What is steering?
Steering is when a real estate agent influences a home-buyer to purchase in certain communities based on their race, therefore limiting the buyer’s choices. It is not illegal, but it can give rise to claims of housing discrimination or discriminatory lending practices if the buyer feels pressured into buying anywhere they are shown. “Steered buyers may feel pressured into buying homes that were substantially different than those they preferred.”
Buying a house
It’s time to buy a home. You might be in it for the long haul, or you might just want to escape your apartment one day soon. Either way, you know that real estate is an ongoing process, and it has more than one facet.
You need to look at neighborhoods you like the best, figure out what type of home works for you (and exactly how much cash you have), then start crunching numbers when the agent shows you listings that could fit into your budget. If this framework sounds familiar, go ahead and hire an awesome real estate agent who can walk you through the rest of the steps. They should be knowledgeable about local escrow processes, neighborhood development details and a slew of other stuff that spruces up your home-owning journey.
For the beginners
But if you’re new to the game, here are some basics on what steering really means when it comes down to real estate with a focus on the business of buying houses in California. No matter where you live in our big state, there is one thing that stays constant: Real estate is an industry, just like any other service industry out there.
Most Realtors are paid through commission fees. This is considered a form of “customary practice” meaning it has been around long enough to become the standard way for independent realtors working for themselves or their brokerage firm to get paid.
When you hire an agent, he or she will likely get their commission fee by adding a certain percentage of the selling price to your closing costs. The exact amount varies, but it’s usually around 3% of the sale once all is said and done. This means that if your home sells for $500,000 after everything wraps up (including escrow), you’ll pay about $15,000 in commission fees.
Working of agent
That might sound like a lot (after all, commissions are usually represented by “points” on real estate documents). But agents don’t work only when they sell your house; they also advise you through every step of buying one. Their expertise is especially valuable when it comes to putting you on the right track and pushing your offer over the top.
For example, let’s say you find a house you love (and it ticks off everything on your list of must-haves). You can’t wait to make an offer, but your agent points out that there are other buyers who want this abode too—and they might be willing to pay more than what you planned for. That would put your deal in jeopardy (or at least take some of the fun out of things). But with their guidance and strategies, making a great first bid is easy as pie.
How an agent make money?
Either way, when you know how an agent makes money, you can make one very important choice: The whole commission vs. flat fee thing lets you decide what matters most in your scenario! That means choosing whether or not having more cash on hand (or avoiding bigger closing costs) trumps buying a dream home. Keep in mind that both options come with pros and cons that might help or hurt your chances during negotiations but ultimately, they will affect your finances before moving into your new pad.
Commission that an agent receives from a buyer’s side of a transaction?
For example, some listing prices have been set so low by the owners because they want to sell fast. If there are multiple offers on the table, it can be tough for buyers to get their foot in the door. Agents will often get paid more for this scenario by taking a lower percentage of the sale price and charging an up-front fee (for things like filling out paperwork and looking into inspections).
A flat rate is good for buyers who are looking for a special, one-time deal because you’d pay the quoted fee regardless of how long it takes to find your perfect home. It also benefits those who don’t have much cash on hand to offer as an upfront payment which means that they wouldn’t be able to pay the 7% or more that it would cost with a regular commission structure.
You might even have enough money left over for other aspects of the closing process (like moving expenses), whether you see all your options first on your own, or can lean on an agent to help narrow down your list.
When steering happens?
Steering happens when real estate agents illegally discriminate against clients based on one of the protected classes listed above. Steering often occurs outside of an agent’s conscious awareness and can be difficult for them to see their own behavior.
Real estate agents might steer by:
- Showing houses in certain neighborhoods only to people who are white even if black people are interested in moving there as well
- Not showing houses in certain neighborhoods at all based on the fact that they are predominately by black residents
The important thing to note is that steering can be done based on all of the protected classes.
- Showing houses in certain neighborhoods only to people over 40 even if they are young and want to buy a house “to avoid young families with kids”
- Not showing houses in certain neighborhoods at all because “they have some older residents and some younger ones”
While there might not be any malicious intent on the part of agents, steering clients away from potential housing options is still illegal and grounds for a civil rights complaint. Steering may also come up in conversations about segregated neighborhoods or an area that has historically been difficult for certain groups of people (for example, communities that were once redlined by banks.
Frequently Asked Questions
- Is it true that steering is illegal?
Yes, it Is true steering is illegal. Because it is illegal, unethical and racist.
- What are the three types of real estate?
The basic three type of real estate is: industrial, residential and commercial.