Many of America’s cities are still segregated, and the real estate industry — including Redfin — may be playing a role in that deep divide, according to Glenn Kelman, the often outspoken CEO of Seattle-based real estate brokerage Redfin.
Kelman was tapped to deliver a talk on the main stage at Inman Connect in San Francisco on Wednesday morning, titled, “How We Built a Big Real Estate Company That Cares About the Customer.” Instead, he pivoted and spent his time talking about racial segregation in housing and the industry’s role in the segregation.
Is the country still segregated, and what is the industry’s role?
Kelman began the talk by showing the standing-room only crowd a map of Chicago broken down by race.
“What you can see is that even though we have this motto in America where, ‘We are all one,’ we are actually in some ways deeply divided,” Kelman said. “50 years after the passing of the Fair Housing Act, a city like Chicago is almost perfectly segregated by race. It’s not just that city, it’s almost every city in America.”
Part of that segregation is due to income inequality. A study published on Tuesday by Zillow, found that a renter making the median household income for black Americans could afford just 16.2 percent of the available rents on Zillow without putting more than 30 percent of their pre-tax income toward housing.
A renter making the median income for Hispanic households could afford 27.3 percent of rentals while renters making the median household income for a white individual could afford 49.7 percent of listed rentals.
Kelman explained that most of the industry would like to see integrated neighborhoods but each of the homes in these segregated cities were sold by real estate brokers in the room and around the country that were trying to perform their fiduciary duty, regardless of the race of their client.
“This often meant we helped white customers get into white neighborhoods,” Kelman said. “And that’s our job. That’s what the customer wants.”
“People of color want those neighborhoods too, but what we’ve found is that many of them really worry if their offers are treated fairly,” he added. “They worry about whether agents are as eager to work with them as we are with wealthy people, white people or whatever group we think we belong to.”
Redfin surveyed about 2,000 homebuyers in 2016 and found that people of color, about half of them were worried that their offers weren’t treated fairly. It ran the same survey a few weeks ago and found that number dropped to about 35 percent.
“It’s reassuring that they’re not as worried about it as they were a few years ago, but still a tragedy that one in three people of color who are shopping for a home, aren’t really sure that they’re getting a fair deal,” Kelman said.
Kelman relayed information about a study by University of New Mexico assistant professor Elizabeth Korver-Glenn that followed nine real estate agents in Houston: two were black, three were Latino and four were white. She talked to 125 customers and went to open houses.
Most of that research showed that real estate agents provide powerful advantages to their customers, according to Kelman. It’s something that Redfin tries to do with its own business — give its customers a competitive advantage in trying to buy and sell houses.
“She noticed that there’s a certain type of customer who gets better service and this is just the reality of not just real estate but of capitalism,” Kelman said.
“Most real estate agents want to work with wealthy customers because they’re buying more expensive houses, and it generates more fees. They’re generally easier to work with because they have a higher credit score. Part of the problem is the people who need service the most, who understand the least about the homebuying process, who are new to the American dream, are the ones who are the least sought after in the industry.”
“She also noticed something else: most real estate agents are white, most of the top producers are white, and almost all of their customers are white,” Kelman added. “And this happens because we draw on our networks to build our business.”
In true Kelman fashion, he acknowledged his “crunchy” personality in the talk, recalling when he first read the results of the study in an Alaskan yurt, while simultaneously worrying about being eaten by a bear. One quote really — from a real estate agent talking about an African-American aspiring homebuyer — made him think hard about Redfin’s role in addressing that inequality.
“The people over there aren’t qualified, 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 qualified, and she said no, and I explained that she needed to talk to a lender … and then she got all defensive! …I know she’s not qualified. And it’s not because of race, it’s because she doesn’t know anything about the process …”
Kelman said, while sitting in the yurt, he realized, that agent could have worked at Redfin.
“None of us is free of sin,” Kelman said. “We have a lot of biases about what a good client is.”
He added, “The professor was really convinced on this one point: If you adjust for income, America is still segregated. If you adjust for income, real estate agents are still hesitant to serve people of color because of biases they have that are explicit, or more likely, unconscious.”
What is Redfin doing about it?
Going forward, Redfin is taking steps to address the systemic inequality in homebuying, first by hiring more agents of color.
“The reason that lots of people of color don’t want to go into real estate is because of its really hard to get a white person to hire a black real estate agent,” Kelman said. “White people go with people they know and go with people they trust, and white people and black people also travel in different circles.”
Kelman also said, having agent reviews and statistics like homes sold on the website — whether it’s Redfin or a third-party site like Zillow — will also help. He used the example of Kenny Whiteside, a black agent and one of Redfin’s top performing agents.
“I’m not sure as many white people would want to hire him if they could not see how good he was,” Kelman said.
Redfin also had a minimum price threshold of $ 200,000, which means that many neighborhoods are underserved by its agents. Kelman said in some areas, the company is going to try to get that minimum threshold down to $ 150,000 to serve more customers with the goal of eventually taking that nationwide.