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Redfin to pay $4 million to settle lawsuit over digital redlining

Redfin’s ‘minimum price limit’ slashed real estate services in non-white neighborhoods—and now the company is paying a $4 million settlement.

Redfin to pay $4 million to settle lawsuit over digital redlining
[Source Photo: Getty]

For prospective homebuyers, the online search portal and real estate brokerage Redfin is a go-to resource. Listings in more than 100 housing markets in the United States and Canada can be browsed easily, and a monthly average of more than 47 million users did so in 2021, according to the company’s annual report.

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But in certain markets, search results had a big caveat. Redfin would show the listings, but due to what it called a “minimum price limit,” the company declined to make the full range of its services available—including real estate agents, professional photos, and promotion. That disproportionately affected homes in non-white areas.

“That policy resulted in Redfin predominantly not providing services in Black and Latino areas and predominantly offering services in white areas,” says Morgan Williams, general counsel of the National Fair Housing Alliance. For example, in the majority-minority city of Chicago, the minimum price threshold was set at $400,000, while in neighboring DuPage County, the threshold was just $275,000. In the majority-Black city of Detroit, the minimum price was $700,000, while outside city borders that limit was just $250,000. Redfin defended this policy, arguing that limiting its activities by price is the only fair way for the company to operate profitably.

Along with nine fair housing organizations across the country, NFHA sued Redfin in October 2020 to stop this practice, alleging that “Redfin’s policies and practices operate as a discriminatory stranglehold on communities of color.” In a settlement announced Friday, Redfin has pledged to do away with its minimum price limits and pay $4 million to the plaintiffs. Given Redfin’s reach, this is one of the most significant fair housing settlements in recent years.

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The problem, as detailed in a 2020 investigation by NFHA, was, in effect, a modern version of redlining, the racist lending and housing market policies of postwar United States that effectively segregated neighborhoods and blocked many communities of color from homeownership in general. NFHA’s investigation mapped out the properties in cities like Baltimore, Detroit, and Kansas City where Redfin declined services due to its price threshold. The maps show high concentrations of these listings in ZIP codes with large non-white populations, while serviced listings were disproportionately located in ZIP codes with larger white populations.

NFHA and its coplaintiffs argue that these differences in service offerings are a continuation of decades-old hurdles that have prevented communities of color from buying homes and creating generational wealth. “Securing real estate services is a component of the process of buying a home, and barriers to securing real estate services operate as barriers to that process,” Williams says. “A minimum home value policy serves to restrict the kind of opportunity for wealth generation . . . to those communities that have long been redlined.”

Redfin objects to the characterization of its minimum price limit as redlining. “Describing a price-based policy as redlining is sensationalistic and wrong because Redfin serves all neighborhoods in the metro areas where we operate,” a company spokesperson tells Fast Company. “We do not make service determinations based on race or the demographics of the neighborhood. Home price is the only fair and objective way to make that determination because home price determines the fees we earn.”

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The spokesperson says that unlike other real estate brokerages, Redfin employs all of its 2,400 real estate agents as full-time, salaried employees with benefits, and the minimum price thresholds it used were tools to ensure agents could operate profitably. After the lawsuit was filed, Redfin CEO Glenn Kelman sent an email to employees, later published on the company’s blog, objecting to the suit.

For now, that price-based approach, along with its effects on certain neighborhoods, will be put on hold. As part of the settlement with NFHA and its coplaintiffs, Redfin agreed to eliminate minimum price thresholds for five years, and present its employees and agents with fair housing training developed by NFHA. Redfin retains the right to pass along prospective homebuyers to agents in partner organizations in some instances.

The settlement highlights the increasing role technology is playing in the housing market, and the issues it can raise. Another recent real estate controversy erupted when a tweaked algorithm led the online homebuying platform Zillow into overpaying for homes, causing ripple effects in some housing markets and losing the company an estimated $330 million in a single quarter. This kind of systematic decision-making is beginning to change the way homes are valued and, in the case of Redfin, whether home sales in certain areas merit the time of a real estate agent. (Redfin’s dynamic price thresholds are adjusted manually by local managers.) The consequences—unintended but still discriminatory—perpetuate the kinds of barriers that have limited the ability of some communities to access fair housing.

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Says Williams: “Challenging these kinds of policies and encouraging enhanced awareness about how different algorithmic-based systems may result in discriminatory outputs is really important for us moving forward in solving this problem of the racial wealth gap.”

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