Getting involved in real estate can be both rewarding and lucrative. Whether you’re a novice home flipper, a licensed professional, or fall somewhere in the middle, real estate done right can be financially life-changing.
However, in your attempt to earn a better living for your family, don’t fall for common real estate scams. Here are some real estate red flags that can help you avoid bad deals.
6 Common Real Estate Scams: How to Protect Yourself
If it’s too good to be true … it probably is! Here are six real estate scams to avoid.
1. Rental Ripoffs
Use a reputable website when looking for a rental property. Facebook postings or ads on Craigslist are often legitimate. Still, they aren’t platforms meant for advertising specific real estate listings, so it can be easier to post fraudulently on these sites.
Online swindlers have been known to post about a property, ask for money upfront as a security deposit or downpayment, and then disappear once they receive money. Young adults are especially susceptible to rental fraud, as scammers often target first-time renters.
Beware of this scam, as it’s standard to see a property in person and have the opportunity to ask basic questions before being required to make a deposit.
Here’s how you can identify this scam:
- The seller demands payment upfront.
- The post comes from a social media account with few or no pictures.
- The seller avoids sending further images upon request.
- There is no documentation.
- The seller requests payment before a property visit.
2. International Wire Transfers
The internet has made it easier for affluent buyers to invest in real estate overseas. This growing international market is positive in many ways but comes with new opportunities for scammers. Nobody is exempt, as the chairman of MIT’s Board of Trustees and a Supreme Court Judge were both reportedly the victims of online real estate scams.
Here’s how you can identify this scam:
- There are spelling errors in emails or other messaging systems.
- There are strict deadlines to participate.
- There are quick changes to the terms and conditions of the housing contract.
- The seller refuses to speak on a call or seek a translator.
3. Property Plastic Surgery
Sellers are often on a time crunch to get properties locked into contract. As a result, some unethical contractors and sellers will sweep problems under the rug. They may conceal the presence of mold, termites, or lead-based paint.
While many sellers are respected professionals and would fix issues before listing, it doesn’t hurt to do your research as a buyer. Ensuring a cosmetic change isn’t covering up a disaster underneath could save you thousands. Looks can be deceiving, so ask for the paperwork showing that routine inspections have been performed.
Here’s how you can identify this scam:
- You might notice recent or unexpected cosmetic changes to the house.
- The seller is unwilling to provide recent inspection reports.
- There are closed doors or taped-off sections of a property.
- The scammer may “oversell” a recently renovated area of the house.
4. Loan Fraud
It can be intriguing to be offered a loan with unbelievable interest rates. However, beware of offers that seem too good to be true, as they are often scams.
Often introduced as a “mortgage agency,” fraudulent loan companies guarantee discounted loan rates for an upfront fee. If any service immediately asks for personal details or bank information, it’s probably a good idea to do further research before submitting your information. Research any company outside of a traditional bank or well-known broker. Additionally, asking for testimonials or references from past clients who have used their services is more than appropriate.
Here’s how you can identify this scam:
- The “company” offers big promises.
- They request private bank information immediately.
- There is a lack of personal contact, either over the phone or in person.
5. Fake Real Estate Lawyers
Intelligent scam artists can impersonate real estate lawyers to claim a percentage of a given sale for themselves. There are a few simple and easy ways to verify that a real estate lawyer represents who they say they are.
For example, if a seller directly offers contact information for their lawyer, then the lawyer is likely legitimate. As a buyer, you can easily check with the seller to confirm that this lawyer is their representative. If you’re still suspicious of the lawyer after checking with the seller, you can double-check by searching for their information on your state’s bar association website.
Though this scam is relatively new and rare, research can prevent an imposter from taking advantage of a real estate closing. The financial impact can be devastating, so it’s likely worth checking their credentials.
Here’s how you can identify this scam:
- A lawyer reaches out independently of the seller.
- The seller isn’t aware of the lawyer.
- The lawyer lacks a professional presence online.
- There is no record of the lawyer on your state’s bar association website.
6. Fraudulent and Expired Real Estate Agent Licenses
A real estate agent with an expired license is just as problematic as one without a real estate license, so make sure your real estate transaction is legitimate by asking your real estate agent for their license. Social media pages and testimonials don’t necessarily mean that a real estate professional has their license, and a true professional probably won’t mind giving their client some peace of mind by verifying their qualifications.
4 Additional Tips to Protect Yourself and Your Clients
- If there is an agreement to extend a date in the contract, get it in writing.
- If there are agreed-upon requests for repairs, get them in writing.
- If the parties agree to something beyond the terms of the original agreement, get it in writing.
- Make sure that all such agreements are dated and signed by all parties.
