the theory of the plaintiffs is that a brokerage has an affirmative duty to offer real estate services. At a minimum, according to the plaintiff’s logic, a brokerage has an affirmative duty to offer the same service across a market area.

That sounds… a bit extreme to me. But I do reserve judgment until more facts come out.

Based on what I know about Redfin, it feels like this is a bandwidth issue caused by Redfin’s W-2 model. Maybe Redfin only has 2 agents in the City of Detroit, and they’re both working 90 hour weeks, and simply cannot take on any more work. Maybe those two Detroit agents are very experienced people making a large salary, which makes it harder to take on lower priced homes, whereas the rest of Wayne County is staffed by less expensive junior agents. Who knows? Unlike other brokerages, Redfin has to hire very slowly, as they have costs that other 1099 brokerages simply do not have.

But maybe more facts will emerge to change the way we should understand the discrepancy.

Note that this excuse is unavailable to any brokerage using the traditional 1099 model. Then it’s a matter of, “Why didn’t you recruit more agents who serve those underserved markets?” and the brokerage have to come up with an answer that the jury will find acceptable.

I will say this: if the case goes against Redfin, and there are no weird extraneous facts, then it seems to me that we will have a new legal principle that a brokerage must offer identical services across differing markets. Seems to me that something like a Luxury Division could be a violation of fair housing under this theory. If you provide $2,500 drone video package for your $2 million listing, you also have to provide it for your $200,00 listing, because fair housing requires it. It also seems to me that going into one market means the brokerage likely has to enter into all adjacent markets as well, at least if those adjacent markets have large racial or ethnic minority populations.

This is, to put it plainly, crazy.

This is Not Steering; It Isn’t Redlining

An affirmative duty to provide services at a loss is not steering. It isn’t redlining. If you’ve read my previous writing on fair housing and race in real estate, it should be obvious that I strongly believe we the industry must stamp out racial discrimination. We have too much of a history of having been involved in racist crap in the past.

But what Redfin is accused of here is neither steering nor redlining.

There is no hint that Redfin is somehow trying to preserve an area’s demographic makeup; they’re not treating black and white buyers differently. They’re not telling white homeowners that they’ll only market their homes to white homebuyers, or listing white-owned homes for 1% but demanding 3% for black-owned homes. Redfin simply can’t figure out how to make money on low-priced homes. The Plaintiffs claim that the minimum commission rules means Redfin is lying. That strikes me as a reach; how an outsider can claim that a business’s own decisions are or are not justified without direct proof is… a bit… I don’t know.

Plus, if Redfin could make a profit selling lower priced homes, I imagine they would do everything they can to make that profit; it is, after all, a public company beholden to shareholders. Glenn Kelman may be a bit of an idealist, but he is also a great businessman who likes to make money and generate profits for his shareholders.

So let’s understand that unless some new facts emerge showing actual racial animus, or callous disregard for discrimination, the claim that failure to provide services at a loss is a fair housing violation seems like a real stretch.

Simple Solution: Let Me Help You Help the Community

But take a step back from the lawsuit. Let’s take a look at the problem, in plain English, rather than in legalese. Let’s forget what the law does or does not say, and look at the practical issue here.

The problem is that poor minority areas do not get brokerage services. That lack of brokerage services leads to lower housing demand and lower values, which leads to segregation and all sorts of negative knock-on effects.

The solution, then, is to offer brokerage services in those poor minority areas.

It does not follow, however, that it must be Redfin who has to offer brokerage services in those areas. After all, there are plenty of brokerages all around the country. Real estate is one of the most competitive service industries in the world, after all, with very low barriers to entry. And Redfin in particular is a tiny brokerage, with less than 1% market share nationwide.

Furthermore, it does not follow that market share means you have to offer services at a loss. In Detroit, for example, Real Estate One is the largest brokerage by far with the largest market share. I don’t think Real Estate One should be compelled to take a loss either.

The solution then, is for someone who is above suspicion of racial discrimination, who is not driven by the profit motive, to offer brokerage services to those underserved communities. It seems obvious to me that the fair housing organizations who are suing Redfin are the ideal candidates for such non-profit brokerage work.

There is plenty of precedent for nonprofits to get more directly involved in housing. For example, National Affordable Housing Trust has a list of nonprofit development partners who actually build and do property management for low-income rental housing. Just about every city in America that I know of has at least one non-profit that rolls up its sleeves and does the work in putting up housing units and managing them.

Compared to having to build new homes, then manage them, simply brokering existing homes requires far less capital, far less staff, far less everything. So the answer is simple: the fair housing organizations that are suing Redfin should start nonprofit brokerages and offer services at low cost or no cost to the underserved communities that they want Redfin to serve.

