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New video shows REALTORS how to overcome bias and promote fair housing

“How would it feel to be really excited about living in a certain neighborhood only to have a real estate agent tell you would be more comfortable somewhere else?”

This is the question that Rachel Godsil, Law professor at Rutgers Law School and co-founder and co-director of the Perception Institute, asks near the beginning of a 52-minute video that the Institute created in conjunction with the National Association of REALTORS® titled “Bias Override: Overcoming Barriers to Fair Housing.”

The video, created to help REALTORS® create protocols to both recognize and eliminate implicit biases in their industry, comes at an important time in the nation’s history, as awareness about social issues like systemic racism and implicit bias have been brought to the forefront.

NAR is using this video as an introduction to implicit bias training but has plans to go even further.

“We are all better if we have people in our lives who are different from us. This is especially so in integrated schools and neighborhoods. Children who go to integrated schools learn organically and learn how to work well with others.”

The organization is working with the Perception Institute to develop a three-hour curriculum that brokers can use to train their agents. The plan is that the curriculum will be customizable for each brokerage so that they can address real life scenarios that their agents may encounter where an unrecognized bias could enter into the transaction.

The video opens with a recreation of a typical interaction between a black potential homebuyer and a real estate agent. Upon seeing the buyer is a person of color, the agent suggests that if the home he is looking at doesn’t feel right, there are homes in other communities that may be more affordable and would make the buyer feel more comfortable.

“Some of you might be asking, ‘Why are we still talking about identity differences? Why is different important? Can’t we just be people?” Afua Addo, Deputy Director of Programs and Training at the Perception Institute says in the video. “Difference is actually really good. Research shows that when we are surrounded by people who look different from us, each of our brains acts in a more rigorous fashion. Why? Because if you are sitting at a table with a group of people who all look alike, our brain assumes that we all agree with one another. We go into group think and are more error prone and we think less rigorously because we are all going along the same path and think the solution is obvious.

“We are all better if we have people in our lives who are different from us. This is especially so in integrated schools and neighborhoods. Children who go to integrated schools learn organically and learn how to work well with others.”

Godsil and Addo take the REALTORS® on a path toward understanding what these implicit – or unconscious – biases look and sound like, explain why they happen – even by those individuals who are cognizant of not showing bias – and creating structures within their brokerages that will eliminate them.

Godsil talks about how she is Irish Catholic and when her ancestors first arrived in America, they were dehumanized, considered savages and uneducable while the women were deemed promiscuous.

She points out, though, that those stereotypes have all but disappeared, and credited that to the assimilation of different European immigrants in certain neighborhoods after World War II. Once programs were created by the Federal Housing Administration and the Veterans Administration, loans became available to working class Americans to be used in certain communities.

As a result, people from different backgrounds started living in the same neighborhoods, got to know one another and stereotypes went by the wayside.

However, these loans were not accessible to people of color and they weren’t available in certain neighborhoods because of red-lining – a form of mapping that separated ethnic groups into their own communities and prevented people of color from having access to neighborhoods where whites were living.

As such, the stereotypes and biases directed at those communities remained and, in many cases, became exacerbated.

Addo said there are five steps known under the euphemism BRICK, that will help create more successful diversity in communities.

BRICK is short for:

  • Belonging
  • Respect
  • Investment/individuation
  • Conversation
  • Kindness

“The challenge is that what we believe and how we act can often be different,” says Godsil. “Those of us who believe ourselves to be fair, who value fairness, can often act inconsistently with those beliefs.

“We call this ‘the fairness paradox.’”

The film was born out of a 2019 investigation, conducted by Newsday, that studied REALTOR® practices. Newsday recruited regular people to act as testers, posed as house hunters and filmed interactions discreetly to check and see if those who were otherwise equal (based on job status) would be treated differently based on their race or ethnicity.

The results were sobering.

The investigation found that 19 percent of Asian-Americans had unequal treatment, as were 39 percent of Latinx or Hispanic and 49 percent with black testers.

The video shared actual comments from brokers to these testers that, while unlikely to be intentionally biased, they were still implicitly biased.

One example was suggesting to a black tester that a small downgrade in neighborhood could get them more house for their money, while urging a white tester not to consider homes in those same neighborhoods out of concerns for safety and lower-funded school systems.

NAR partnered with the Perception Institute to create this video as a way of helping its members know what to say after being told for so long what not to say.

Godsil suggests that it’s all about “building muscle,” much in the way you would working out in a gym. Keep doing the exercises repeatedly until it becomes easy.

She suggests to REALTORS® that when interacting with clients they:

  • Have a go-to positive memory.
  • Really focus on the other person’s experience.
  • Have a script – something that you validated to ensure that your words will be received well.
  • Respect reset – if something said lands wrong, don’t self-justify, but explain, and take ownership.

“To override bias, brokerages need to develop a set of protocols to make sure that everyone is treated fairly,” she says. “Listen to the clients’ preferences and allow every client to make his or her own choice… This may seem obvious but ignoring this is when bias gets in the way.”

Home sellers itching to put their houses on the market as country re-opens

With most of the country’s stay-at-home orders having been lifted and the country slowly continues to re-open, the real estate market is ready to take off like a Spacex rocket.

According to a recent survey of its membership from the National Association of REALTORS® more than 3-in-4 potential sellers have been preparing to sell their homes as soon as the restrictions are lifted and half of them have been working on do-it-yourself home improvement projects to help speed up that sale.

“Whether it’s a home office, or a bigger yard, or more space to accommodate more people being at home more frequently, the switch in ideology for homebuying from smaller spaces to larger spaces has already begun.”

“After a pause, home sellers are gearing up to list their properties with the reopening of the economy,” said NAR Chief Economist Lawrence Yun. “Plenty of buyers also appear ready to take advantage of record-low mortgage rates and the stability that comes with these locked-in monthly payments into future years.”

According to the survey, which was conducted in May, 77 percent of the potential sellers are gearing up to list their property as soon as possible.

Other interesting results from the survey included 73 percent of those sellers who actually had their home listed at the time of the survey were not willing to reduce the price, despite the economic downturn.

Additionally, 13 percent of buyers have changed at least one home feature that is important to them as a result of COVID-19, with most buyers indicating the desire for more space as more important because of the pandemic.

Whether it’s a home office, or a bigger yard, or more space to accommodate more people being at home more frequently, the switch in ideology for homebuying from smaller spaces to larger spaces has already begun.

Related to that, 5 percent of the REALTORS® surveyed said their clients have shifted their focus for a new home from urban areas to suburban ones as social distancing is expected to become a regular part of the lexicon and not just a passing fad.

Eliminating escrow component may bring more activity to Euclid real estate

Euclid City Council is considering a new ordinance that would eliminate the escrow component for the city’s point of sale policy, making it a little easier on the wallets of potential homeowners.

The Business Development, City Planning and Housing Committee approved a motion referring the ordinance to the full city council, with a recommendation to approve.

Currently, Euclid requires interior and exterior point of sale inspections with fees ranging between $225 and $295 and an escrow of 50% of the estimated costs of repair.

These kinds of fees are troublesome for Millennials, many of whom make up the homebuying market and who are often dealing with student loan debt as they look to purchase their first home.

“If you’re paying off student loan debt, like so many of us are… having to come up with additional funds to be placed in escrow can be a real deterrent to some home buyers.”

The Akron Cleveland Association of REALTORS® (ACAR) has been vocal in their support of not only this new ordinance, but also systematic exterior-only inspections of all homes in a jurisdiction, not just those that may be for sale or for rent.

ACAR suggests that cities without a point of sale inspection policy often have a more active real estate market.

“We appreciate the efforts of Mayor (Kirsten Holzheimer) Gail and this committee for considering updates to the City’s point of sale inspection policy, in particular the escrow component,” Jaime McMillen, ACAR’s Vice President of Government Affairs told the committee at a recent meeting.

“When you think about young adults looking for their first home, Euclid fits the bill. Fifty percent of home buyers purchased a home in a suburban area last year, and 87% bought a single-family home.

“However, if you’re paying off student loan debt, like so many of us are, having funds for a down payment, anticipated repairs, associated costs with getting your own private inspection, closing costs, and then having to come up with additional funds to be placed in escrow can be a real deterrent to some home buyers.”

A study conducted by the National Association of REALTORS® (NAR) titled the 2017 Student Loan Debt & Housing Report indicated that 27 percent of homebuyers reported having student loan debt with the typical amount of debt in the $25,000 range, with that percentage increasing to 40 percent when looking solely at first-time homebuyers.

Additionally, 83 percent of non-homeowners, most of whom were renting a property, indicated that student loan debt was a primary reason why they’ve put off buying a home. That delay was a median of seven years, according to the study.

A second NAR study, the 2020 Down Payment Expectations and Hurdles to Homeownership report, indicated that 26 percent of first-time homebuyers said that saving for the down payment was the hardest part of the homebuying process.

In the las five years, the top four reasons for being unable to save for that down payment have been, in order, student loan debt, credit card debt, car loans and rising rent.

Not surprisingly, millennials, who make up the 26-40-year-old demographic, were most likely to report student loan debt as a major factor. This is important because millennials make up the largest share of home buyers (38 percent) and 86 percent of younger millennials and 52 percent of older millennials were first-time homebuyers, more than any other demographic group based on age.

It is also important to note that homeownership is still a priority for many. 78% of non-owners believe homeownership is a good financial decision. Additionally, 81% of non-owners want to own a home in the future.

By eliminating the escrow requirement, Euclid will make buying a home in the city more affordable for potential buyers.

Opportunity zone investment finally buzzing, despite pandemic

Like every other business and industry, development in opportunity zones sat out the first couple months of the COVID-19 pandemic.

But, in the past month, investors have shrugged the novel coronavirus aside and have been quite active in the opportunity zone real estate market.

Deals are being closed. New projects are under way. And evidence that this program, that was created to pump billions of dollars into underserved communities around the country, might be the first to show signs of economic recovery as the pandemic panic slowly dissipates.

But was it COVID-19 that seemed to light this spark? Or was it the quick drop in the economy?

“There has been an uptick in activity both from [opportunity zone] funds raising capital as well as transactions occurring since mid-April, where it seems like some of the momentum that had been built in Q3 and Q4 is coming to fruition.”

Several experts believe that the pause in the stock market and the subsequent economic downturn made people look at their investments for the first time in awhile, after a long period of growth, and made them start to wonder what they should do with their capital gains.

“There has been an uptick in activity both from [opportunity zone] funds raising capital as well as transactions occurring since mid-April, where it seems like some of the momentum that had been built in Q3 and Q4 is coming to fruition,” Economic Innovation Group Director of Impact Strategy Rachel Reilly told Bisnow.

With the market being so volatile during the pandemic, investors pulled their money out of the market and were looking for places to put it – and a popular landing spot was opportunity zone funds.

A bevy of opportunity zone deals that were in the works prior to the virus quarantine either closed on their financing or put the first shovels in the ground since the April showers turned to May flowers.

That’s because development investors believe that affordable housing in emerging areas will succeed, regardless of the economic situation.

Plus, this money is a long-term investment, meaning it’s a good gamble that the economy will be better off down the road than it is now – meaning there will be rewards to be reaped for these investors as these communities start to flourish.

Investors must hold onto their asset for 10 years in order to realize the full benefits of opportunity zones. Although there is always a bit of a gamble with any investment, these projects are likely to appreciate well, making the investment worthwhile when the time comes to sell in a decade.

In Washington D.C. alone, at least four separate opportunity zone projects have begun construction since the lockdown began. Similar projects are beginning or are already under way in Chicago, Tampa, and Los Angeles.

