What Is Blockbusting in Real Estate?
Landlords May Illegally Use Blockbusting to Get Homes
Blockbusting is a method of manipulating homeowners to sell or rent their homes at a lower price by falsely convincing them that the neighborhood's socioeconomic demographic is changing because of new groups of people moving in and that this shift will affect the value of their home. It is illegal to engage in blockbusting and has been since the Fair Housing Act of 1968.
What Is Blockbusting?
First and foremost, blockbusting is illegal. It is the process of convincing homeowners to sell their homes at a lower price by lying and stating that their neighborhood's socioeconomic makeup is changing and moving in a direction they may not like.
Unfortunately, this could be a real estate agent or a landlord telling white homeowners that Black people are moving into the area, a Christian homeowner that Jewish families are moving in, or something else. The real estate agent or landlord will lie and tell the homeowners that these new groups moving in could affect the value of their home. In actuality, it won't affect the value.
Blockbusting is racist, anti-Semitic, homophobic, and more, and should not be tolerated by any means.
How Does Blockbusting Work?
An example of blockbusting would be a real estate agent hiring a Black woman to walk her dog in an all-white neighborhood. They then place their real estate card in all the mailboxes on the block, offering to buy the house right away at a discounted price. The goal is to convince the property owners that they are there to help because their home values will decline due to the influx of new groups of people in the area. This is not true and it is illegal, not to mention just wrong.
When Did Blockbusting Become Illegal?
Treating an individual differently because they belong to a certain group of people is illegal. When it comes to any activity that relates to housing, all groups of people must be treated equally.
The Federal Fair Housing Act was enacted in 1968 to address the issue of blockbusting and redlining. It specifically protects seven groups of people from discrimination. People can't be discriminated based on the following traits:
- Familial status
- National origin
The goal of this act is to end discrimination in renting, selling, and mortgage lending. Using any of these traits to attempt to get homeowners to sell their homes, otherwise known as blockbusting, is illegal under the Federal Fair Housing Act.
If you or someone you know believes they have been a victim of housing discrimination, they can file a claim with HUD.
You should also check your local state laws. Many states actually have their own fair housing laws that protect groups of people, in addition to the seven original traits that are protected by the Fair Housing Act.
Other Illegal Real Estate Practices
According to the National Association of Realtors (NAR), there are other illegal real estate practices that agents are not to conduct. In the Code of Ethics & Standards of Practice, real estate agents are expected to abide by certain rules and laws of the practice. Some of the things they're expected to not do include:
- Misleading homeowners about the market value in order to secure a listing
- Misleading buyers or tenants about savings or other benefits
- Taking their time submitting offers on behalf of their clients
- Breaking the confidential relationship with their client
- Managing the property in any way that could put the rights, safety, and health of tenants and others at risk
- Withholding information that is pertinent to their client
Another illegal real estate practice includes redlining, which is when a bank, credit union, mortgage company, or other lender refuses to lend a home loan or line of credit to a homeowner based on their race, color, religion, sex, national origin, or marital status. There's also a practice called reverse redlining, where lenders target certain neighborhoods when marketing high-cost or predatory mortgages.
Factors That May Actually Decrease Property Value
Blockbusting is illegal. Groups of people moving into your neighborhood won't decrease the value of your home.
In reality, there are actually certain factors that may cause the value of your property to decrease. For example, one factor is not keeping up with property maintenance. If you have an overgrown yard, it will negatively affect the price you will be able to list your house at. By simply cutting the grass, your property will have better curb appeal and you may be able to charge slightly more because the home looks cared for.
The are other factors that are beyond your control that can cause the value of your property to decrease. These factors include:
- Mortgage rates: When mortgage rates increase, people are not able to get as much for their money. The same house that they would have been able to afford before rates were increased may now become unaffordable because their monthly payments will be higher. Therefore, to appeal to the same buyer, you may have to lower your homes price to get it to sell.
- Weather: If a natural disaster occurs in the area where your home is located, it can cause the value of your property to significantly decrease. For example, a hurricane may cause significant flooding in an area that never had issues with flooding. Your property may now be classified in a flood zone, which will make people more apprehensive about buying. It will be more difficult to sell your property for top dollar.
- Short sales/foreclosures: Another factor that can cause your property value to decrease is a short sale or foreclosure in the neighborhood. When trying to determine the value of your home, an appraiser will use comparable homes in your neighborhood. Even if the similar properties are short sales, the appraiser will still use them to price your home, decreasing the value of your property.
- Blockbusting is illegal. It is the process of telling a homeowner that their home's value will decrease because of a shift in their neighborhood's socioeconomic demographic.
- If you or someone you know believes they have been a victim of housing discrimination, they can file a claim with HUD.
- The real factors that may affect your home's value include mortgage rates, weather and natural disasters, and short sales or foreclosures.
U.S. Department of Housing and Urban Development. "History of Fair Housing." Accessed June 12, 2020.
U.S. Department of Housing and Urban Development. "Housing Discrimination Under the Fair Housing Act." Accessed June 12, 2020.
National Association of Realtors. "2020 Code of Ethics & Standards of Practice." Accessed June 12, 2020.
Federal Reserve. "Federal Fair Lending Regulations and Statutes Fair Housing Act." Accessed June 12, 2020.
U.S. Department of Housing and Urban Development. "Fair Lending: Learn the Facts." Accessed June 12, 2020.