Digital ‘redlining’ suit accuses Redfin of racial discrimination

Several fair housing organisations accused Redfin of systematic racial discrimination in a lawsuit on 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 US District Court in Seattle, the organisations 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 realtor services, professional photos, virtual tours, online promotion or commission rebates for homes listed in overwhelmingly minority neighbourhoods than it was in overwhelmingly white ones, the investigation found.

That meant homes in minority neighbourhoods were likely to stay on the market for 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.

The lawsuit comes as the nation reckons with generations of systemic racism, including in real estate. Mortgage lenders and brokers long discriminated by drawing lines on maps – known as redlining – and refusing to provide services for homes outside of white areas, preventing minority residents from building wealth through home ownership. Though the practice was outlawed decades ago, it has had severe consequences in perpetuating poverty and restricting access to good schools, healthcare and other amenities.

Litigation in the 1990s and 2000s helped erase similar minimum value policies in the insurance industry, where companies would provide substandard homeowners’ policies or no policies based on a home’s age and market value.

Redfin, based in Seattle, launched in 2006 and has grown to offer residential real estate brokering, mortgage, title and other services in more than 90 markets in the US and Canada. The company said it would provide a statement in response to the lawsuit later Thursday.

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 colour to find listings online – rather than relying on an agent to show them what homes are available – could help end segregation. Two years ago CEO Glenn Kelman hosted a symposium on racial prejudice in real estate.

The company once experimented with awarding realtors commissions based on customer satisfaction rather than the sale price, as a way to promote the sale of less expensive homes, but found it difficult to recruit agents who expected to make more money for selling more expensive homes.

But Redfin’s minimum price and other policies have had the opposite effect, according to the National Fair Housing Alliance, a Washington, DC-based nonprofit dedicated to eliminating housing discrimination, and nine of its member organisations. With financial support from US Housing and Urban Development, they studied the policy’s effect in Baltimore, Chicago, Detroit, Kansas City, Long Island, New York, Louisville, Kentucky, Memphis, Tennessee; Milwaukee, Newark, New Jersey; and Philadelphia.

Under the minimum price policy, Redfin does not offer its full services unless homes are listed for certain prices, which vary by market. When potential buyers click on homes that fall below those minimums, they receive a message saying, “Redfin is currently unable to show this property.”

In Chicago last June, the company did not offer services unless the homes were listed for at least $400,000, the lawsuit said. In adjacent, predominantly white DuPage County, however, the minimum price was just $275,000.

In Detroit the same month, the minimum was set at $700,000. In the surrounding, mostly white areas outside the city limits, it was $250,000.

Because Redfin charges a minimum commission regardless of a home’s sale price, the practice cannot be justified by business motives, the lawsuit said.

Further, it alleged, Redfin sometimes failed to provide services even when a home’s price topped the minimum. That was much more common in predominately minority neighbourhoods, including Chicago’s South Side, the organisations said.

Using Census data to compare ZIP codes that are at least 70 percent white with those that are at least 70 percent minority, the organisations compared listings for which Redfin offered its “best available service” with those for which it offered no service on multiple dates over the past two years.

On June 12, for example, there were 218 homes posted on Redfin in non-white neighbourhoods in the Kansas City area. Of them, 16 had Redfin’s best service and 127 were offered no service.

By contrast, there were 4,550 homes in predominately white neighbourhoods of Kansas City. More than half received the best available service and only 14 percent had no service, the lawsuit said.

Similar disparities were found in other cities, it said. On Long Island last August 20, listings in white ZIP codes were 55 times more likely to receive Redfin’s best service.

In minority ZIP codes of Louisville, none of the 108 homes posted on November 21, 2018, or the 31 homes listed on June 11, 2020, received Redfin’s best service, the groups found.

The lawsuit asks the court to block any Redfin policies found to violate federal fair housing law and seeks punitive damages.

Lisa Rice, president and CEO of the National Fair Housing Alliance, said the groups did not share their findings with Redfin before filing the lawsuit because past experience with the industry sometimes resulted in long, unsuccessful negotiations that only protracted the issues.

“We have had decades and decades and decades of discriminatory practices in the real estate field,” she said. “Real estate agents are some of the most well-trained professionals in the industry. They know what redlining is.”