What to know about buying a home as a person of color

When asked if she had ever experienced racial discrimination In the real estateMichelle C., who is black, shares how she and her mother lost their Brooklyn Brownstone worth over $ 2.2 million.

Michelle and her mother bought the building by HUD lock for $ 135,000 in 2001. Michelle was 21 at the time. However, it turned out that the remaining tenant who came with the building was involved in criminal activities aimed at falsifying property documents. He was eventually arrested and jailed, but not before causing $ 700,000 in property damage, Michelle says.

After six years in court, Michelle and her mother were forced to sell their property for approximately $ 975,000, despite two proven identity theft allegations and the forged signature of a judge on a false title. After $ 300,000 in legal costs and $ 475,000 in mortgage interest, Michelle and her mother left penniless and devastated. Their life savings, his father’s financial legacy and their dreams of creating generational wealth through property investment were dotted.

MoMo Productions / Getty Images

Many people today assume homeownership is color blind, so they doubt stories like Michelle’s are really about race. Fair housing law was created in 1968 to level the playing field, but black investors and real estate agents know racism persists. Orders of redlining, racial leadership and even vacant property have disproportionately robbed black and brown owners of valuable properties that could have established intergenerational wealth. And in neighborhoods undergoing gentrification, black homeowners are struggling to keep their expensive homes or to sell competitively.

Here’s what you need to know about buying (or selling) a home as a person of color, including how to protect yourself, how to deal with the structural issues that continue to plague black homeowners, and how to be a part of it. ‘a systemic solution.

Undervalued evaluations

“BIPOC certainly continues to face barriers to real estate investment,” says Venroy July, a Baltimore-area residential real estate developer. Valuation bias, which causes black homes to sell for much less than those of their white neighbors, has recently been covered by major publications, such as The Washington Post and Bloombergyet few realize how this implicit bias snowballs into an avalanche of barriers for black homeowners.

“Access to capital remains a problem,” July continues. “Without the generational wealth provided by equity, BIPOC investors often need alternative sources of funding, as traditional channels and networks are not available.” Additionally, these alternative sources of finance often serve to lower returns to investors, meaning black people are less likely to make money with their property.

“These issues are further compounded by valuation risk, which we are seeing as banks move towards automation,” July adds. “I recently had a bank do a ‘office appraisal’, where a computer program or someone from the bank basically looks at other properties in the neighborhood without actually coming to see the renovations. ‘pupil at $ 170,000. After protest, an appraiser came to the house and appraised it at $ 244,000. ”If a black homeowner had gone for the first appraisal and sold, he would have lost $ 80,000.

Limited funding

I spoke with other agents who all vouched for Venroy’s calculations but requested anonymity for fear their honesty would affect their ability to win.

“It has been ages since I was discriminated against based solely on Fair Housing Act protected classes,” said an agent based in the southwestern United States. “What I’ve been through is ‘carelessness’ with people who don’t have discretionary surplus funds.”

What does this mean, exactly? “A lot of people have student loans and other debts that prevent them from getting conventional financing,” he explains. “For example, it is a veteran’s right to exercise his VA loan, if he is eligible. So how many of our veterans are BIPOC? How many BIPOCs are only eligible for Federal funding? Housing Association (FHA) – and not only pay more money for financing but also not to be selected by sellers because of stigma? “

The implication is that a seller who knows these loan details is less likely to accept a purchase contract from someone who does not list a conventional loan. The problem is that many BIPOC buyers cannot access these loans in the first place – or these loans have much higher interest rates for BIPOC borrowers. Collectively, these lending biases disproportionately prohibit buyers of color.

Prejudice against Black Rehabbers

The onus is only on the palms, who say their finishes must be of a disproportionate quality compared to white homeowners rehabilitating their homes for sale. An agent from Maryland said that in his experience, when buyers find out that the investor behind the deal is black, they become extremely hard on the quality of the finishes. They require more aggressive repairs and then it becomes more onerous to justify the asking price for the house.

“That’s why a lot [Black rehabbers] use white buffer agents who become the face of the deal, ”she admits, noting a fellow black developer who, although he has the experience to do it himself, has hired a prestigious white company to close his deals. sales. “He once put up a show with a foreign buyer from Asia, but when they saw him at the door, the buyers refused to get out of the car,” she said. more transactions itself. “

He voluntarily disassociates himself from the affair, as he has seen that as a black man, even his presence there for a screening causes people to make cheaper deals for the house. While hiring a white middleman is a big expense that cuts down on profits, it’s worth it in the long run for how much he can save on low-value deals – and he accepted that as the cost of doing so. business while he’s black.

How to apply anti-racism to real estate

So how can we, investors and homeowners from all walks of life, fix what is broken, so that we can all to win at the real estate game? There are a few magic options that only politics can fix, but there are also practical steps buyers and sellers can take right now to make a difference.

Policy changes

A change that would benefit BIPOC buyers and sellers? Remove the “loan type” from home buyers‘ contracts – if the type of financing does not add additional costs to the seller – to crush discrimination based on the type of alternative financing. This would of course require regulatory or legislative change.

Venroy also recommends that “additional incentives and tax benefits be provided to allow BIPOC investors to invest in underserved neighborhoods. Policies should be adjusted to make it easier for everyone to raise capital, potentially through the through crowdfunding “.

Organizers, consumers and town halls can suggest this structural remedy by writing to Federal Housing Administration (FHA), as well as sharing cost-benefit analyzes with town planning councils and fair housing commissions. So grab a pen or email leaders in your city, county, and state to explain how loan equity could lead to equality for all.

Buyers: be careful

Aspiring POC owners and investors should never assume that a loan offer is in their favor. Be persistent in scrutinizing all the assumptions and numbers around a deal, as they impact returns.

Don’t you even think of this house as a vehicle for wealth, just the place where your children will call home? Think again: both are true. Houses can stay with a family for many generations, and they can be used for long-term wealth for generations to come. Remember, the way you negotiate this purchase could impact your loved ones more than you ever imagined.

Sellers: don’t ignore prejudices

It is common for appraisers to dump homes based on the race of the residents, but this is also illegal. If you’re selling, be proactive in providing comparison data and consider getting more than one review if you get a low-priced offer. If you have had recent detoxification treatments or home repairs, keep these supporting documents so that appraisers and future buyers have a reference. Report unfair practices when you see them, and beware of your own biases implicit in choosing who will win your home. And perhaps most importantly: don’t judge a buyer based on their type of loan.

Pragmatic alternatives

Fewer upfront fees, better loans, and less risk could prevent a heart-wrenching homeowner’s story like Michelle’s. Fear of stories like his keeps far too many Blacks and Browns from buying residential property, but you can help end the discrimination. In addition, there are other ways to invest in real estate as well.

For the moment, Real estate investment funds (FPI) and commercial crowdsourcing sites such as Crowdstreet and Real estate tycoon are considered the safest place for a novice to enter the market before invest the savings of a lifetime in a forever home, rental property or rehab. These alternatives to owning a single-family home are shaking up the status quo because collective purchasing power is proving to be a real and significant means of bringing homeowners’ equality into the real estate market on a national scale.

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