What is Steering in Real Estate?
Steering in real estate is illegal, and you may be guilty of it! We’re going to look at the history of steering and discrimination, why it is illegal and how you might be guilty of it without you knowing. More importantly, we’ll cover what you need to know for the real estate exam and how to avoid steering in your future career.
What is Steering In Real Estate?
Steering is the illegal practice of guiding, or steering, someone to purchase or rent a home in a specific area or community based on their race, religion, gender, color, familial status, or disability.
In essence, it is discrimination and often comes in many forms, but most cases involve directing someone of a specific race into an area by only showing homes for sale in that demographic population. A more subtle form of steering can be simply making assumptions about where your buyers would or would not want to live based on the protected classes above.
The opposite of steering would be treating all buyers equally and allowing them to choose which areas they do or do not want to live in.
Why Is Real Estate Steering Illegal? – A Brief History of Steering
Steering has been around for centuries but was most prevalent before the 1960s. The majority of what we know as steering occurred before the Civil Rights Movement in the 1960s and the Fair Housing Act of 1968. Pre Civil Rights Movement, steering in real estate was rampant, causing segregation of communities and ethnicities all over the country. Minorities were forced to live in separate communities because of corruption in the lending and real estate industries.
The Civil rights act of 1866 was the first law passed to make discrimination in the real estate industry illegal but only applied to discrimination against race and color. It wasn’t until the Civil Rights Movement 100 years later that real change began to take effect. Shortly after Martin Luther King Jr. was assassinated, President Lyndon Johnson pushed for the passing of the Civil Rights Act of 1968, which included Title VIII, the Fair Housing Act.
The purpose of the Fair Housing Act was to prohibit discrimination in the financing, sales, and rentals of housing based on race, religion, sex, national origin, family status, and disability. For the most part, it worked, and with enforcement from the Department of Housing and Urban Development, steering can result in hefty fines and loss of license to practice as a real estate professional.
However, despite massive regulations and added protections, unfortunately steering in real estate still goes on to this day.
What is an Example of Steering?
A blatant example of steering would be when you, as a real estate agent, only show your clients homes in an area that matches their racial makeup.
Steering Example 1:
Buyer A is African American and comes to you to look at houses. Assuming they want to only look in areas with other African Americans, you only show him homes in those neighborhoods. Similarly, buyer B is Caucasian, and therefore you show them only homes in Caucasian areas because you think they would not want to live in a different socioeconomic environment.
Steering Example 2:
Another example would be providing or withholding information to specific groups of people while giving different information to others. Let’s look at steering based on familial status.
Buyer Bill has two kids and is looking for an apartment. He asks you about the economic growth in your neighborhood and the crime rates. Instead of pointing him to third-party sources, you tell him that the economy there isn’t growing, jobs are moving elsewhere, and someone down the street was just robbed.
Buyer Bob, single with no kids, comes to you the next week, asking about the same apartment, area, and crime rates. Because he has no kids, and you don’t like kids in your building, you tell him that the area is fine, and there hasn’t been much crime lately.
Obviously, we can see that the information you gave Bob was different from what you gave Bill, simply because Bill has kids. This can apply to any other protected class as well, say if Bob was black, and Bill was white, or maybe Bob is 25 and Bill is 68.
Steering Example 3:
Let’s say Jacob is shopping for a house; he says he wants to be in a good school system and a low-crime area, mentioning he has a family and would like activities for his kids. He then shows agent Andy a house that he wants to look at. Agent Andy responds by saying, “that’s not really a family neighborhood; I think you would like these areas better” or “that is more of an older community most of the people who live there are over 50.”
While it may seem harmless, and Andy is following what he thinks the buyer’s guidelines are, Andy is still steering Jacob away from a specific neighborhood based on his familial status, age, or other protected class.
As an agent you have to be intentionally aware of what questions you answer and things you state that are opinions and not facts. Comments such as “you wouldn’t like that area” or “this neighborhood is up and coming” can seem like being helpful but can also be construed as steering.
Example 3 is where most agents get caught; the phrases agents say unintentionally and questions they answer from buyers.
What is the Difference Between Steering, Redlining and Blockbusting?
Steering is similar to other terms you may have heard while studying for your real estate exam. Students usually mix up, steering, redlining, and blockbusting.
Redlining is the denial of goods or services to people of a protected class. Redlining in real estate commonly involves lending, which is where its origin began. During the 1920s, banks would literally draw red lines on maps, defining “safe” areas to invest or grant loans, and the majority of those red areas were in minority neighborhoods.
Steering is a form of redlining, in that you deny a service to someone based on their race, religion, family status, etc.
It’s worth mentioning redlining for the real estate exam will likely refer to discrimination in the lending industry by not granting loans to people of a protected class.
Blockbusting is another form of discrimination, but slightly different than steering and redlining.
Blockbusting involves convincing sellers that the socioeconomics of an area is changing in an unfavorable direction, therefore enticing them into selling their home. It can be as obvious as telling people that minorities are moving into their neighborhood, and if they don’t sell now, their property values will decrease.
How to Avoid Steering?
Some best practices for avoiding steering as a real estate agent are to stick to the objective criteria your buyer gives you, such as area, price, size, bedrooms, etc. Ask them questions based on those criteria, and refer them to third-party websites when asked about neighborhood schools, safety, racial makeup, or religious institutions.
The key to helping your clients with these potentially difficult questions is to have resources available to answer their inquiries. Direct them to local school rating websites, crime statistics, or demographic maps instead of automatically answering even if you are familiar with the statistics.
The best way to avoid steering is simply by treating everyone equally, however as we saw in example 3 above, a lot of steering occurs even without realizing that you are doing it. You may have good intentions, but you could be accused of steering unless you are always conscious of what you say and which questions you answer. Be mindful when clients ask what you think of an area.
Common questions are: is this area safe, what are schools like, do you think we would like this neighborhood, and what is the makeup of the area? Obviously, you as a real estate professional should know local statistics. You should be able to answer questions quickly, but remember that a “safe” area to one buyer may not mean the same thing to another, and you must always guide them back to impartial third-party sources for that data.
Another way to ensure you are not unintentionally steering is to always keep up with real estate laws and your state’s protected classes and continually educate yourself in your industry.
Laws change, and agents can get so busy in the day-to-day activities that without intentional effort, you can easily slip into the practice of steering your buyers.
What to Know for the Real Estate Exam?
The most important thing to know for the exam is that steering is the illegal practice of guiding someone to purchase or rent a home based on their race, religion, gender, color, familial status, or disability, according to the Fair Housing Act of 1968.
Secondly, you may see the terms redlining and blockbusting associated terms. You need to know the differences.
Steering is directing buyers based on their class. Redlining is generally the discrimination of buyers by the lending industry. Blockbusting is when an agent convinces people in a neighborhood to sell their house because the socioeconomics of the community is negatively changing. Steering relates to buyers, redlining is discrimination by lenders, and blockbusting involves sellers.
Also, remember that these practices were made illegal by the Fair Housing Act of 1968, which prohibits discrimination in the sale, rental, or finance of real estate based on race, religion, sex, national origin, family status, and disability. Not to be confused with the Civil Rights Act of 1866, which only restricts discrimination on race and color.