Originally Posted on Bloomberg Businessweek
To understand how inequities in real estate persist in the U.S., consider two homes in Chicago. The first is a brick bungalow with five bedrooms and 2 1/2 bathrooms on the city’s predominantly Black South Side. The home has more than 2,000 square feet and sits on a pretty, tree-lined street, a short walk from a Nigerian restaurant. The second property is an 800-square foot, two-bedroom condominium unit in Glencoe, a mostly White suburb.
The South Side house is worth $187,000, about $20,000 more than the Glencoe condo, according to a recent visit to the website of Redfin Corp., the real estate technology company. Based in Seattle, Redfin provides home listings and valuation estimates to buyers and sellers. The company also operates one of the country’s largest real estate brokerages—but it doesn’t provide its services to just anyone. On its page describing the more expensive house in an overwhelmingly Black part of the city, Redfin’s site noted that “customer demand is through the roof right now,” so it couldn’t provide one of its real estate agents to help broker a sale. It offered a referral to another company instead. For the less expensive apartment in the overwhelmingly White suburb, Redfin promised a lot more. “We’ll handcraft your analysis,” the site said, offering a call from an agent and comprehensive market data within two days.
The striking contrast in Redfin’s treatment of these two homes—and similar disparities in the level of service the company provides in majority-White and non-White neighborhoods—can be found in cities across the country. It is, Redfin’s detractors say, a sort of digital redlining that harkens back to the days when loan officers shaded no-go areas red on maps. The critics include fair housing groups, which are in talks with the company to settle a federal lawsuit they filed that could force changes in how Redfin manages its business, and at least some of its own employees, who have pushed for more service in minority neighborhoods.
These people trace the apparent racial disparities in part to Redfin’s software, which is supposed to help managers smooth out demand from consumers and direct the efforts of its growing workforce of salaried agents. For inquiries through its website and app, Redfin sets a minimum valuation in every market before it will sell a home on behalf of a seller or buy one on behalf of a buyer. The threshold can vary by the part of town and even by the day, based on Redfin agents’ workload and the volume of leads.
Sellers whose homes are worth more than whatever the minimum happens to be when they sign up for Redfin’s service get professional photos, 3D walkthroughs, data analysis, and added visibility on its site—all while paying less in commissions than they would with a typical real estate brokerage. Sellers of homes that are below the company’s minimum threshold get a referral to a non-Redfin agent, which the company calls a “partner agent,” or no service at all. As a result, fair housing groups contend, these sellers may have to pay a bigger commission for an inferior listing, and may ultimately accept a lower price.
Redfin says its own data show that it doesn’t discriminate by race. In a statement, the company calls it “sensationalistic and wrong” to describe its policies as the equivalent of redlining, a discriminatory practice in which lenders, insurers, and others withhold service from certain communities based on race. “Being fair is more important to Redfin than making money,” the company says. “We recognize that systemic racism affects who can pay for a broker, a book, or an airline ticket, but using price to determine which homes we can sell is not only legally permitted, it is the only fair way to make that determination.” Redfin also disputes the idea that third-party agents would offer inferior service, saying it carefully vets them and that for many lower-priced properties, they offer a better deal than its own employees can provide.
Redfin’s potential to influence home prices comes from its size and scale. Since its website went live in 2004, the company has grown into the fifth-largest real estate broker in the U.S., with sales volume of $37 billion in 2020, according to the trade publication RealTrends. Redfin’s site and app attract more than 49 million people each month to view its listings and valuations. This part of its offering helps shape perceptions about home prices and drives thousands of leads to agents every day.
Fair housing groups argue that, by withholding service disproportionately to lower-priced homes that tend to be in minority neighborhoods, Redfin’s policy perpetuates unequal treatment that has persisted for generations and led to a huge loss of wealth for many non-White homeowners. “This is not just happening one time in one city,” says Diane Houk, a lawyer for the National Fair Housing Alliance in Washington, a plaintiff in the suit.
Redfin has promoted its technology-enabled business as a way of bringing racial justice to real estate. The idea that it might actually be doing the opposite has troubled some of its own employees. During a Zoom call for a few dozen staffers in Chicago in September 2020, Chief Executive Officer Glenn Kelman was asked about pay disparities among Redfin agents. It was just a few months after the murder of George Floyd by a Minneapolis police officer set off protests in many U.S. cities. Redfin had been through its own turmoil, dismissing 41% of its agents in the first weeks of the pandemic, only to bring many back within months.
One agent asked Kelman how the company could improve pay for those who worked and lived downtown and on the city’s majority Black South Side, where lower home values meant bonuses were often smaller than those earned by colleagues in White neighborhoods. Kelman said Redfin would allow the best agents in the city to work in higher-end areas that brought more profit, according to people on the call, who asked for anonymity discussing the private conversation. One later told colleagues that Kelman didn’t seem to get it at all. Under the proposal he floated, minority communities would get even worse service. According to Redfin, Kelman was simply trying to make sure everyone had an opportunity to work on “the most lucrative deals.” Redfin calls this “the only fair way to run a company in an industry where the amount agents earn is linked to the sale price of the homes they sell.”
A month later, the National Fair Housing Alliance and nine other fair housing groups argued that the racial dynamic the employees had observed in Chicago was much broader. In a lawsuit filed in federal court in Seattle, the groups alleged that Redfin was discriminating against buyers and sellers, violating the Fair Housing Act. They say their suit is based on a two-year analysis of how Redfin had applied its minimum price thresholds in markets across the country—including Chicago, Detroit, Baltimore, Memphis, Kansas City, Mo., and Long Island, N.Y.
The price minimums, the suit alleged, systematically deny service in places where a large proportion of residents aren’t White. These are often the same areas once deemed risky on maps produced by the federal Home Owners’ Loan Corp. in the 1930s to determine who could get government-backed mortgages. In greater Chicago in June 2020, for instance, Redfin was five times more likely to provide the best services and rebates in zip codes in which 70% or more of the residents were White, compared with zip codes where 70% or more of the residents were not White, according to the groups’ analysis. At the time, the suit says, Redfin didn’t make its own brokerage services available at all within Chicago’s city limits unless prices reached $400,000—but it did so in majority-White DuPage County, in the Chicago suburbs, for homes priced above $275,000. In majority-Black Detroit, prices had to reach $700,000 for buyers and sellers to get Redfin’s offering, according to the suit. But in the mostly White suburbs in Wayne County and adjacent Oakland County, Redfin was available to anyone selling a home worth at least $250,000.
Kelman declined to comment for this story, which is based on interviews with two dozen current and former Redfin staffers as well as data produced in the lawsuit. He hasn’t said much about the suit publicly, other than in a letter sent to employees that was also published on Redfin’s website. In it, he wrote that there were legitimate business reasons for setting minimum prices, and that Redfin has expanded the range of properties it can profitably sell as it has grown. He added that part of the company’s challenge in serving lower-priced markets—including some urban neighborhoods and rural towns—stems from its compensation model. Unlike rival brokerages that operate solely on commission, Redfin’s agents get health benefits and a base salary (starting at $12,000), in addition to bonuses.
In a statement, Redfin says it’s being unfairly targeted because it publishes online what service it will provide to a property. It adds that its commitment to lowering the price thresholds means that “every year, by design, we lose money selling low-priced homes. The only issue in this case is whether we should lose more. We know of no other major brokerage with that commitment; the rest let each agent decide whom to serve.”