Part of the reason opportunity zone investment and funding is starting to hit its stride now is because the rules have been clarified. The department of the Treasury finalized the guidance for the program last December after what amounted to a two-year question-and-answer session with potential stakeholders.

Bridge Opportunity Zone Strategy Chief Investment Officer, David Coelho, told Bisnow that last year, his company deployed $950M into 21 opportunity zone transactions and hopes to be just as active in 2020 especially because of the down market.

Land prices have dropped. So have construction costs. With most developments taking a year, or longer to build, this economic downturn has been a boon for investors.

“A lot more deals are coming back our way,” he said. “A lot of deals had capital lined up and that capital has fallen out. I think that trend will continue. It’s good for our strategy and for opportunity zones in general as non-opportunity zone capital decides to sit on the sidelines and consider whether there will be distressed opportunities, I think they’ll be less focused on development.”

All of this good news aside, most of the momentum is in development that is residential. The retail and hospitality industries are among the hardest hit by the pandemic and as such, investment in those assets has dried up.

But, the long view suggests that investing in opportunity zones now is a hedge against the unknown of what the future holds. With so many state and city budgets in shambles and with all the government spending that has and still is taking place, it’s likely a sure bet that taxes are going to go up in the near future.

By investing in opportunity zones, by holding onto the investment for 10 years, any profits are not taxed. That’s incredibly valuable, especially in the middle of this virus outbreak.

And if investors are smart enough to see that and sustain it for a decade, it can be a win-win situation not just for them financially, but also for the community they are dumping their money into after being underserved for so long.

 

Small business landlords drowning in the wake of COVID-19 renter protections

Often forgotten when thinking about the effect of COVID-19 on small business owners, private landlords are really feeling the economic crunch on their properties.

Take Maribeth Shields for example.

Bloomberg featured her in a recent article as someone who is struggling to pay her mortgages because rental properties are her small business.

Shields owns 27 apartments in and around the city of West Haven, Conn. A majority of these apartments are low-income and because of the coronavirus outbreak, more than half of her tenants aren’t paying their rent.

Yes, the tenants are being protected – Connecticut put a moratorium on evictions until July because of the pandemic – but no such protection was put in place for private landlords like Shields, who told Bloomberg she is behind on $1.2 million in mortgages.

“No one is advocating for mass evictions. There are no winners here and everyone is hurting. But landlords have no (legal) remedies.”

She isn’t alone. Individual landlords across the country are facing the same dilemma, and with no resolution insight, once these bans on evictions are lifted, chaos is bound to ensue.

Landlords will want their money to try and come out from under their crushing debt and avoid foreclosure. Renters will appeal their evictions, buying themselves at least another month to either come up with the cash or find a new place to live.

And neither situation is good for housing in America.

Yes, the federal CARES act that passed in March did allot for mortgage protection for homeowners with government-backed mortgages, allowing for them to defer payments for up to year. But that only encompasses about half of the mortgages nationwide on rental properties.

The other half have to pay up, or risk losing their properties altogether.

The federal government did not offer relief for renters though, leaving that up to the states in the form of these eviction bans. The notion was that although unemployment was climbing at an alarming rate, stimulus checks from the government and additional dollars being handed out in unemployment would make up for the lost wages and allow renters to pay their bills.

Except, that hasn’t happened.

Instead, renters are showing their landlords empty pockets, who in turn are begging their lenders for more time to pay their mortgages and the end result is a major crimp on property tax revenue.

And there’s no bail out on property taxes. Instead, there will be mounting penalties and late fees, and likely an increase in liens, that will wreak havoc with credit scores and make landlords – who operate on slim profit margins to begin with –end up in just as bad a situation, if not worse, then their renters who currently aren’t paying the rent.

It’s a vicious cycle. And it’s not getting any better.

Because of the pandemic, there’s a lot of activism on the tenant side as well. Rent strikes are being organized. Efforts like the “Right to Cure” ordinance in San Antonio – which would have granted an additional 30-day grace period for renters once the moratoriums are lifted before they had to pay rent – was defeated by a narrow margin in City Council (6-5) because the council recognized there are concerns for property owners that were not addressed in this bill.

Most of the affordable housing in America is owned by small companies or individual landlords. If they can’t afford their mortgages and are forced to sell the properties they own or even abandon them in some instances, those properties will likely be gobbled up by Wall Street firms with a lot more capital, who would likely turn them from affordable to unaffordable for most renters.

“No one is advocating for mass evictions,” Matthew Paletz, CEO of Paletz Law, a Troy, Mich.-based firm that represents landlords and property owners, told the Detroit Free Press. “There are no winners here and everyone is hurting. But landlords have no (legal) remedies” during the moratorium.

According to the National Multifamily Housing Council, 88 percent of apartment tenants made a full or partial rent payment in May by May 13. That was down two percent from the same time a year ago, but it was also down four percent from April. While those numbers are better than expected, it’s still a number going in the wrong direction with uncertainty remaining for the rest of 2020.

Compounding that data is the fact that it doesn’t include information on apartments rented by smaller or individual landlords, and it doesn’t include units that are considered affordable housing. This is the area where financial strain is more likely.

“No property owner can withstand that revenue loss,” Tim Thorland, executive director of Southwest Housing Solutions told the Detroit Free Press. “There’s a misconception of real estate industry that it’s flush with cash and prepared to weather any storm. The fact of the matter is it’s a thin margin industry and you can be successful if things go as expected.”

New fair housing requirements in New York part of industry reform

The New York State Board of Real Estate adopted new state rules requiring all real estate agents and brokers to notify all buyers, sellers and renters about anti-discrimination laws.

Additionally, they must prominently display information about how customers can file complaints. It was also mandated that both audio and video recordings of classes, for those groups that provide fair housing training, is required.

The Board, which writes the rules and regulations for the real estate industry, announced these rules go into effect beginning June 20.

According to a report in Newsday, a spokesperson for the New York Department of State indicated that the regulations “will help combat discriminatory actions and ensure New Yorkers understand their rights.”

Why New Rules?

Widespread racial bias by real estate agents and brokers on Long Island unearthed by a Newsday investigation led to the crafting of these new rules.

As a result, with these new regulations, the state can now issue fines or even suspend or revoke the licenses of agents and brokers who violate the rules.

Gov. Andrew Cuomo proposed these new rules in December, they were adopted in April, and officially entered into the state register in May.

“I think it’s important from the beginning of the relationship,” Neil Garfinkel, broker counsel for the Real Estate Board of New York told Newsday.  “And then it’s a great way to – should a conversation, you know, slip over the line or whatever the case may be – to then say, ‘Hey, remember, we talked about this? This is why I can’t do that.’”

About The New Rules

Not only do the agents and brokers have to share the fair housing disclosures with potential clients, but they have to retain proof that the disclosure was shared for three years.

The sharing of the disclosure can be done verbally, or on a printed form. However, the proof of the shared disclosure must include either a signed document from the customer, or an email, text or fax from the customer acknowledging receipt of the fair housing regulations.

If a customer refuses to sign off on receipt of these rules, the agent or broker must fill out a form immediately stating the provided the disclosure and the customer refused to sign it.

As for posting notices that instruct customers how to file complaints with the state, agents and brokers must post them at their offices, when hosting open houses, and on their websites.

The new rules both inform customers and protect them at the same time, and with this new empowerment serves as a reminder to both brokers and agents that they should avoid any actions that can simply be viewed as discriminatory.

New rules in New York are requiring real estate agents and brokers to be more direct and transparent with anti-discrimination laws for their clients.Click To Tweet

The audio and video recordings of fair housing classes must be kept by brokerages for a minimum of one year. State law requires agents to take 22.5 hours of continuing education every two years, three of which have to be dedicated to fair housing, in order for their real estate licenses to renew.

This was also a result of the Newsday investigation which found that some classes offered on Long Island by the Board of REALTORS® (LIBOR) were not meeting that standard.

LIBOR postponed their classes, and completely overhauled their continuing education program, which included hiring new trainers.

“If the brokers are trained properly [then] this is the best tool since sliced bread,” Andrew Lieb, an attorney and fair housing trainer told Newsday.  “Don’t you want a broker that knows how to protect you?”

Missoula’s housing situation has reached a critical stage

Missoula Montana is growing. Which, on one hand, is exciting. However, as the population increases, so does the demand for housing. And that’s where Missoula is facing a crisis.

According to a new report released by the Missoula Organization of REALTORS® (MOR), the amount of available homes is at an all-time low, prices are skyrocketing, and most middle-income earners are being priced out.

“If you’re looking at a situation of selling, you’re looking at a situation where you hold the advantage,” Brint Wahlberg, the MOR Housing Report Committee Chair told the Missoula Current. “It’s a sellers’ market with not enough supply to meet the demand.”

Using a metric known as an “absorption rate” – which measures the pace of home sales, taking into account both the days a house is on the market and the number of available homes for sale – Missoula fell below what is considered a normal market range in 2019 and hasn’t recovered.

A normal absorption rate is between three and nine months. At the start of 2019, Missoula was at a 3.36 month supply. However, by May 2019, that rate plunged below three months and remained that way for the remainder of 2019. As of this report there is a 2.62 month supply.

“2019 saw the launch of several projects throughout the community providing potential increases in the available supply in both the rental market and new homes in the coming years.”

Missoula population has grown more than nine percent since 2009 and the impact on the housing demand has been significant.

One of the results of this high demand was the median sales price for a home in Missoula jumped to $315,000 in 2019, a record and marked the ninth consecutive year Missoula saw a median price increase. At the same time median incomes have not kept pace. Missoula’s median family income range for 2019 was between $51,375 and $73,313, making it challenging buying a home today at $315,000.

MOR’s housing report also provides an affordability index calculation that combines reported incomes by household size, median sales prices, year-end interest rates, and typical expectations for property taxes and insurance. This index considers market affordability for a buyer with a 5% down payment and a buyer with a 20% down payment. Both cases showed continued challenges with affordability. The needed income for a median priced home to be considered affordable for a buyer with a 5% down payment would be $98,123 and for a buyer with a 20% down payment it would be $76,973.

Beside a strong growth in population there are a few other factors that contribute to the Missoula housing challenge. For the last two years there was a significant drop off in new housing construction. Only 459 permits were issued in the city in 2019, relatively flat (463) to 2018; both years are 22 percent lower than the five-year average for Missoula. Driving the decline in new housing was the reduction of Multi-family construction, a mere 197 permits for 2019, and 42 percent below the five-year average. Also contributing was the decline in sale of residential lots, dropping 16 percent, while the median price of a lot jumped more than 28 percent to $115,000.

2019 ended with close to all-time record of home sales (1,504 were sold in 2019, 39 shy of the record set in 2017), and yet the supply was unable to keep up with the demand as evidenced by the continual decline of the absorption rate.

“Anyone reading this report, including myself, might see ongoing challenges in finding affordable housing for many. And yet we live and work in big sky country, meaning as Montanans we have capacity to look beyond the low supply of houses for a median household or the possibility of a virus wanting to relocate here, and instead focus on the significant projects underway.” stated Jim Bachand, CEO of Missoula Organization of REALTORS®.  2019 saw the launch of several projects throughout the community providing potential increases in the available supply in both the rental market and new homes in the coming years.

The great unknown for Missoula moving forward is how great an impact the COVID-19 pandemic will have when it comes to home ownership, family incomes and the overall supply and demand of housing, both to buy and sell as well as to rent.

Early data is mixed as demand remains strong with an absorption rate of 2.62 and homes sold through April up 9.5% year-over-year. What remains to be determined is the sentiment of buyers and sellers going forward as they come out of the stay-at-home directive, with new listing declining 21.3% in the month of April.