Barriers To Entry

ON A WARM AFTERNOON IN AUGUST 2004, a customer walks into the Irvine, Calif., sales office of one of the country's largest home builders and, not unexpectedly, gets the red carpet treatment. She's greeted immediately by the builder's agent, who offers her a seat, a cold drink, a guest card, and application materials. After an interview, the agent drives the customer around to look at four home sites, including one that's under construction. He carefully explains her financing options and gives her a good-faith estimate using a 30-year, fixed rate with a 20 percent down payment, and a total move-in cost of $214,940.

On that same afternoon, another buyer enters this same office. She, however, must request assistance from an agent before she's handed an application and a business card. The agent doesn't bother to ask this customer to fill out a guest card. In calculating a good-faith estimate for a home priced about the same as the house the first customer was shown, the agent uses an ARM loan product with a 31.2 percent down payment and a total move-in cost of $314, 005. The agent drives the customer to three home sites but cautions her that other buyers had expressed interest in the homes she's viewing, something not mentioned to the first buyer.

What's going on here? The difference in treatment becomes even more puzzling when you learn that customer No. 2 has a better financial profile than customer No. 1. The answer appears to lie in the fact that customer No. 1 is white and customer No. 2 black.

Think that bias doesn't occur in any of your company's sales centers? Builders who say “No way!” might want to think again, based on the findings from exclusive research that BUILDER commissioned this summer to assess the home buying experiences of minorities. That research, which includes the scenario above, uncovered selling techniques and procedures that, at the very least, betrayed some startling inconsistencies and oversights and, at worst, lapsed into differential treatment for minority and white buyers that could easily be construed as discrimination.

Earlier this year, BUILDER engaged The Equal Rights Center, a nonprofit research firm based in Washington, to conduct the study by sending black and Hispanic female “testers” into 15 sales centers operated by 15 of the industry's builders in and around Los Angeles, Chicago, and Washington. White buyers, acting as the study's “controls,” were also sent into the same offices. Each of the minority buyers was given a financial profile slightly better than the white buyers. Yet in 13 of those 15 visits, the transactions seemed to favor white buyers. In several cases minority buyers were probed with questions—about their marital status, citizenship status, and where they lived—that were not broached with white buyers. And in some alarming instances agents appeared to be steering minority buyers to products that were different from what the white buyers were shown:

To be sure, the number of tests in our study is very small and cannot be construed as an indictment of the entire housing industry. But most builders would admit that even the hint of bias could undermine their efforts to expand their market penetration. It is disconcerting, at best, then, that the research reveals plenty of anecdotal evidence that demonstrates that problems do exist in at least some sales centers. And it is apparent that builders must be vigilant about keeping discriminatory practices from creeping into their operations by monitoring and enforcing their corporate policies and training more rigorously.

The study's findings, coupled with subsequent interviews with other builders, also suggest, if indirectly, that the usual barometers with which the industry prefers to measure its relationship with buyers—such as customer satisfaction ratings and referrals—aren't telling the whole story about the effectiveness of sales training. If, because of perceived slights, prejudging of financial qualifications, or a feeling that they've been steered to a house or mortgage product because of their race or ethnicity, prospective buyers do not become actual buyers, their opinions will never show up in a customer satisfaction survey and a much larger problem lurks in the background.

At a time when immigrants are pouring into the United States in record numbers, providing the appropriate service, information, and care to all customers has never been more critical for builders . Immigration accounted for one-third of the country's housing growth in the 1990s, and minorities' share of total households is projected, conservatively, to expand to 34 percent in 2020, from 26 percent in 2000, according to Harvard University's Joint Center for Housing Studies. But the minority homeownership rate continues to lag behind that of whites—around 50 percent to whites' 75 percent. And while experts can point to many reasons that explain the wide gaps in those rates, one factor that builders ignore at their own risk is the central role that a salesperson's presentation plays in engendering a comfort level that can elevate a buyer's trust in the product being sold and the company that's selling it.

“A new home is more than a commodity; if it wasn't, all it would be about is price,” says Nick Retsinas, the Joint Center's director. “People's perceptions are important, and the sales effort can affect that.” Retsinas goes on to say that it's his sense, from speaking with chief executives, that home builders have become “very attentive” to this issue “and are trying to understand” the cultures of different customers in a more nuanced way.

Housing discrimination remains a fact of life, however, even as the dimensions of the problem remain difficult to gauge. Four years ago, HUD issued a study, based on 4,600 paired tests in 23 markets, that found that white home buyers were treated more favorably than blacks in 17 percent of the cases evaluated, compared to 29 percent in a similar study HUD did in 1989. Whites were treated better than Hispanic home buyers in 19.7 percent of the cases in 2000, compared to 26.8 percent a decade earlier.

On the other hand, HUD officials contend that up to 80 percent of buyers and renters who have encountered some level of differential treatment never report it. And while the Fair Housing Act may define discrimination broadly, proving the offense can be another matter entirely. In 2003, between 40 percent and 45 percent of the more than 8,000 complaints HUD investigated were deemed to be either not valid or unverifiable. “In many of these cases we don't have the benefit of comparing the plaintiff's situation with [that of] other” buyers, so there is no yardstick of bias to use, explained Bryan Greene, policy director for HUD's Office of Fair Housing.

“Until we investigate a charge, it's only a complaint. We have to discover whether it has merit,” adds Brian Sullivan, a HUD spokesperson. To that end, HUD now requires its 500 full-time discrimination investigators to complete 200 hours of advanced training. This summer, the department opened its National Fair Housing Academy, located on the campus of Howard University in Washington, whose goal, explains Carolyn Peoples, HUD's assistant secretary for fair housing and equal opportunity, is to establish policy and performance standards that will ensure “the more consistent and timely enforcement of fair housing laws.”

The goal of this enforcement seems to be prevention achieved through means other than litigation. Last year, HUD resolved 35 percent of the complaints it received through some form of conciliation that ranged from an apology to monetary compensation for the aggrieved parties. Greene notes, however, that while HUD does not issue its findings publicly in these conciliated cases, the department is a signatory to the agreement and requires assurances from the builder or housing provider that the differential treatment will not recur. The actions of the builder or renter are subject to review—as part of the enforcement pact—and legal action if another violation occurs.

Between 40 and 50 of the complaints filed last year wound up in court, says Greene. When that happens, HUD issues its findings “based on the facts,” and the case is brought before an administrative judge, who has a range of options. For example, the judge can assess a fine of up to $11,000 for each act of bias or discrimination that's proven. The judge can also issue an injunction against the housing provider that, if violated, could result in stiffer fines. Greene says the judge might also determine that as a result of the differential treatment, the plaintiff suffered emotional injury, and other damages could be assessed.

While builders concede that discrimination still exists in the home buying arena, they bristle at insinuations about bias in their own sales offices, not only because such activity would be antithetical to their company's culture and policies, but also because it's bad business. “You'd have to be a real idiot to discriminate in this market,” says Mary Portway, who manages two of D.R. Horton's sales offices in Central New Jersey that cater to a widely diverse clientele. Profiling, she notes, would have cost Horton's office in West Orange, N.J., the sales of two $1 million homes that were purchased by a non-white customer whose disheveled outward appearance—she particularly remembers his dirty sweatshirt—belied his affluence and eagerness to buy.

In fact, all of the builders contacted for comment for this article on the BUILDER survey expressed surprise and even skepticism about its findings. “How could we achieve such a high percentage of sales to such a diverse collection of customers by offering anything less than attentive assistance and fair treatment?” asks Mark Marymee, a spokesperson for Pulte Homes, the industry's second-largest builder, which now mandates that all of its divisions strive to finish first in J.D. Power's annual customer satisfaction ranking. Marymee says that half of Pulte's home buyers are minorities in some of its markets. He adds that licensed realtors in California, who handle much of Pulte's selling in that state, are required to be well versed in the federal Fair Housing Act.

In the six years she's worked for Clearwater, Fla.–based Arthur Rutenberg Homes Tessa Madasz, director of sales and marketing, says there have been only two instances where customers raised concerns about bias, and “we took care of that right away.” Carol Kiel, sales and marketing manager for Syncon Homes in Minden, Nev., wonders how much of what buyers characterize as discrimination might actually reflect his or her own “hypersensitivity.” “I would be stunned,” she adds emphatically, “if any of our salespeople didn't treat every customer the same way.” When Kiel was selling for another builder in California several years ago, a racially mixed couple accused her of bias. “At the time I was dating a black guy, so what they were saying wasn't in my makeup,” she recalls.

These and other builders must realize, though, their denials notwithstanding, that the only perception that ultimately matters is the buyer's. And time and again the BUILDER study shows that minority buyers were not accorded the breadth of a sales office's services and courtesies.

In a surprising number of cases sales agents failed to gather crucial information from minority buyers. In Oswego, Ill., for example, a black customer wasn't even asked her price range and, therefore, wasn't offered any information that would match her financial profile, whereas the white customer in that same office discussed homes and prices on six different lots. In Leesburg, Va., a Hispanic customer was all but ignored by salespeople who seemed noticeably put out by her presence. An agent eventually told this customer that the community she was interested in was sold out and then walked away. Agents in that office, though, greeted a white buyer, asked her to provide contact information, and referred her to another of the builder's communities.

The actions of some salespeople were truly inexplicable, as when one agent in the Washington area handed a Hispanic customer brochures from other real estate companies instead of providing information about this builder's communities. In Santa Clarita, Calif., a Hispanic buyer calling to set up an appointment was urged not to come in because the builder's homes were sold out. But when a white buyer called, she was invited to come in and look at models the agent informed her would be available soon. When she entered the office, the white buyer filled out a customer information card and was referred to another of the builder's more expensive communities. But when the Hispanic customer arrived, she wasn't asked to fill out anything, and the agent gave her a list of other builders with less-expensive communities.

Calling to make an appointment with another builder's sales office in Yorba Linda, Calif., a minority buyer—who made clear the fact that she was black—was told by an agent that no models were available for showing. An agent in that same office, though, told a white buyer that no appointment would be necessary, and that she could come in any time. The agent greeted the white buyer warmly, showed her maps, diagrams, and information about upcoming homes in phases 3 and 4 within one community and told her that there was one house still available in phase 1. While in this builder's sales trailer, the black buyer had to request assistance, wasn't informed about the phase 1 home, and wasn't given information about phases 3 or 4. The agent also told the minority buyer that the last house in phase 2 would be sold by picking a buyer's name from a hat.

It could be argued that the eruptions of differential treatment that the study chronicles were anomalies in an industry that professes zero tolerance for discrimination. But to minimize future outbreaks builders may need to get a better handle on the different needs of a more diverse customer base, some of whom view the home buying process as mysterious and intimidating.

“There remains a sizable information gap between the general public and minority communities regarding homeownership and the home buying process,” wrote Franklin Raines, CEO of Fannie Mae, in an introduction to a survey of 730 adults that the lender conducted in December 2003 and January 2004. That survey found that Spanish-language Hispanics, in particular, were far less knowledgeable or confident about purchasing a house: For example, only 27 percent of this group knew that buying a home didn't require them to accept a 30-year mortgage.

In May, the Real Estate Center of Texas A&M University released the results of a poll of 4,080 Texans that tracked home buying trends in the Lone Star State. It found that nearly half of the 1,870 Hispanics participating in that survey “don't think agents take the time to understand their needs.” (That finding was in marked contrast to the generally high opinion of sales agents held by the 772 blacks polled.) This survey noted that Hispanics of all buyer groups generally visited the fewest number of homes before making a purchase. It also found that Hispanics are financially conservative, with more than half of those polled saying they sought a home loan requiring monthly payments no higher than their current rent or mortgage.

“We're learning that as the country becomes more diverse, the way people look for housing has to be rethought,” says Fred Underwood, senior policy representative in the Washington office of the Chicago-based National Association of Realtors. “We're not in the mode any more of ‘the only color I know is green.' It's disingenuous to say you don't notice the buyer's race. Of course you do. We need to acknowledge that and [to] challenge the preconceived notions of thinking you know what people are going to want. We are not dealing with [just] white middle-class home buyers any-more, so what you have to do is constantly look at how to make yourself comfortable with [other people's] culture.”

Rather than addressing racial and cultural issues, many builders tend to categorize buyers by income levels and life stages, not culture. “The demographics we deal with are more about where [the buyers] are when they buy the home,” says Angela Lazazzera, marketing director for Melbourne, Fla.–based Holiday Homes, which markets homes ranging from $90,000 to $200,000 from 40 sales offices in Florida, Texas, Ohio, and Kentucky. Kiel adds that Syncon Homes encourages its salespeople to let customers “match themselves to our products.”

That doesn't mean, though, that builders are blind to shifting market realities. Last year, Dominion Homes assembled a three-person sales team that now serves Hispanic communities in Central Ohio, where the company has 35 sales offices. Over the last two years, Madison, Wis.–based Veridian Homes has used interpreters from the University of Wisconsin “to overcome any language barriers” with its Hispanic customers, says Dave Kinzler, the builder's director of sales. Each of Arthur Rutenberg Homes' 58 sales offices is manned by at least one person who speaks Spanish, says Madasz.

Hiring minority employees does not always guarantee similar treatment of customers, however. In the Santa Clarita case, the saleswoman who tried to steer the Hispanic buyer to another builder's communities was herself Hispanic. Veridian conducts weekly training sessions during which the interview process is discussed constantly “so that we're selling and demonstrating the same way and saying the same things,” explains Kinzler. That process is guided by a 25-point checklist, which Veridian has put together “from the feedback we get from our buyers.” Salespeople at Dominion Homes regularly rehearse their sales pitches from prepared scripts, says Jack Mautino, the builder's executive vice president of sales operations.

Most builders also “shop” their sales offices clandestinely a few times each year to assess firsthand how their agents are interacting with customers. In a growing number of cases, those visits are being recorded electronically, and sometimes on videotape, to more accurately capture the nuances of an agent's selling technique and rapport with buyers. (When hired, employees sign an agreement allowing this type of surveillance.) “What we want to make sure of is that there's no stereotyping going on,” says Madasz.

While moving in the right direction, these changes could be seen as incremental, not the bold steps forward that need to be taken. Perhaps business is so good right now that a flawed process can still work—and work well. When the day arrives, however, that builders must compete strenuously for customers, attracting them might require more effort. Salespeople will have to be trained to interact in a way that their customers, whoever they may be, can relate to. And the builders who discover and implement that formula will be the big winners—and so will their buyers.

John Caulfield is a freelance writer based in Old Bridge, N.J.

The following are HUD's four best guesses why housing discrimination happens:

Source: HUD Report: HDS2000 Study

Builders should be sure to have a diversified workforce that reflects the country's diversified population of potential home buyers.

When a black female real estate agent accuses a leading home builder in the Southeast of discrimination, that is not good news, regardless of the allegation's merits, for an industry that is still perceived in some quarters, however unfairly, as one of the last bastions of white maleness.

The agent, Amanda Eskridge, claimed Atlanta-based John Wieland Homes and Neighborhoods wouldn't hire her to sell homes in two predominantly white subdivisions. Her suit, filed in August, states that Wieland passed her over in favor of a white woman studying for her real estate exam. Newspaper reports also quoted from a secretly taped conversation in which a Wieland vice president allegedly could be heard saying that Eskridge didn't fit the “non–African-American” profile the company sought.

