10 Real Estate Scams That You Need To Avoid Today
Residential Real Estate Tips/Home Buying Scams That You Should Know
The real estate industry is a sector that’s extremely profitable if done right. If you think about it, a house is the most expensive item that a person buys over his/her lifetime. Big money, big opportunities. However, on the same token, criminals prey on the weak and use creative ways to make a lot of money by scamming victims all over the world, whether buyers, sellers, or realtors.
Amongst the most notorious fraudulent practices on the market, we have already exposed and shared information about rental property scams, real estate investment scams, home buying scams, and residential real estate tips.
This week we caught up with a few fraud prevention experts and real estate professionals. We invited them to share new tips and expose some prevalent scams they’re aware of, which are happening now.
Here are 10 real estate scams that you need to avoid today:
1. Hackers Stealing Your Down Payment: Mortgage Closing Date
This scam is exposed on video by Jennifer Beeston from Guaranteed Rate Mortgage. Watch the video below to see the Mortgage Closing Date Payment Scam explained:
The same scam is exposed with different words by Robert Siciliano, fraud prevention expert with Safr.
“A hacker could fool you into thinking he’s your agent and tricks you into sending him money, which you’ll never get back. It’s so bad the FTC even sent an alert warning consumer that real estate agents’ email accounts are getting hacked.”, says Siciliano.
“Let’s say your realtor’s name is Bill Baker. Bill Baker’s email account gets hacked. The hacker observes Baker’s correspondences with his clients—including you. Ahhh, the hacker sees you have an upcoming closing. The hacker, posing as Bill Baker, sends you an email, complete with instructions on where to wire your closing funds. You follow these instructions. But there’s one last step: kissing your money goodbye, as it will disappear into an untraceable abyss overseas. This scam can also target your escrow agent.”
“It’s obvious that one way to prevent this is to arrange a home purchase deal where there are zero closing costs,” says Siciliano. “The scam is prevalent, perhaps having occurred thousands of times. It was just a matter of time until scammers recognized the opportunity to target real estate agents and their clients.
The lax security defenses of the real estate industry haven’t helped. Unlike the entire financial sector who have encrypted communications, the real estate industry is a hodgepodge of free email accounts and unprotected connections.”
Also, Robert points out: “Realtors, who are so often on the go and in a hurry, frequently use public Wi-Fi like at coffee houses. Anyone involved in a real estate transaction can be hacked, such as lawyers.”
Recommended Read: When Your Renter Sells Your House To Someone Else
When it comes to preventing this particular scam, here are a few points that Siciliano suggests:
- Eliminate email as a correspondence conduit—at least as far as information on closings and other sensitive information.
- On the other hand, you may value having “everything in writing,” and email provides a permanent record. In that case, use encrypted email or some setup that requires additional login credentials to gain access to the communication.
- For money-wiring instructions, request a phone call. And make this request over the phone so that the hacker doesn’t try to pose as your realtor over the phone.
- Any emailed money instructions should be confirmed by phone—with the realtor and the bank to send the money to.
- Get verification of the transfer ASAP. If you suspect a scam, have the receiving bank freeze any withdrawal attempt of the newly deposited funds—if you’ve reached the bank in time, that is.
2. Real Estate Agents Assigning The Sales To Themselves
“I know a victim of a realtor who is scamming his buyers by taking advantage of sudden traumatic life events,” says Mariko Baerg from Bridgewell Group.
A buyer had purchased a house. Between the time it was a firm deal and the title transfer date, he got in a severe car accident and could no longer work for the short term.
The realtor that was representing him had coerced the buyer into assigning the sale to the realtor himself for a discounted price because he fearfully convinced the buyer that he would have difficulties keeping his financing from the lender.
Suggested Read: Fake Owner Leasing Property
Assigning to yourself is a clear conflict of interest, the realtor did not try to market the assignment to anyone else, and the sale amount was $100,000 less than market value! He also forged the seller’s signature to convince the buyer that it was OK to assign the property.
The issue could be avoided by making sure you have a power of attorney lined up in the case that you have an accident, making your realtor show you comparables to confirm what market value is before transferring. Also, if you have a feeling there may be a conflict of interest always obtain legal counsel or receive a second opinion to determine what your options are.”, explains Berg.
Recommended Read: Buying Real Estate Leads from Realtor.com Scam
3. Arc Fault Breaker Swap Out Scam
This next fraudulent practice is exposed by Jeff Miller, co-founder of AE Home Group: “Arc fault breaker swap-outs are a common scam I’ve seen in the flipping industry. New building code requires that electrical boxes contain arc fault breakers as opposed to traditional breakers in order to prevent electrical fires further.
While safer, these arc fault breakers can add upwards of $800 to the cost of the renovation. Following the issuance of a use and occupancy permit, some flippers will return to the home and replace these expensive arc fault breakers with the cheaper traditional breakers, adding profit to their bottom line.”, says Miller.
4. Real Estate News: Bait and Switch Scheme
Another fraudulent real estate practice is the “bait and switch” scheme, explained here by Lucas Machado, President of House Heroes: “The scam occurs when a prospective buyer offers an “above market value” price to a home seller. The seller – blown away by the great offer – excitedly signs on the dotted line.
Sadly, the unscrupulous buyer has no intention of purchasing the property at this price.
Once the seller signs the contract, the seller may only sell to that buyer for a specified time (weeks to even months) for the buyer’s purported due diligence. When that time ends, the fraudster asks to extend the contract a few weeks to work out closing details. Sounding reasonable, the seller agrees to the extension blinded by the high offer.”, warns Machado.