For example, one of the fair housing organizations describes itself in the Complaint as follows:

Plaintiff Fair Housing Center of Metropolitan Detroit (“FHCMD”) is a non-profit organization that supports and encourages equal housing opportunities in the greater Detroit metropolitan area. FHCMD’s mission is to ensure equal access to housing without discrimination. FHCMD strives to fulfill its mission by providing intake counseling, investigative and legal assistance to individuals alleging housing discrimination; providing community outreach, education and fair housing training; and conducting housing-related research.

Seems to me that it would be simple and easy to add on, “FHCMD also provides free and low cost real estate brokerage services to underserved communities.” If the mission is to ensure equal access to housing without discrimination, get in the game! Open a brokerage and start offering those services that you want Redfin to provide. If builders can do it, why can’t brokers?

If brokerages, including Redfin, can’t make a profit providing brokerage services to those neighborhoods due to the low value of the homes, then that’s a market opportunity for a non-profit to seize. It isn’t hard to get your broker’s license, and even easier to get a salesperson’s license. Go get yourself a licensed broker, open up the FHCMD Community Brokerage, and start offering low cost brokerage services yourself. Do listings at 1%, offer refunds to buyers, just like Redfin would, and take market share in an underserved community that still has houses people want to buy and sell.

Redfin can help that effort by giving FHCMD a brand (“Redfin Fair Housing Detroit, independently owned and operated blah blah blah”), use of its website, traffic for free, leads for free or at a discount (the normal Redfin Partner involves a hefty referral fee), some technology tools, training, and other assistance. Or, if Redfin really doesn’t want to get into franchising, well, offer to pay for FHCMD to buy into a low-cost franchise system in real estate. HomeSmart Fair Housing Detroit, or NextHome Fair Housing Detroit both sound pretty good to me. It’s not expensive to buy into some brands; Redfin can spare the cash. Pay for FHCMD to become a franchised brokerage.

For that matter, the more expensive franchises can help by bringing in non-profit community brokerages at lower cost. Nothing is written in stone that RE/MAX or Coldwell Banker can’t create programs for nonprofit community brokerages at substantial discount, or for free.

Other industry players can also help. NAR and the local MLS (RealComp in Detroit) can help the effort by offering REALTOR membership and MLS subscriptions at no cost, seeing as how FHCMD would be a not-for-profit that only works in underserved communities that the normal for-profit brokerages can’t. Technology vendors can offer special discounts or free products to these nonprofit community brokerages.

All of these free or low cost offerings can likely qualify for charitable deductions on taxes anyhow, if properly structured… so… that’s a win.

In fact, these nonprofit community brokerages — operated by fair housing nonprofit organizations — can offer a career path to many of the local residents of underserved neighborhoods by training them, getting them licensed, then employing them to work as real estate agents in those neighborhoods.

Doesn’t that seem like a win-win-win for everybody?

What am I missing?

Make Love, Not War

I can’t see how this lawsuit, even if well-intentioned, helps anybody other than the lawyers. It punishes everybody, including the organizations bringing the lawsuit, as they alienate people and companies who genuinely want to help. It’s really difficult to think good thoughts about someone who just put you through a deposition.

So let’s try to make some lemonade out of these lemons.

The fair housing organizations ought to drop the lawsuit and start nonprofit brokerages. The industry should help them with no-cost or low-cost products, services, lead-generation, training, membership, etc. etc. If these nonprofits can manage to show that a vibrant real estate market can exist in these underserved communities, trust me when I say that the for-profit businesses will come right in after them, create competition, and even acquire the nonprofit brokerages for market share. All of that leads to better service for the consumers in these communities.

That kind of partnership is one I feel confident in saying Redfin would welcome, and the entire real estate industry would welcome. Rather than putting good people with good intentions on opposite sides fighting with lawyers, they would be on the same side fighting against the legacy of past redlining.

The vast majority of brokers, agents, and leaders in the real estate industry are good people wanting to do the right thing. They’ll do just about anything to make this world a better place, and reverse the wrongs of the past. They’ll do almost anything that fair housing advocates want them to do. But they can’t go for lawsuits. No, they can’t go for that.

So let’s find a way to come together, and create a win-win-win solution.

-rsh

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Rob Hahn

Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

2 thoughts on “Simple Solution to the Redfin Fair Housing Lawsuit”

  1. Rob unfortunately you are swallowing Glenn’s b.s. Redfin has a minimum commission. If that minimum works in area x why is it somehow insufficient in area y 2 miles away? It isn’t. There is NO EXCUSE why salaried employees cannot cover a contiguous sales area with the SAME minimums. Having different minimums where the minority community is singled out for higher minimum requirements is pure and simple discrimination. Redfin will lose this lawsuit and lose big.

  2. One distinction is that all of the other brokerage companies employ mini-companies of their own (1099s) where Redfin is one giant team. The same efficiency that lets Redfin operate at a goal of 1% total commission, may also carry a larger responsibility for the disproportionate impact an employee policy can have on housing and the fairness of it. Forming a separate non-profit that would offer similar services, sounds a lot like separate but equal; the goal is fair.

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