Effects of Multicultural Diversity in Real Estate Brokerage, The

Effects of Multicultural Diversity in Real Estate Brokerage, The

Bond, Michael T

Abstract This study examines the changing diversity of home buyers and the steps brokerage firms are taking to adapt to these changes. The results reveal that larger firms are experiencing a greater increase in customer diversity. This can be partly explained by their efforts to target diverse groups through sponsored seminars and hiring minority sales professionals. A survey of minority home buyers reveals that minorities have owned fewer homes, earn less and are younger than their non-minority counterparts. Race and income were found to significantly explain reports of greater difficulty on the road to home ownership.

Introduction

This study examines how the changing demographics of home buyers are impacting the real estate brokerage industry. Specifically, the research seeks to examine how real estate firms and salespersons are responding to the increasing multicultural diversity of their customers. It also examines the impact of minority status on home buyers. It is anticipated that most real estate firms and their associations will report a significant increase in the diversity of home buyers. It is also expected that this will be greater in urban areas and for real estate firms with numerous offices. Further, it is hypothesized that the larger firms will be more proactive in dealing with increasing diversity of their customer base. It is expected that real estate associations in urban areas will have found significant increases in the diversity of home buyers in their regions and will have developed strategic plans to assist their members in dealing with these changes.

From the buyer’s perspective, it is anticipated that minority buyers are younger, earn less and have less experience in the home ownership process than nonminority home buyers. This study examines whether or not minorities believe their race is a hindrance to home ownership and why that may be the case. The difference between minority and non-minority buyers in utilizing the services of the real estate brokerage will be examined. This study is needed because there is currently very little in the way of academic research on the subject of increasing multicultural diversity in the real estate brokerage industry.

Literature Revi ew

There is a paucity of academic research on real estate brokerage responses to the increasing diversity of potential buyers. Yet, the increase in diversity of home buyers is well documented. For example, the Harvard University Joint Center for Housing Studies found that minorities were responsible for 42% of the overall increase in homeownership in the United States between 1994 and 1997 (NAR, 2001). Moreover, the National Association of Realtors has documented that minorities and immigrants are the fastest growing home segment in the U.S. (NAR, 2001). The following official statement from Sharon Millet, 1999 NAR President, underscores the association’s concern about diversity:

“America is becoming an increasingly multi-cultural society. Today’s realtors have a responsibility to work with people of all cultures to achieve the dream of home ownership. This responsibility is also a tremendous opportunity for realtors who have the skills to reach this growing market. Minority households contributed more than 40% of the recent growth in homeownership and are expected to boost their spending on homeownership by an additional 16.9% compared to 12.4% for Caucasians,” (Nevada Association of Realtors Release, 1999).

Related to this, the NAR and the U.S. Department of HUD signed a fair housing agreement in December, 1996. This agreement is a voluntary partnership between NAR and HUD to identify fair housing issues, concerns and solutions. A suggested fair housing document from the accord for local real estate boards was drawn up.

[Realtors should strive, on a daily basis, to: (1) Provide equal professional service without regard to race, color, religion, sex, handicap, familial status, or national origin of any prospective client, customer, or of the residents of any community. (2) Keep informed about fair housing law and practices. (3) Improve my clients’ and customers’ opportunities and my business. (4) Develop advertising that indicates that everyone is welcome and no one is excluded. (5) Expand my clients’ and customers’ opportunities to see, buy or lease property. (6) Inform my clients and customers about their rights and responsibilities under the fair housing laws by providing brochures and other information. (7) Document my efforts to provide professional service, which will assist me in becoming a more responsive and successful realtor. (8) Refuse to tolerate non-compliance. (9) Learn about those who are different from me, and celebrate these differences. (10) Take a positive approach to fair housing practices and aspire to follow the spirit as well as the letter of the law. (11) Develop and implement fair housing practices for my firm to carry out the spirit of this declaration (NAR, 2001).

The 2000 U.S. Census has shown, related to the above statistics, that 40% of potential customers identify with some niche group that does not reflect Caucasian, heterosexual consumers that have traditionally defined the marketing mainstream. Of 281 million residents, roughly 25% are non-Caucasian or some combination of Caucasian and other racial groups. An additional 13% of the total are Hispanic. And according to widely accepted statistics, approximately 10% of the population are homosexual (U.S. Census Bureau, 2001).

Realtors marketing to a more diverse population stand to learn from the successes and failures of those firms that already actively court diverse customer bases. There appear to be three building blocks for success in marketing to culturally diverse groups. The first is to embrace local customs. Since networking is crucial in real estate brokerage, embracing the customs and cultural events of various diverse groups is a must. Examples of this include events related to Black History Month, the Asia Moon Festival and Mexican Independence Day. For groups that speak different languages, marketing is particularly challenging. Advertising in English and Spanish works extremely well with Hispanic groups, but Asians are much more difficult to communicate with because of the large number of languages spoken in the Far East. Language consultants may be needed to ensure advertisements are grammatically and culturally correct for all the communities. An excellent location for this advertising is in local cultural and ethnic newspapers as well as newsletters of local minority social and business organizations.

The second key is to try new approaches to reach diverse groups. As an example, local associations and/or realty firms could host home buyer seminars for specific groups such as first time minority and low income home buyers. Realtors could also benefit from becoming active in fair housing groups such as local fair housing boards, the local NAACP and Urban Leagues as well as joining and encouraging membership of minorities in traditionally Caucasian social and business organizations. Their active pursuit of opening doors is bound to produce new or additional minority business.

Finally, appealing to universal traits is important. For example, realtors in Los Angeles trying to market to Hispanics found that only about 30% of young families read newspapers, but that nearly 100% watch television. Accordingly, the firms developed TV spots of Hispanic customers talking about the benefits of owning a home, including financial stability and a feeling of firmly planting roots in the community. The ads also emphasize the relative ease of home purchasing and financing, usually in Spanish, which is a comfort to younger potential buyers whose immigrant parents found many obstacles to owning a house (Sharoff, 2001).

One survey of realty firms showed some progress towards meeting the demand of culturally diverse home buyers and sellers. Of ninety-five respondents nationwide, forty-two indicated that they were involved in at least some type of effort to reach multicultural home buyers. Most of the programs involved offering homeownership seminars and home buying and selling materials in different languages. Some programs involved recruiting immigrants to become realtors.

A Rhode Island realtor association has teamed up with a non-profit organization to encourage and teach immigrants how to become realtors with an added goal of increasing home ownership among these groups. The class is open to those for whom English is a second language. In fact, promotional information is offered in eight languages. One realtor association in East Orange County recently formed a Hispanic Council of Realtors to meet the needs of Hispanic members. The course was even offered in Spanish. Moreover, one major national real estate corporation has developed a comprehensive marketing program targeted to Hispanics. The catalyst was the fact that Spanish is at least a second language in over 1,100 of their offices in the U.S. (Morris, 1996).

Methodology

Survey of Brokerage Firms

In order to examine the issue of increasing diversity of home buyers and its impact on real estate brokerage, it was necessary to survey active real estate brokerage firms. This survey attempted to answer questions related to the following issues:

1. Has your customer base become more diverse over time? If so, please estimate how much it has increased.

2. Have you specifically targeted more diverse customer groups and, if so, how have you done this?

3. What specific challenges, if any, has this presented to your firm (such as language barriers, cultural barriers, and so forth)?

4. In what way has your firm dealt with the challenges related to the increasing diversity of your customer base?

5. If possible, could your firm provide specific experiences of culturally diverse clients and their level of satisfaction and/or difficulties with the sales process?

6. In general, could you describe your firms’ characteristics (number of transactions, number of employees, number of offices, type of area served, and so forth).

In order to maximize the number of firms dealing with increasingly diverse groups, the survey was limited to real estate brokerage firms in major Ohio urban areas. These included Akron, Cincinnati, Cleveland, Columbus, Dayton, Elyria, Lorain, Toledo and Youngstown. To get a better feel for the trends in ethnic diversity in the cities examined, Exhibit 1 shows the percentage of the population classified as Caucasian and minority for the years 1990 and 2000 and the corresponding percentage change over this ten-year period.

A total of 733 firms were surveyed by mail. The total response was 228 for a response rate of 31.1%. These firms indicated that their annual transactions ranged from a high of 1,400 to below 10 with a mean of 76.81. The number of employees for the responding firms ranged from a high of 300 to less than 5, with an average of 14.45. The number of offices operated by the companies in question ranged from a high of 45 to a low of 1, with a mean of 5.99. The skew of each of these statistics was towards the lower number indicating a small number of large firms as respondents. In addition, firms were asked to describe the nature of their office locations ranging from 4 for multi-county, 3 for county-wide, 2 for multi-city and 1 for city-only. The mean response was 1.99 with a skew in the smaller direction. These figures are summarized in Exhibit 2.