“There are two impacts on the seller. The seller keeps paying taxes, maintenance, utilities, insurance, and develops an emotional commitment to sell.
Here’s what happens in the bait and switch: the buyer comes back to the seller with an excuse as to why this price no longer works, requests a reduction to below market value, and threatens to cancel if their demand is not met. Stressed by the passage of time and on-going costs, the frustrated seller agrees to the reduction.”
Machado offers a concrete example: “Our company had a scenario where we offered $185,000. The seller accepted a $220,000 offer. The “buyer” asked for extension after extension, for 12 months, and then the tired seller agreed to sale price $180,000. The victimized seller had on-going costs around $10,000 and lost approximately $20,000 by not accepting our offer a year ago.”
How can you avoid the bait and switch scheme?
- a. Confirm proof of funds at the time of executing the contract.
- b. Do not grant unreasonable extensions or reductions.
- c. Set expectations early on.
- d. If extension or reduction is based on condition, request an inspector or general contractor report verifying claims.
Related Read: Rent to Own Homes Near Me Scam
5. Duplicated Listings
Leah Slaughter with OmniKey Realty warns about a scam continually happening in the real estate business: the Duplicated Listings.
“We often see companies copy our legitimate rental listings and post on Craigslist for a much lower price. Unfortunately, many people fall for these fake listings and wire or overnight money to the owners of these fake listings and then cannot get access and eventually locate us, and all we can do is refer them to the police.”, says Slaughter.
“When searching for a rental, do your research and make sure you are working with a reputable company or a licensed agent/broker. If a landlord says they are not local and cannot give you access to the property, that is an immediate red flag.”
6. Real Estate Lawyers: Fake Profiles
David Reiss from Brooklyn Law School warns about a new type of scam: impersonating real estate lawyers. “In this case, the scammer takes control of the proceeds of a real estate closing by impersonating one of the parties to the closing and redirecting proceeds to an account controlled by him/her. The criminal might impersonate the seller’s lawyer and instruct that the proceeds from the sale be redirected to a new account.”, says Reiss.
“All such changes should be confirmed by a phone call (to a number that you know to be valid!) to confirm that they are from the real seller.”
7. Fake Escrow Service Request
Nina Furseth, Engagement and Corporate Communications Analyst at RentHop shares her advice: “Real estate scams are likely to occur when the rental market begins to tighten around May when students and graduates start work or school.
Regarding online rental scams, there are several big red flags to look out for such as if:
1. Western Union, Money Gram, or an “escrow service” is involved.
2. The poster is asking you to wire money before you see the apartment.
3. The price is too good to be true.
Must Read: Mortgage Modification Scam
Scammers are constantly evolving, and with everything nowadays being so public, they can quickly get their hands on official-looking documentation such as license numbers from real estate agents, deeds, applications, and so on.
Be careful when looking for an apartment. Be smart and realistic, and if anything seems too good to be true, it probably is. More tips can be found in our study, Rental Scams and How to Avoid Them.” says Furseth.
RentHop also publishes a very interesting infographic, below:
8. Unlicensed Realtor Scam
The Unlicensed Realtor Scam affects both you and your realtor. Justin Lavelle, who is a Scams Prevention Expert and the Communications Director of BeenVerified, explains:
“In this scam, a so-called realtor sells the property to a buyer. However, once a check is written for escrow, an unlicensed realtor deposits the money into their own account and not into the escrow account. Do yourself a favor and vet anyone you’re going to be working with, both your realtor and the one on the other end of the sale. A LinkedIn account doesn’t mean someone is trustworthy or a valid realtor, so do the homework. A person could have been a licensed realtor previously, but may now have an expired license.”, warns Lavelle.
9. Title Fraud
Lavelle also offers information about the title fraud: “This scam steals more than a deposit or fee, it involves identity theft. The scammers will fabricate documents to make it look like they are the property owner. Using these materials, the scammer will take out a new mortgage on the property.
With a secured loan, the false owner can take the cash and then leave the real owner with remaining payments. Prevent this by getting title insurance and safeguarding personal information. Purchasing title insurance offers financial protection from false impersonation and improperly recorded legal documents that a scammer may attempt to forge.”
10. Fake Realtor Sending You For A Viewing
One last real estate scam is brought to you by fraud prevention expert Lawrence Sherman: “Let’s say you find a property you really like. You phone the realtor who arranges to meet you there. On your way to the apartment, he calls and mentions he had a small accident and won’t be able to make it anymore. However, you shouldn’t worry much because he says the landlord will be there to show you around.
To make it up to you, the realtor promises to negotiate a lower price than what the landlord will give you. “Call me when you leave the house, don’t sign a lease right away,” he says. When you arrive at the house you find many other people interested in renting the same place.
Related Material: Copy of Deed Scam
The landlord gives you a price, but you want to negotiate a better deal. You call the realtor and work out a deal you’re happy with. Then you wait for him to confirm with the landlord. He phones you back shortly after and says the new price is okay. All you have to do is wire him the money for the first two months and you’re all set.
On moving day, you show up only to find someone else moving in. The realtor wasn’t a realtor at all; he just saw the property online and reposted it with his own contact information. That’s how you called him in the first place. He sends several people at a time to generate a sense of urgency for the potential renters.”, warns Sherman.
Real Estate Scams: How To Report Them
Let your friends and family know about these real estate scams or any other questionable businesses by sharing their name in the Comments section below. You can also officially report the crooks to the Federal Trade Commission using the link below:
Other Mortgage Scams:
Watch the video below to see in action the Top 3 mortgage scams exposed: