- Different Types of Real Estate Scams
- Best Ways to Avoid Real Estate Scams
- Hire a Real Estate Agent You Can Trust
5 Common Real Estate Scam Tactics and How to Avoid Them
According to the FBI, more than 11,700 Americans were victims of real estate scams in 2022. These scams varied in size and strategy, but they all managed to take money from people who were trying to buy and sell their homes. Victims lost a combined $397 million and many are still struggling to recoup the funds that they lost.
While many people within the real estate industry are trustworthy and eager to help you, there will always be predators looking to take advantage of unsuspecting individuals. Scams can affect people from all income brackets, age ranges, and education levels. If you fall victim to a scam, it does not mean that you are naive or dumb. Instead, it highlights how criminals have to keep working and developing new ways to trick even the most alert targets.
One of the best ways to prevent yourself from falling victim to real estate scams is to learn what to look out for. Here are a few common real estate scam strategies you might encounter in your home search and how to respond to them.
Different Types of Real Estate Scams
Real estate scams can target people who are buying, selling, or renting. They take advantage of the complex nature of this industry and current market trends.
There is often an uptick in scams in a competitive real estate market because criminals know how eager buyers are to find homes. Use this guide to understand the types of scams currently circulating in the country.
These scams target people who are looking for rental properties. You might come across these scammers if you are looking for long-term housing or if you need a short-term rental for a vacation or transitionary period between homes.
Rental scams work in a few ways. First, scammers will take over legitimate listings and market them as their own. They will copy and paste images and text and create separate listings that impersonate the property owner or rental company.
In another scam, criminals will make fake ads for listings that do not exist. These fake listings are often for luxury apartments in highly desirable areas. They will be packed with amenities and have surprisingly low rent rates.
The easiest way to avoid falling for these scams is to never send money to a rental company without seeing the property first. No reputable landlord or rental management company will charge upfront fees to show a house or ask for a deposit without letting someone see it. Scammers will take your money and then disappear. Instead, once you view the property, you can move forward with renting it.
If you are suspicious about a rental listing, research the rental company. You can call the property management firm directly from the number on their website. This is another way to avoid falling for scams, especially if the email or phone number is different on the listing than on the website.
To stop these real estate scams, report any fraudulent listings you encounter. This might not prevent the scammer from creating new ones, but it will at least get a few fake listings taken down.
Wire Fraud in Real Estate
Wire fraud is one of the fastest-growing real estate scams and one of the most lucrative for scammers. While a scammer impersonating a rental listing might only make a few hundred dollars in fake fees, wire fraud can take thousands of dollars from victims.
Here’s how it works: real estate scammers will create a spoof email impersonating your real estate agent, mortgage lender, or title company. Once you are cleared to close, the scammer will send you a message saying there was a change of bank information and present a new account to wire money to. Instead of wiring money to your lender or title company, you send the money to the impersonator instead. This is how people lose down payments and the thousands of dollars they needed to use to buy their homes.
“Most buyers learn that their life savings is gone when they show up to the closing table,” says Tom Cronkright, CEO of CertifID. The title representative asks for a check and the victim says they sent their money a few days ago. Both parties are confused until they realize the money is gone.
To prevent this scam, never send financial information or accept wire instructions via email. Confirm all wire information in person or over the phone. This way your title company can give you clear and accurate instructions. Furthermore, instructions to send money should never change. Any messages about new wire numbers or different accounts are scams.
When in doubt, reach out directly to your lender or title company over the phone. It is better to be overly cautious than to lose your entire down payment.
Unfortunately, it’s possible to fall victim to real estate scams even if you aren’t actively entering the market. Title fraud occurs when scammers create fake deeds and other identifying documents to steal ownership of your home. It is a combination of identity theft and financial fraud.
With this real estate scam, criminals will need to forge documents to make it seem like they are the property owners of the house. They might create fake IDs, birth certificates, and tax information to lay claim to the property. Once they have the title and deed to a property, they can profit from it. Some scammers will take out multiple mortgages against the property or home equity lines of credit (HELOCs). Other scammers will sell the property outright. Their goal is to make as much money as possible and then flee before the real owner realizes what has occurred.
The chances of deed fraud happening are low, but criminals often prey on senior citizens and properties with a lot of equity. This is also more common in homes that are vacant or abandoned because the scam artist can take it over. They might even be able to have showings on the property to sell it.
If this happens to you, your credit could be hurt and your identity will be stolen. You will also need to work to reclaim ownership of your home and reverse any financial harm caused by the scam artists.
To prevent this form of real estate fraud, open all letters from your mortgage company. Also, run checks through your deed’s office periodically to make sure there isn’t any suspicious activity.
Loan Flipping Scams
These real estate scams can occur after years of owning your home. They start when someone calls you and asks if you are interested in refinancing your mortgage. The scam artists might pretend to be your lender or could offer an alternative service to help you refinance. Even if you turn down the offer, these scammers will continue pushing and potentially threaten you with foreclosure if you do not refinance.
Once you agree to mortgage refinance, the scammer will get to work. They will extend your loan term and pack on extensive fees, points, and closing costs that increase your monthly payments. Even after the refinance is complete, the scammer might keep calling to go through the process again until you can’t handle the monthly payments.
During this time, the victim who is going through the refinance scam is no longer paying money to their real mortgage company. Instead, they are giving all of their money to the criminal. This causes them to fall into foreclosure because of missed mortgage payments.
You can avoid these loan-flipping scams by ignoring any unsolicited calls to refinance your mortgage. Also, look out for pushy loan officers, representatives who refuse to meet in person, and people who ask you to sign documents you don’t understand.
When you close on your house, save the contact information of your mortgage lender. If someone reaches out about refinancing and you aren’t sure if it’s a scam, call your lender directly. They can alert you about potential fraud and prevent you from losing money.
Bait and Switch Real Estate Fraud
Many real estate scams are perpetrated by criminals across the globe who use the Internet to steal identities and commit fraud. However, there are times when real estate professionals are behind the scams. These are often low-level scams that are meant to bring in buyers or sellers with glamorous promises but underwhelming realities.
There are a few ways for bait-and-switch scams to occur. First, a real estate agent might offer to represent a seller and promise a high sales price for a home. The agent knows that the home is listed above market value and will eventually convince the seller to lower the price until it’s a reasonable rate.
They make this high-priced offer to win the seller’s business and don’t care if the low sale price upsets them. This is different from a market adjustment. There’s a big difference between lowering a price by $10,000 to make it more competitive and lowering it by more than $50,000.
Bait and switch scams can also target sellers as well. The scammy real estate agents might promote properties that aren’t available to attract potential buyers and then show them more expensive or less desirable properties instead. They also might showcase a high-quality model home when the rest of the houses are of lower quality.
You can prevent bait-and-switch scams by working with trusted real estate professionals. Sellers should interview multiple Realtors to get an idea of their home’s value before hiring one. Buyers should hire representatives to work with listing agents instead of making offers directly. They should also always get an appraisal and home inspection before closing.
These scams are difficult to report because they are hard to spot directly. Instead, they are unethical practices of real estate professionals.
Best Ways to Avoid Real Estate Scams
The common real estate scams covered in this guide only cover a few ways that predators can go after your assets.
For every scram that the Federal Trade Commission and FBI uncover, there are dozens more that go undetected. Criminals are constantly coming up with new ways to steal money and property from vulnerable populations.
Here are a few ways to prevent real estate scams and keep yourself safe.
Thorough Research and Verification
The best way to avoid real estate scams is to carefully research any person or company you work with. Make sure your Realtor, property management firm, and lender are reputable. Also, always double-check the information you receive from these professionals. Scammers are getting better at spoofing the parties involved in the real estate process, which means you might not think an unexpected email is suspicious.
If you are unsure that a piece of information or communication is safe, do not use any contact information included in the message. For example, if you receive an email that claims to be from Joe Smith and ABC Bank, do not respond to the email or use the phone number provided. Look up the actual number of ABC Bank online and ask to speak with Joe Smith there.
If you discover a scam, report it to your local law enforcement agency. The authorities might not be able to catch the scammer, but if they are aware of the strategies these criminals use, they can warn the public about them to prevent fraud in the future. The more information people have about common real estate scams, the less likely they will be to fall for them.
Seeking Professional Guidance
Work with trusted professionals throughout the real estate transaction. You can easily look up any real estate licenses online to make sure they belong to the right person and are active. Lenders and home inspectors should also have state registrations that you can check.
Once you have a team of people you can trust, use these individuals to avoid scams. It is better to send any suspicious information to your Realtor than to work directly with a scammer. Your real estate agent and lender also would rather have you double-check messages from them if it means avoiding costly scams.
Know that you can also turn to these professionals after you become a property owner. For example, you can easily prevent mortgage fraud by asking your lender about a strange refinancing call you received.
Buying and selling your homes are some of the biggest financial decisions of your life. Don’t let a predator derail your life plans and ruin your finances.
Staying Informed About Real Estate Practices
Before you enter the real estate market, learn how to spot scams and know how predators target their victims. This will make you more aware of the fraud you might face and scams you could potentially encounter. For example, once you know about wire transfer fraud, you will never trust an email or text that comes from someone claiming to be your bank. Education is one of the most powerful ways to stop scams.
Even if you are done with the home-buying process, keep up with common real estate fraud. Know that you should never make an upfront payment on a vacation rental unless it’s through a trustworthy site or you have seen the listing already. Be aware of scammers coming after your home’s equity.
Once you know how to identify the warning signs of a scam, you can ignore these predators or alert the people you work with about potential fraud attempts. Your bank and real estate agents can alert their clients to new scams so others don’t fall victim to these attempts. Staying abreast of fraud and doing your due diligence with your financial decisions can go a long way when it comes to protecting yourself.
Hire a Real Estate Agent You Can Trust
Quality real estate professionals will do their best to protect you from scams. They will only work with reputable listing agents to avoid bait-and-switch schemes. They will talk about wire transfer scams that convince victims to send their money to the wrong accounts. These Realtors will also help former clients avoid scams related to mortgage refinancing and fake equity loans.
To find an experienced Realtor who can support you throughout the home buying and ownership process, turn to FastExpert. We only allow the best agents into our system and expect them to maintain a proven track record of success. You can feel safe and confident when you hire a Realtor through our recommendation engine. Try FastExpert today – it’s free for buyers and sellers.