Survey of Home Buyers

To examine the impact of increasing diversity of home purchasers from the customer point of view, it was necessary to survey minority home buyers. Specifically, answers were sought for the following questions:

1. What is your race or ethnic heritage?

2. What is the age of the primary household income producer?

3. What is your approximate annual family income?

4. How many homes have you purchased in your life?

5. What is the biggest problem you faced in purchasing a home?

6. Did you use the services of a realtor in purchasing your home?

7. If so, in what ways was the realtor helpful to you?

8. In which areas could the realtor’s services be improved?

9. Do you feel your race or ethnic heritage made purchasing a home more difficult? If so, why?

This presented a significant challenge since data of this type is quite limited. Several minority group organizations were contacted in an attempt to generate a database of minority homeowners, but the groups in question either did not have this type of data or were not interested in providing it for research purposes.

Faced with the problems relating to accessing an existing database of minority home buyers, a dataset of buyers was created by surveying home purchasers in Cuyahoga County (Cleveland) as listed in the Cleveland Plain Dealer Real Estate Transfer section. This is published weekly (the publication has recently stopped printing names on transfers, but this survey uses 2001 transactions before the names were dropped). A total of 1,268 buyers were contacted by mail survey with a total of 374 of the responses returned. Of these, 153 identified themselves as minority or in some way non-Caucasian.

Results

Results from the Survey of Brokerage Firms

Exhibit 3 shows a summary of the results from the survey of brokerage firms. Of the 228 respondents, 205 (90%) indicated that their customer base had become more diverse over time. However, only 42% of the firms had specifically targeted these groups. The realtors who had specifically targeted minorities and others attempted to generate business in this area in several ways. Advertising was used by 83% of those actively seeking diverse customers, while 31% had sponsored or had run seminars on home buying targeted to minority groups. Attempting to hire a more diversified group of realtors was undertaken by 54% of this sub-sample, while 64% indicated they had used other methods such as contacting minority social, cultural and business groups.

The portion of real estate brokerage firms that had specifically targeted diverse customer groups overwhelmingly (99%) thought this presented specific challenges to their firms. When asked to identify these challenges, 68% included different language as an issue. Cultural barriers were thought to be a problem by 66% of firms. Other issues of concern were cited by 64% of firms actively seeking to diversify their customer base. Concerns included creditworthiness, having to locate offices in different geographic regions and the costs of expanding to meet a larger customer base.

The vast majority of firms (92%) indicated that they had attempted to deal with the above concerns. Language issues had been addressed by 39% of the group, while cultural issues drew responses from 44% of the firms. Another way these companies attempted to deal with challenges related to diversified customer groups was by offering specific training on these issues to their realtors (40%). Other methods that were used included opening offices in different regions and advertising in regions outside their customer base (47%).

It is reasonable to hypothesize that larger firms, by virtue of size and geographic dispersion of offices, would automatically attract a more diverse clientele. This larger minority clientele would also seem to insure that the larger firms would automatically provide more services in that area. To get a feel for how the results relate to firm size, Exhibit 3 also reports summary statistics for small, medium and large firms as defined by the number of offices they have. Indeed, firm size does appear to relate to diversity.

In order to more formally examine whether firm specific variables explain increasingly diverse customers, a probit analysis is undertaken. It is hypothesized that increases in the level of customer diversity (DIVERSITY) is a function of whether or not the firm targets minority groups (TARGET?) and the size of the firm (#OFFICES). There were originally four variables that could be used to measure the size of the firm: number of total firm sales, number of employees at the firm, geographic area covered by the firm and number of offices the firm has open. Not all of the variables could be entered into the analysis because of multicollinearity concerns. The number of firm offices was ultimately chosen because this variable relates to both size and diversity in geographic location.

The results are shown in Exhibit 4. Both variables confirm the hypothesized relationship. That is, the greater the attempt to target minorities and the larger the firm, the greater the probability that the firm’s customer base has become more diversified. An analysis of means shows much lower values for targeting when the firm reported no increase in the diversity of its customers (0.46 vs. 0.15). The same is true for the average number of offices (6.43 vs. 1.60). The clear implication is that firms that target diverse groups and larger firms with more offices do have more diverse customer bases.

Results from the Survey of Home Buyers

Recall that 374 homebuyers responded to the buyer survey. A total of 153 (41%) identified themselves as minorities or in some way nontraditional home buyers. The remaining 221 respondents (59%) indicated that they are Caucasian. The average age of minority respondents was 28.39, while non-minority home buyers averaged 32.15 years of age. Approximate family income for minority purchasers was $34,920. Non-minority buyers had average family income $40,230. The average minority buyer had purchased 1.31 homes in their life, while non-minorities had owned an average of 2.01 homes. Thus, minority buyers were younger, earned less and had owned fewer homes in their lives than non-minority purchasers. These results are presented in Exhibit 5.

