Purchasing or renting real estate can be an exciting endeavor for most buyers and renters. Unfortunately, some scammers take these moments to steal and commit fraud.
According to the FBI’s Internet Crime Complaint Center, 13,638 people in the United States were victims of real estate/rental fraud in 2020 — a 16.7 percent increase in victims from 2019. Combined, these people lost over $213 million because of these scams.
Educate yourself on the five most popular scams below to save your buyer and yourself time, money and sanity.
1. Mortgage wire fraud
According to a CoreLogic Mortgage Fraud Trends Report, one in 164 mortgage applications was estimated to have indications of fraud in the second quarter of 2020. The “mortgage wire fraud” scam is where a hacker posing as a real estate agent convinces a buyer to transfer closing costs to a fraudulent account.
“Scammers of mortgage wire transfers may try to hijack genuine email accounts or send phishing emails to the buyer masquerading as a party to the transaction,” Richard Mews, a real estate investor, landlord and developer with Sell with Richard, said in an email.
“Never release payments until you’ve read all the fine print and followed the instructions in the escrow packet provided by your title company,” Mike Thompson, CEO of Hyperlend, explains to potential buyers. Make sure any and all transactions sent to clients are previously discussed and agreed upon.
2. The bait and switch
The “bait and switch” is another common real estate scam. “After agreeing and signing a contract, the ‘buyer’ will come back and tell the seller that they need to dramatically reduce the price because of ‘excuse A and B,’” Mark Motes, a real estate investor at Mark Buys Houses, explained in an email.
But the scam doesn’t end there. The seller agrees to the price reduction, but the “buyer” returns with another need for a price reduction around three to five days before closing — usually paying the buyer a measly 40 percent of the market value. To avoid this, advise your clients to not give in to these “buyers” and their absurd demands.
3. The fake listing
According to a survey by Apartment List, about 43 percent of online shoppers found a “listing they suspected was fraudulent” in 2018. Criminals list rentals, acting as agents who post seemingly legitimate properties with attention-grabbing prices. Upon receiving a wired and unusually high deposit, they swiftly disappear along with the property.
“Look up the owner of the record in the county site and make sure there is a match to who you are dealing with,” Daniel Cabrera, owner of the real estate business Sell My House Fast, explained in an email. “If you are working with an agent, they should be able to confirm who they contracted with to offer the property.”
As an agent, be sure to make your online listings as legitimate as possible, but also difficult to duplicate.
4. Holding fee or deposit first
According to Apartment List’s 2018 survey, more than 5 million people lost money due to rental scams. This scam is common with rentals and costs potential renters a lot of money. The agent will ask for a fee to hold the space, but these paid fees aren’t applied to where they should be.
“The realtor requests a fee, but the money doesn’t go toward the homebuyer’s deposit or toward the building of the home,” Tyler Forte, co-founder and CEO of Felix Homes, said in an email. This is fraudulent and goes against the Realtor Code of Ethics.
5. Covered-up home defects
Some real estate agents are in a rush to sell a particular property, especially if there’s significant damage to it, such as termite damage or mold. The agent will sometimes cover up this damage to conceal it so the buyer is left to deal with it.
In this heated, fast-paced market, there’s a pressure to waive inspections altogether — a big risk. But to help your clients avoid falling into this scam, get an inspection done.
According to a 2019 report by Repair Pricer, homebuyers are allowed from 17 days to as little as three days to hire a home inspector, have an inspection and make a decision. “Get references for a trusted inspector, and hire him to tour the property,” Thompson said.
Purchasing a new home or renting a new space can be a beautiful yet nerve-wracking experience for your client, and scams can only heighten that anxiety. The best rules to keep in mind to avoid them are noticing red flags and remembering that if it doesn’t feel right, it probably isn’t.
Jason D. Greene is a global real estate adviser for Greene Luxury Group | ONE Sotheby’s International Realty in South Florida. Connect with him on Facebook or Instagram.