Lawsuit accuses real estate brokerage Redfin of discrimination

A federal lawsuit filed this week by housing groups on Long Island, in New York City and across the nation alleges real estate brokerage Redfin engages in racial discrimination, saying it systematically shortchanges minority communities by offering lower levels of service than it does in white areas.

A two-year investigation by the 10 groups, including Bohemia-based Long Island Housing Services, the Fair Housing Justice Center in Queens and the National Fair Housing Alliance, a Washington, D.C.-based nonprofit group, showed that Redfin disproportionately offers its highest level of service – including discounted commissions – in predominantly white areas across the country, the groups said in their lawsuit against the Seattle-based brokerage, filed Wednesday in federal court in Washington state.

The brokerage also is much more likely to offer no services at all in mainly minority areas than in white areas, decreasing demand for homes in minority areas, depressing prices and "perpetuating the stark patterns of housing segregation that continue to plague our nation," the groups state in the 76-page lawsuit.

"We've been referring to this as digital redlining," said an attorney for the groups, Diane Houk, in a reference to the illegal practice of refusing to offer financial services in minority communities. The brokerage, Houk said, is using technology to "apply what appears to be a neutral policy," which actually excludes minority communities "across the whole country, metro area by metro area, based on race and national origin."

In response to the lawsuit, Redfin CEO Glenn Kelman, who has urged the industry to address its role in perpetuating segregation, posted a message on Redfin's website stating the company abides by the federal Fair Housing Act, which he said "clearly supports a business’s decisions to set the customers and areas it serves based on legitimate business reasons such as price."

He wrote, "The challenge is that we don’t know how to sell the lowest-priced homes while paying our agents and other staff a living wage, with health insurance and other benefits."

Redfin’s unusual way of charging commissions is at the heart of the lawsuit. For sellers, Redfin charges a 1.5% commission, with a minimum commission ranging from $2,000 to $6,500, depending on the market, the lawsuit states. For buyers, Redfin charges either $6,000 to $6,500, or 1% of the sale price, whichever is greater, according to the lawsuit.

However, Redfin only offers its discounted rates and perks such as professional photos, 3D tours and premium placement on its websites to homes priced above certain minimums, which the lawsuit states vary by community.

For homes below that minimum, Redfin either refers buyers and sellers to "partner agents" at other brokerages, or it declines to offer any services at all.

On Long Island, the plaintiffs reviewed Redfin’s listings on Aug. 20. Of the 6,272 homes listed in predominantly white Zip codes, 27% were offered Redfin’s highest level of service, the lawsuit states. By contrast, of the 610 homes listed in mainly minority areas, 0.49% were offered that service, according to the lawsuit.

Since agents are guaranteed to earn minimum commissions for any transaction, there is no business reason to decline to list homes below a minimum price, the groups state in the lawsuit.

Fred Freiberg, executive director of the Fair Housing Justice Center, said the groups’ investigation as well as Newsday’s Long Island Divided project on housing discrimination showed that minority communities are "generally ignored and avoided" by agents, especially those representing white clients. Freiberg was a consultant for the series, published in 2019.

Newsday’s three-year investigation found evidence of widespread unequal treatment of minority potential homebuyers and minority communities when paired testers — one white, one minority — met with real estate agents. In 40% of the tests, evidence suggested that brokers subjected minority testers to disparate treatment in comparison with white testers, according to two nationally known experts in fair housing standards. Black testers experienced disparate treatment 49% of the time, compared with 39% for Hispanic and 19% for Asian testers.

Ian Wilder, executive director of Long Island Housing Services, said Redfin’s minimum price varies widely by community on Long Island; among the homes that fell below the minimum was a three-bedroom house in Freeport listed for $449,000.

"From a purely economic standpoint, why would they not be taking a piece of that?" Wilder said. "I can’t figure out a pattern, or I can’t figure out a non-discriminatory pattern."

By Maura McDermott

maura.mcdermott@newsday.commauramcdermott

Maura McDermott covers health care and other business news on Long Island.