ON A WARM AFTERNOON IN AUGUST 2004, a customer walks into the Irvine, Calif., sales office of one of the country's largest home builders and, not unexpectedly, gets the red carpet treatment. She's greeted immediately by the builder's agent, who offers her a seat, a cold drink, a guest card, and application materials. After an interview, the agent drives the customer around to look at four home sites, including one that's under construction. He carefully explains her financing options and gives her a good-faith estimate using a 30-year, fixed rate with a 20 percent down payment, and a total move-in cost of $214,940.
On that same afternoon, another buyer enters this same office. She, however, must request assistance from an agent before she's handed an application and a business card. The agent doesn't bother to ask this customer to fill out a guest card. In calculating a good-faith estimate for a home priced about the same as the house the first customer was shown, the agent uses an ARM loan product with a 31.2 percent down payment and a total move-in cost of $314, 005. The agent drives the customer to three home sites but cautions her that other buyers had expressed interest in the homes she's viewing, something not mentioned to the first buyer.
What's going on here? The difference in treatment becomes even more puzzling when you learn that customer No. 2 has a better financial profile than customer No. 1. The answer appears to lie in the fact that customer No. 1 is white and customer No. 2 black.
Think that bias doesn't occur in any of your company's sales centers? Builders who say “No way!” might want to think again, based on the findings from exclusive research that BUILDER commissioned this summer to assess the home buying experiences of minorities. That research, which includes the scenario above, uncovered selling techniques and procedures that, at the very least, betrayed some startling inconsistencies and oversights and, at worst, lapsed into differential treatment for minority and white buyers that could easily be construed as discrimination.
Earlier this year, BUILDER engaged The Equal Rights Center, a nonprofit research firm based in Washington, to conduct the study by sending black and Hispanic female “testers” into 15 sales centers operated by 15 of the industry's builders in and around Los Angeles, Chicago, and Washington. White buyers, acting as the study's “controls,” were also sent into the same offices. Each of the minority buyers was given a financial profile slightly better than the white buyers. Yet in 13 of those 15 visits, the transactions seemed to favor white buyers. In several cases minority buyers were probed with questions—about their marital status, citizenship status, and where they lived—that were not broached with white buyers. And in some alarming instances agents appeared to be steering minority buyers to products that were different from what the white buyers were shown:
To be sure, the number of tests in our study is very small and cannot be construed as an indictment of the entire housing industry. But most builders would admit that even the hint of bias could undermine their efforts to expand their market penetration. It is disconcerting, at best, then, that the research reveals plenty of anecdotal evidence that demonstrates that problems do exist in at least some sales centers. And it is apparent that builders must be vigilant about keeping discriminatory practices from creeping into their operations by monitoring and enforcing their corporate policies and training more rigorously.
Closing The Gap At a time when immigrants are pouring into the United States in record numbers, providing the appropriate service, information, and care to all customers has never been more critical for builders . Immigration accounted for one-third of the country's housing growth in the 1990s, and minorities' share of total households is projected, conservatively, to expand to 34 percent in 2020, from 26 percent in 2000, according to Harvard University's Joint Center for Housing Studies. But the minority homeownership rate continues to lag behind that of whites—around 50 percent to whites' 75 percent. And while experts can point to many reasons that explain the wide gaps in those rates, one factor that builders ignore at their own risk is the central role that a salesperson's presentation plays in engendering a comfort level that can elevate a buyer's trust in the product being sold and the company that's selling it.
“A new home is more than a commodity; if it wasn't, all it would be about is price,” says Nick Retsinas, the Joint Center's director. “People's perceptions are important, and the sales effort can affect that.” Retsinas goes on to say that it's his sense, from speaking with chief executives, that home builders have become “very attentive” to this issue “and are trying to understand” the cultures of different customers in a more nuanced way.
Housing discrimination remains a fact of life, however, even as the dimensions of the problem remain difficult to gauge. Four years ago, HUD issued a study, based on 4,600 paired tests in 23 markets, that found that white home buyers were treated more favorably than blacks in 17 percent of the cases evaluated, compared to 29 percent in a similar study HUD did in 1989. Whites were treated better than Hispanic home buyers in 19.7 percent of the cases in 2000, compared to 26.8 percent a decade earlier.