Unmasking Real Estate Scams: Protecting Your Investments part 1

Tired of the long post-pandemic commute, Meghan decided to move to a neighborhood closer to her job. After days of browsing apartment listing online, she found one that seemed perfect: a spacious two-bedroom apartment in a great neighborhood, and the rent was surprisingly affordable.

The landlord responded quickly and explained that he was out of the country but could arrange for Meghan to view the apartment through a property management company. If she could just send him a copy of her driver’s license, he would set it up. Meghan heard a warning bell ring and stopped all communication as she remembered hearing of real estate scams not only to steal/access your money but your personal information.

Meghan was wise to be cautious because real estate scams, from deed fraud to wire transfers, are on the rise. Real estate fraud involves deceptive schemes in property transactions, aiming to steal money, property, or information. This can include misrepresenting property information, concealing defects, or engaging in mortgage or title fraud. Fraudsters pose as both real estate agents and lenders. Here are the common types of real estate fraud and how to identify a scam and protect yourself.

Rental Scams

Rental scams are usually in the form of a false advertisement. These listings are often copies of legitimate real estate ads to create a fictious rental property.  Sometimes, scammers go as far as obtaining the landlord’s lock box code so they can show one of their potential “renters” the property. They may even allow the “renter” to move in and insist they change the locks right away. When the real landlord shows up, they can’t get in and don’t understand how there are people living there. 

If an online listing sounds too good to be true chances are it’s fake. Some signs of a too-good-to-be-true ad include the rent being lower than the market average, the unit looking amazing in photos, and the landlord being out of town and unable to meet in person. The “landlord” will ask for personal identification such as a driver’s license so you can let yourself into the home or an application fee along with a deposit and first month’s rent sight unseen.

How to Protect Yourself:

• Verify the legitimacy of the listing and the landlord. Check reviews, use trusted real estate websites, and contact previous tenants if possible.
• Never give a landlord or real estate agent money for a property you have not seen. You also should not view the property unescorted. A prevention tip for landlords and real estate agents is to watermark photos.

Wire Fraud

This is the most common type of real estate fraud. Fake agents copy a legitimate real estate agent’s information. Sometimes they even hack into the real estate agents accounts. The fake agent will ask the client to wire a good faith deposit. You make sure the email and phone number are correct before sending the wire; however, the scammers have the money redirected to their accounts. Another type of wire fraud is the crook poses as an agent and tricks you into wiring money for closing fees to a fraudulent account.

How to Protect Yourself:

• Verify the authenticity of the agent or company by checking their credentials and looking for any red flags in communication.
• It is best practice to always do business face-to-face with a real estate agent. Never pay with an untraceable method. Use personal or bank checks to have proof of payment.

Bait and Switch

In the listing, the property looked beautiful and reasonably priced. However, when you go to view it with the agent or landlord, they take you to a property that is overpriced and in poor condition, claiming the original property has already been sold or rented. 

The “We Buy Houses” signs often seen tacked to utility poles are a form of a bait-and-switch scam. Technically, this is a legitimate offer, but the homeowner will not get what the house is worth. Sellers often receive as little as half the market value of their home.  How it works:  Buyers offer a high price, but unbeknownst to the homeowner, they never intend to pay it.  Instead, they get the seller to sign a contract promising to sell the property to them. Then they turn around and sell the contract to someone else for a fee. The deal usually falls apart and can take months during which time the property can’t be sold to anyone else. If the deal does go through, it is for lower than market value price.

A variation on this scam is with lending companies. Potential buyers are told to pay a large nonrefundable upfront fee as a deposit to ensure a good mortgage rate. When it comes time to secure the loan, it is at a much higher interest rate and if the buyer doesn’t agree they lose the deposit.

How to Protect Yourself:

• Verify the legitimacy of the property listing before visiting. Check reviews of the real estate agent or company and use trusted real estate websites.
• Be cautious of offers that seem too good to be true and always ask for proof of other offers.

Meghan's experience serves as a stark reminder of remaining vigilant in the real estate market. By recognizing the warning signs and halting communication with the fraudulent landlord, she protected herself from potential financial loss and identity theft. Real estate scams can be sophisticated and convincing, but with awareness and caution, individuals can safeguard their investments and personal information. Next month, part two of this article will discuss fraud around homebuying and title theft.