When buying a home, one of the first steps is finding a trusted real estate agent or realtor. Together, you and your agent will collaborate to find a property that meets your budget, expectations, and financial goals. Throughout the process, your real estate agent will listen carefully to your wants and needs, using that information to find properties that match the description of what you’re looking for in a property.
However, when your agent provides recommendations for properties, they need to act carefully to ensure they’re following fair housing practices to prevent the occurrence of steering. But what is steering in real estate? Put simply, steering in real estate refers to the practice of a real estate agent guiding homebuyers toward or away from certain properties or neighborhoods based on their biases surrounding factors like race, gender, sex, ethnicity, and more.
There’s much more to learn about steering in real estate and how it affects buyers and sellers. In this guide, we’ll explore an in-depth steering in real estate definition and provide examples, red flags, and more.
What Is Steering in Real Estate?
So, what does steering mean in real estate? Steering in real estate is the illegal practice of guiding homebuyers to or from a certain property or neighborhood based on race, ethnicity, religion, national origin, gender, disability, or other protected characteristics. This discriminatory practice occurs when a real estate agent only shows certain neighborhoods or properties that align with their biases on a prospective buyer’s race or ethnic background rather than showing them a broad range of properties that fit within their budget and meet their criteria.
Real estate professionals are required by law to provide equal service and housing opportunities to all of their clients, regardless of their background or characteristics. If steering in real estate occurs, real estate agents can face penalties like fines and the revocation of their real estate license.
What Steering Isn’t
Now that you understand the definition of basic steering in real estate let’s explore what it is and isn’t. There’s a fine line between what’s considered steering in real estate and what’s not. Here’s what steering in real estate isn’t, meaning these practices are perfectly legal and follow the law:
Providing objective information: Real estate professionals are allowed to provide objective and factual information about different neighborhoods, crime rates, schools, and other factors that might influence their housing choices. For example, providing a client with statistical information on the demographics of a school district with accurate percentages is legal.
Client preferences: A real estate agent can inquire about a client’s preferences, such as location, price range, and amenities. If a client has clearly provided preferences, such as a particular neighborhood or school district they want to live in, real estate agents are permitted to narrow their scope to those areas. As long as the buyer, not the real estate agent, is steering the direction of the area to live, it complies with the law.
Offering guidance: Real estate professionals can provide guidance regarding real estate decisions, such as information on market trends, investment potential, and property values, to help prospective homebuyers make informed decisions.
Real estate professionals must act in an ethical and professional manner to avoid steering in real estate. As long as they remain objective and allow their clients to guide the direction in where they want to live, real estate agents can ensure they’re adhering to anti-discrimination laws and fair housing practices.
The Impact of Steering on Homebuyers and Sellers
Steering in real estate can have a significant impact on homebuyers and sellers. This practice can have negative consequences for those looking to buy or sell a home, which is why it’s important to know what steering in real estate looks like and the impact it can have on communities. To start, here’s how steering can impact homebuyers:
Limited housing choices: Real estate professionals who practice steering reduce the number of home options for buyers, as they restrict their choices to certain neighborhoods without considering properties in other areas that might fit their budget and preferences.
Segregation: Steering in real estate can also enforce residential segregation by concentrating people of certain backgrounds in certain areas. In turn, this can further exacerbate social and economic disparities.
Financial impact: Another impact steering in real estate can have on homebuyers is a negative financial impact due to missed opportunities. When homebuyers are presented with limited housing choices, they can miss out on homes in areas that are in demand and experiencing growth, reducing their potential ROI on the homes they choose in an undervalued neighborhood.
Steering in real estate also impacts sellers in several ways, including:
Limited homebuyer pool: As certain homebuyers are steered away from neighborhoods they might be interested in, it reduces the number of prospective buyers, which can result in a home remaining on the market for a longer period and decreased demand. This stigmatization sellers in “steered” neighborhoods experience can cause them to sell their property below market value.
Market distortion: Steering can also cause market distortion by inflating prices in certain neighborhoods due to increased demand while undervaluing homes in other areas due to decreased demand.
There are a number of ways steering in real estate can impact buyers, sellers, and communities as a whole, which is why the federal government has instilled a set of laws to prevent this discriminatory practice from occurring.
Steering in Real Estate Is Illegal
As stated, steering in real estate is illegal. Through the Fair Housing Act, the federal government enforces the restriction of steering to ensure all homebuyers are treated equally and fairly. Here’s more context on the Fair Housing Act and how the government enforces steering laws.
The Fair Housing Act
During the Civil Rights Movement during the 1960s, the federal government enacted the second Civil Rights Act in 1968, which created the Fair Housing Act in Title VIII. The primary purpose of the FHA is to eliminate housing discrimination based on race, color, religion, sex, disability, familial status, or national origin. In the context of steering in real estate, the FHA explicitly prohibits steering practices by ensuring that real estate professionals cannot guide homebuyers or tenants toward or away from certain neighborhoods based on the aforementioned protected characteristics.
How the Government Enforces Steering Laws
To ensure real estate professionals abide by the regulations outlined in the Fair Housing Act, the government takes several measures to enforce these laws. Steering laws are primarily overlooked by the U.S. Department of Housing and Urban Development (HUD). Buyers and sellers are encouraged to submit formal complaints when faced with steering in real estate. Then, HUD uses these complaints to investigate real estate professionals participating in discriminatory practices. If there’s reasonable cause for a violation, HUD can bring charges against the violator and enforce penalties, such as fines and damages for the victims. Violators also face the potential for the revocation of their real estate license.
Steering Red Flags
There are several red flags that a real estate professional is steering. Common examples of steering in real estate include:
Showing listing to more white homebuyers than those in minority groups.
Making assumptions about a buyer’s preferences by only showing them neighborhoods where residents of the same race occupy a predominant number of houses.
Providing different information to different homebuyers regarding the school district, crime rate, neighborhood, and amenity information to steer their decision.
Only showing properties in neighborhoods with a lot of families to homebuyers with families.
Discouraging tenants from renting in a certain neighborhood based on their protected characteristics.
Using discouraging language, such as “You wouldn’t want to live here” or “This neighborhood isn’t safe for you.”
How Common Is Steering?
While it’s difficult to know how common steering in real estate is, various reports use data to uncover the state of steering. Unfortunately, even with the FHA and state and local anti-discriminatory laws in place, steering in real estate still occurs. An investigation by Newsday found that in 24% of cases, real estate agents guided white homebuyers into different communities compared to minority clients, indicating the prevalence of steering.
Taking Action Against Steering
Whether you’re a first-time homebuyer or looking to invest in real estate, knowing what steering in real estate is and how to take action is crucial to ensuring everyone is treated fairly. Here’s how you can take action against steering:
Create a paper trail of evidence that documents cases of steering.
Talk with multiple real estate agents to get different opinions to determine whether steering is occurring.
Report cases of steering to the Department of Housing and Urban Development.
Work with a lawyer to draft a case and bring it to trial.
The Bottom Line
Steering in real estate can significantly impact communities, especially minority communities, who may face redlining, increased levels of pollution, difficulty achieving upward mobility, and much more. Standing up against steering in real estate is crucial, which is why it’s important to ensure your real estate agent is professional and fair.
If you’re starting the home buying process, turn to ServiceLink Auction. Browse our properties for sale, including short sale, foreclosure, and bank-owned homes, to find your next home or investment property.