Redfin Sued for "Digital Redlining" Over its Minimum Sales Price
The online discount real estate broker Redfin has been sued in federal court by a number of housing nonprofit organizations claiming that its business practices amount to illegal discrimination. Specifically, Redfin is accused of a practice called redlining, which helps contribute to housing segregation. Among the plaintiffs is the Metropolitan Milwaukee Fair Housing Council. The lawsuit specifically centers on Redfin's practice of setting minimum listing prices for its homes. Redfin refuses to provide any service for homes that fall below that listing price. According to the plaintiffs, the effect of this practice is racial discrimination.
Here, the allegation is that Redfin engages in "digital redlining." Redfin will only introduce buyers and sellers when a home is higher than a certain minimum price. Presumably, this is because Redfin has business objectives, but the practical effect ends up being a disparity of services between neighborhoods. In reality, redlining occurs when banks draw a virtual "red line" around areas that they do not want to serve in violation of housing laws. The plaintiffs allege that Redfin is doing the same exact thing with its own real estate services.
The Minimum Sales Price Disproportionately Affects Lower-Income Areas
Accordingly, Redfin ultimately offers no services in many lower-income areas. These tend to be predominantly populated by minorities. While Redfin is setting its criteria based on price, the end result is that many buyers and sellers cannot access Redfin depending on the neighborhood in which they live or are looking to buy. Potential buyers who are looking at homes will simply not end up seeing homes worth less in minority areas.
The statistics in Milwaukee evidence some allegations made in the lawsuit. Redfin was eight times more likely to not offer services in predominantly minority neighborhoods than it was to not be available in white neighborhoods. In fact, it was exceedingly rare for Redfin to offer its "best available service" in non-white zip codes. A search of many minority neighborhoods online ultimately found them with "no service" designations. Buyers can click on a home and not be allowed to see the listing because Redfin says that it is below the minimum price.
Redfin used similar practices in Detroit. In that city, Redfin made its minimum price an astronomical $700,000, which kept it from offering services on most homes in the city. The minimum price in the city's suburbs was below $300,000. In Baltimore, only 6% of homes in extremely non-white neighborhoods qualified for the company's "best available service," which over half the homes in white neighborhoods achieved this designation.
These Practices Affected the Ten Cities Investigated
Fair housing advocates investigated Redfin's practices in a number of metropolitan areas. In addition to Milwaukee, research looked at other heavily segregated markets such as Baltimore, Philadelphia and Kansas City. In some metropolitan areas, the plaintiffs allege that Redfin's minimum home prices are lower than they are in areas predominantly populated by minorities. For example, Redfin had a higher minimum price in Chicago than it did in largely-white DuPage County.
These designations determine whether Redfin helps homebuyers and sellers in the area. The plaintiffs claim that Redfin will make a minimum commission anyway on each sale. Instead, Redfin's distinction is based on the minimum sales price of each home as opposed to its own profits. Accordingly, the plaintiffs are seeking a court order to end Redfin's minimum home price policy. This would have the effect of ordering Redfin to provide their services in all neighborhoods of a city the same way that banks would be ordered to stop discriminatory lending practices.
The end result, according to the plaintiffs, is that Redfin's practices violate the Fair Housing Act. The law would require that Redfin not draw lines for access to its services. In the end, even if a company is not restricting access to its services based on race, even statistical patterns can be violation of the law.
In response to the lawsuit's allegations, Redfin claims that its pricing policies have nothing to do with race. Instead, Redfin argues that it does not want to provide service if it will not be making a certain amount on every transaction because it is not worth the company's while. They defend what they call their right to set their minimum price based on legitimate business reasons. Redfin alleges that it cannot afford to pay its agents a living wage if it focused on lower-priced homes where it cannot make a large enough commission.
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