In order to determine, statistically, if specific socioeconomic variables are related to race, a probit analysis of minority/non-minority status is undertaken.

The probability of being a minority home buyer is negatively related to age, income and previous home ownership. all variables are statistically significant at the 95% confidence level. Minority buyers are almost four years younger, earn over five thousand dollars less and have owned 35% fewer homes than non-minority buyers.

The remaining survey results are presented in Exhibit 6. All purchasers were asked what was the biggest problem they faced in purchasing a home. Difficulty in obtaining funds for a downpayment was offered by 42% of minority purchasers, but only by 22% of non-minorities. Qualifying for a mortgage was a concern for 35% of nontraditional buyers while 17% of Caucasians listed this as a problem. A substantial portion of both groups expressed concerns about finding homes in good public school districts. A total of 79% of minorities were concerned about education while 75% of non-minorities worried about this factor. Having difficulty with English was listed as a concern by 15% of minority buyers. Only 3% of nonminorities were concerned about language barriers. Cultural differences were cited by 7% of minorities as a problem, while only 1% of Caucasians thought this was a concern. Other difficulties were listed by 8% of minorities and 4% of non-minorities.

Purchasers were also surveyed on their use of a realtor. Ninety percent of minorities used a realtor to buy a home as opposed to 94% of Caucasians. Minorities found realtors to be much less helpful (94% versus 78%). Those using realtors were also queried on ways in which the realty services could be performed. Improving the search time for buying a home was listed by 3% of minorities versus 6% of Caucasians. Improving price negotiations was suggested by 8% of minority buyers versus 26% of non-minorities. A small percentage, 6% and 7%, respectively, felt that realtor attitudes needed to improve. By far, the greatest concern was over the cost of realty services with 79% of minorities feeling costs were too high and 71% of Caucasians having that opinion.

The final part of the survey sought to determine if buyers felt their ethnic or cultural background was a hindrance in purchasing a house. Eighteen percent of minorities thought this was the case, while only 4% of Caucasians felt their background was a handicap. In terms of why this was the case, 10% of minorities believed the seller was less favorable to them (as opposed to 2% of Caucasians). Two percent of minorities thought their background was a hindrance with realtors while, 7% believed that this was a problem to lenders (versus 1% for non-minorities). Another 4% of minority groups felt they were harmed in other ways by their ethnic background versus 1% of non-minorities.

The results are presented in Exhibit 7. All variables have the anticipated sign, but only race and income are statistically significant. Being a minority significantly increased the probability of perceived buying difficulty, while a higher income significantly reduced that likelihood. Buyers who believed their ethnic background hindered their ability to purchase a home were more likely to be a minority, are 1.57 years younger, earn $8,590 less, and had owned .28 fewer homes in their lifetime.

Conclusion

This study examines the changing diversity of home buyers and its impact and related response from the real estate brokerage industry. It also examines the minority and socioeconomic variables of a sample of home buyers and whether race is a perceived barrier to home buying. The survey of real estate brokerage firms clearly suggests that the home buying population is becoming more diverse over time. This is more likely to be the case for larger firms with more offices in multi-county locations. These firms are also more likely to have attempted to tailor their services to more diversified groups.

The survey of home buyers indicated that minorities are, on average, younger, earned less income and had owned fewer homes. They were also more likely to believe their ethnic background was a hindrance in the home buying process. However, additional variables, particularly lower income, may also have contributed to the perception that there were stumbling blocks on the road to home ownership.

References

Morris, T., Multicultural Home Buyers Create New Business Opportunities, Credit World, 84, 1996, 17-9.

National Association of Realtors, 1996 HUD Fair Housing Agreement.

National Association of Realtors, 2001 Mid Year Meeting, NAR Law and Policy Division.

National Fair Housing Advocate Website, August 2001.

Nevada Association of Realtors Release, Spending Estimates from New American Strategies Group and DemoGraph Corporation.

Sharoff, R., Diversity in the Mainstream, Marketing News, 2001, May, 1-13.

U.S. Census Bureau, 2000.

Funded by the Center for Real Estate Education and Research at the Fisher College of Business at Ohio State University.

Michael T. Bond, Cleveland State University, Cleveland, OH 44115 or m.bond@ csuohio. edu.

Vicky L. Seiler, Hawaii Pacific University, Honolulu, HI 96813 or vseiler@hpu.edu.

Michael J. Seiler, Hawaii Pacific University, Honolulu, HI 96813 ormseiler@hpu.edu.

Copyright American Real Estate Society Oct-Dec 2003

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