Guess one way we may be unintentionally advising our clients to discriminate and exacerbate the housing affordability crisis?
As featured in Inman News.
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| Photo by Kostiantyn Li on Unsplash. |
Did you know that there are numerous programs that can help with affordable housing, like FHA, VA, and USDA loans and various down payment programs (there are over 2,400 across the nation), some of which include repair funds and/or financing?
Yet, a recent report has documented an increasing trend of home buyers using such programs being shut out of the market.
Let’s unpack this.
An Assumption That Instigates Discrimination
The single most important reason I’ve seen sellers pass on an offer with a FHA or VA loan in NC is… “home inspection requirements”! FHA and VA loan home inspectors can require the seller to do way more work on a home than a seller is willing to do or can afford to do in order for the loan to be approved. This is the obstacle… it’s about affordability for the seller at that point – Agent’s initial comment
If you have been in the industry for at least a few years, then you may have heard the above sentiment.
You may even have had to school others on this unofficial rule.
But can you guess how this stance, at the least, excuses and, at worst, continues unfair housing?
Whether we are actively advising clients or other agents of this or if we are sheepishly not interjecting when we hear clients or other agents/brokers speak this, a form of unfair housing is allowed to live on and continue.
That form is “source of income” discrimination.
I point this comment out not to shame the commenter or us but to challenge us to be mindful of unfair housing even when it has been industry-speak for decades.
“Source of Income” protection says, “If you’re renting or buying, then people can’t say no to you based solely on how you legally pay.”
That recent report mentioned in this article’s opener has enumerated what many of us know, “source of income” discrimination is increasing in occurrence when it comes to homebuyers who are not paying cash or, at the minimum, not using conventional financing (instead they use FHA, VA, or USDA loans and any sort of downpayment assistance program).
If “source of income” discrimination continues to be a way for people to say, “No, we don’t want to consider your offer to purchase this home simply because of how you are paying,” affordable, fair housing may continue to be impeded.
Be an Options Broker
One tenet of being a Fair Housing DECODER (the acronym I have for real estate professionals who are intentional about fair housing and lending) is being an “options broker.” No, I am not referring to an options broker who specializes in Nasdaq options trading. Rather, being an options broker as a Fair Housing DECODER means that we provide solutions that offer multiple options that are in step with the spirit of fair housing.
How does this relate to how a home buyer is going to pay for their next home purchase?
Back to the opening comment: It is one thing to cancel the deal AFTER an inspection has a laundry list of repairs (we typically have stipulations for that to protect our clients). But it is another issue to preemptively say (or allow our clients to say), “Your type of loan requires an inspection, AND I ASSUME the repairs will be costly.” Thus, there is a knee-jerk, decision-making bias to say, “If I have to have a program-backed inspection, that’s going to be costly,” which may not be true.
Quiet as it is kept, “regular” home inspections can require costly repairs too, but sellers still entertain them or say from the jump, “as-is”.
Frankly, with a “regular” inspection, most would not dare to allow our home seller clients (who do not want to sell “as-is”) to forgo all offers from those who want an inspection. Instead, we know how to prepare sellers, encouraging them to have pre-inspections of their own so they are not blindsided.
Furthermore, there are programs that cover repairs (like FHA 203(k), etc.), empowering buyers. This gives MORE options as opposed to automatic exclusions and discrimination.
Accordingly, as Fair Housing DECODERs, let's promote:
1) That any legal form of payment is welcome,
2) That any and all home buyers (not just those using certain loan or program types, removing the stigma) are capable of requesting repairs, so let us prepare home sellers (with pre-inspections, budgeting, etc.) and, if necessary,
3) That sellers disclose before going under contract the maximum budget dedicated to repairs (if any at all).
In short, the commenter initially mentioned this is an affordability issue on the part of sellers, but I believe it is actually a disclosure and preparation issue that most of us know how to handle when it comes to a conventional home buyer having inspection concerns. It is totally acceptable to disclose, “This is what’s wrong with the home; we are not fixing it, or this is the most we will spend,” versus blanketly denying certain loan types without any actual knowledge of repairs needed.
Let’s Reset Access and Opportunity to Fair Housing
You’re right that there is often a negative attitude due to the horror stories some agents have experienced. This perspective is so prevalent, and we need to be more honest about our challenges as agents so we can come up with creative [and ethical… my addition] solutions to help our clients. –Agent’s follow-up reply
Bingo. Bad experiences (personal or vicarious) have soured future (read: have not happened yet) interactions with certain home buyer loan types and programs. That is a recipe for “source of income” prejudice festering and access to affordable homeownership being hindered.
Remember that in many counties, “source of income” discrimination is legal. Despite a lack of legislation, I am challenging us, as Fair Housing DECODERs, to acknowledge that although some fair housing tenets (like “source of income” protections) have not been codified everywhere (yet), we can still be intentional about practicing them in our businesses.
Dr. Lee Davenport is a real estate coach/educator and author (including Be a Fair Housing D.E.C.O.D.E.R. and How to Profit with Your Personality). Dr. Lee trains real estate agents around the globe on how to work smarter with their unique personalities and how to “advocate, not alienate,” so everyone has access and opportunity in real estate.
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