Wieland stated that it would defend itself against what its officials and attorneys insist are bogus charges. The builder also reiterated its standing as an equal opportunity employer that “hire[s] people ... without regard to their race, sex, color, creed, or disability. It would not be good business to do otherwise.” Appearance and reality, though, are never too far from any debate about recruiting and hiring practices. This summer, the National Urban League released a two-year study that surveyed 5,000 American workers and found that fewer than one-third believes their companies have effective workplace diversity initiatives, and fewer than half think that diversity is part of their company's corporate culture.

Home builders speak earnestly about how their workforces reflect the diversity of their home buyers. And even at those companies where women and minorities are well represented in decision-making positions builders carefully frame their affirmative actions within a larger context of customer service.

Indianapolis-based C.P. Morgan has instructed its two inside recruiters to “take our hiring model [and] make sure we have a broad slate of candidates,” says human resources director Rhonda Stoughton. She adds, though, that diversity “goes beyond recruiting” and that all of Morgan's employees receive “rigorous training on how to welcome [customers] and interest them in our product.” Scott Bowers, director of government and community affairs for Morgan, notes that his company wouldn't automatically assign a consultant to a community where his or her race predominates. “We treat everyone the same and approach every customer the same way,” he states. Neither Stoughton nor Bowers provided statistics on Morgan's employee mix or hiring history.

A more proactive approach to workplace diversity has broken out at Bloomfield Hills, Mich.–based Pulte Homes, which, through Aug. 31, had 62 percent more minority employees and 50 percent more female employees at the levels of manager through vice president than it did at the close of 2003. Elaine Kramer, Pulte's executive vice president of leadership development and training, sees a great opportunity in staff diversity. “Our growth requires that we hire the best talent available,” she says, adding that by actively seeking the “untapped talent pool” of women and minorities “we will be creating a competitive edge.”

That search is taking several routes. Pulte launched its first college scholarship program for minorities and women, through which it's offering $5,000 grants annually to 20 students (two per market area) whom it also hires as interns with the hope that the students will be attracted to a career in home building—“of course, at Pulte,” adds Kramer. For mid-level hires Pulte has instructed three search firms to identify top women and minority candidates and to ensure these selections account for at least 20 percent of all job seekers Pulte considers.

Earlier this year, Pulte hired Reggie McCoy for a new position of vice president of supply chain. McCoy, an African-American, was recruited from Wal-Mart by Wesley, Brown & Bartle, a leading search firm that Pulte retained to find minority and women candidates for senior-level positions. Another search firm, Korn Ferry, recently placed former AIG and FedEx executive Wy Livingston, a woman, into the post of senior vice president of production at Pulte Mortgage, where she reports to Debra Still, a 21-year Pulte employee whom the builder promoted on Aug. 1 to president and CEO of its mortgage division.

Progressive hiring is wasted, though, if a company doesn't engender a sense of inclusion. To that end, Pulte, this fall, conducted two three-day summits that brought together minority and women associates with senior-level executives to discuss growth opportunities and the obstacles blocking that growth these associates may be experiencing. Each of Pulte's 10 market areas sent three women and three minority associates to the meetings, held in Asheville, N.C., and Richmond, Va., in October and November. Each of these “high-potential” associates has been assigned a mentor.

Pulte sees this program as being less about quotas and more about an educational process for the participants. It provides, states Kramer, “hands-on experience working together on real-world problems that we are currently encountering in our business.”

Your marketing materials need to go out to a diverse market and demonstrate that your product matches diverse needs.

Boca Raton, Fla.–based Levitt & Sons sometimes shows a Hispanic-American family in ads it runs in North Dade or South Broward counties in Florida, whose Spanish populations are among the densest in the nation. “You have to,” admits Sal West, Levitt's vice president of marketing. But West also notes that Levitt, which specializes in active adult communities, is more likely to play up amenities that most buyers can relate to, rather than a particular buyer's race or gender. “Lifestyle is lifestyle,” says West.

Other builders that subscribe to this marketing theory are praying that it's true as stress from the tidal wave of immigration flooding across the United States tests the effectiveness and resonance of their ads. “Minority marketing is one of the most requested sessions at all of our meetings,” says Nick Retsinas, director of Harvard University's Joint Center for Housing Studies. And for good reason: Using updated Census Bureau data, the Joint Center now projects that net minority households could increase by 8.9 million between 2005 and 2015, compared to previous estimates of 7.6 million, and that this growth will reach an annual rate of 1 million by 2025, from 850,000 in 2003. “Over the past several years, builders have come to realize that just having the Spanish version of an ad isn't going to get it done.”

Builders say the goal of their ads is to get across to a diverse customer base with specific, even divergent, needs that their product selection matches these buyers' shifting life stages. “If you're trying to attract a second-generation Latin-American buyer, he might need more rooms for an extended family or a split bedroom or a mother-in-law apartment with a separate entrance,” says Mark Neubauer, president of sales and marketing for Melbourne, Fla.–based Mercedes Homes. “We've shown focus groups 50 ads, and invariably they gravitate towards those that emphasize what the product is.” Mercedes has moved away from institutional advertising in favor of marketing that either points out something that “is a unique proposition to the sale” such as the house's elevation, or something that calls attention to those “value-added” components—a community's schools, for example—“that are on every buyer's checklist.”

To unearth those common denominators Mercedes Homes pulls available demographic data for a three- to five-mile area around a given community and conducts door-to-door interviews to determine “what kind of cars they drive, their age and employment, what are their hobbies,” explains Neubauer.

Newport Beach, Calif.–based Wm. Lyon Homes maintains a database of 20,000 past and potential customers that it divides into first-time buyers, young families, established families, and transitional families. “We tailor a lot of our product to these groups,” says Brian Doyle, director of sales and marketing. “The American dream is the same for everyone. An Asian couple with kids has the same issues as a white couple with kids.” When Wm. Lyon shows people in its ads, it's not so much to highlight their race or gender but rather to illustrate a home setting—say, a kitchen where people are cooking—that “anyone can look at it and say, ‘yeah, that's me,'” says Doyle.

Some builders would contend that calling attention to a buyer's race or gender in their ads can be a distraction. “The graphics are the easy part, but they aren't going to convince anyone to buy your product,” says Kathi James, vice president of sales and marketing for Alpharetta, Ga.–based Morrison Homes. Three elements are seminal to Morrison's marketing to any group, says James: the message, how it is communicated, and the vehicle that conveys it. Her company has translated its marketing materials into Spanish, with an eye towards providing Hispanic buyers with easy-to-understand explanations about its mortgage financing. Morrison is working with the consortium of builders that advertises on the Web site NewHomeSource.com to develop a Spanish-language product. And this builder places its own ads on Internet sites that different buyer groups might turn for information such as Terra.com and Star Media.com for Hispanics and BlackPlanet.com for blacks.

Note from the NAHB

The NAHB is in the forefront of providing training and assistance for builders and their salespeople in the important area of fair housing.

“I am confident that our members are committed to ensuring proper sales practices in their businesses. To do this they must stay current on all aspects of the laws relating to home sales and must comply with those laws. Through our University of Housing, the NAHB offers various courses that help educate members on this important issue.

“I strongly encourage builders attending the 2005 International Builders' Show to attend the very popular educational programs, “Marketing to Multicultural Home Buyers,” “Marketing to the U.S.–Hispanic Homebuying Market,” and “Best Practices for Providing an Absolutely Incredible Homebuying Experience.” Later in 2005, we will be rolling out a comprehensive Multicultural Sales Protocol course designed by the NAHB's Institute of Residential Marketing and the University of Housing. This course will be taught at local and state HBAs and will focus on helping salespeople to better understand how to communicate with cross-cultural buyers and do business with members of this important market segment.”—Bobby Rayburn, 2004 NAHB president and a home and apartment builder from Jackson, Miss.

Additional courses available from the NAHB and other organizations: