Try being alive and adulting for a solid year without telling yourself, “How did I fall for that?” After all, you’re smart. And you know scammers are out there.
You just didn’t expect a scam to happen to you. And if a real estate scam took you by surprise, it’s hard not to blame yourself for missing the red flags you now see in hindsight.
Let’s face it; some scammers are scary good at what they do. They know how to quiet that niggling voice at the back of your mind telling you, “This doesn’t feel right.”
And when it comes to real estate, a successful scam can wipe out your business or your client’s home savings.
Below, we go through ten common real estate scams, red flags to look out for, and how to help clients who fall prey to scams.
Scam #1 — “We Buy (Ugly) Homes for Cash” ads
First of all, the telephone pole advertising is enough of a red flag. Legit home buying services use professional advertising methods to get the attention of homeowners. Telephone pole ads, on the other hand, are perfect for local scammers who prefer to avoid the spotlight.
We’re not talking about home services like Opendoor. Their legitimacy, though, can make it easier for scammers to prey on desperate homeowners (not Opendoor’s fault, but here we are).
Some homebuying services are technically legitimate but more predatory than helpful. Others are straight-up shady as hell.
First, they’ll find out how much the homeowner owes on their mortgage. Then they’ll offer a little above that amount but far below the home’s market value. Some offer a higher price but have no intention of paying it. They get the homeowner to sign a contract promising to sell their home to no one but them. Then they try to sell that contract to someone else (for a fee).
This one is easy for real estate agents to spot because we know typical values for properties in our market. Yet, some desperate homeowners still fall for these types of scams.
Usually, the deal falls apart, leaving the homeowner with nothing.
What you can do to help: Regularly share market updates and offer free home evaluation services to people in your community.
Scam #2 — The over-payment wire transfer scam
Some (so-called) cash buyers aren’t actually interested in buying a home. They’re using a variant of the overpayment scam, also used with work-at-home scams involving check-cashing.
They reach out to sellers, claiming to be foreigners who want to move to the U.S. They say they want to buy the home but can’t meet with the homeowner in person. Instead, they recommend a lawyer (of their choosing) to handle the sale.
Eventually, that “lawyer” sends the homeowner a cashier’s check for the down payment. But then the “buyer” emails again to say they accidentally sent too much and to ask the homeowner to wire back the difference.
The sinking feeling comes after the homeowner wires the difference (typically thousands of dollars) when the bank tells the homeowner the check sent by the lawyer was a fake.
Any further attempts to reach the fake buyer go unanswered.
What you can do to help:
- The more you know about these scams, the more you can protect your community by sharing what you’ve learned and calling their attention to red flags.
- If any of your clients or prospects are approached with this scam, encourage them to report what they can and warn them NOT to wire them any money.
Scam #3 — Fake home inspector
With more buyers opting for a home inspection, this scam is ripe for a comeback (not that it ever went away). Buyers need to be sure the inspectors they hire are legit.
Some so-called inspectors aren’t properly qualified, and either don’t know how to do a thorough inspection or don’t bother to. Some will deliberately hide problems from buyers.
Others will quote a low rate and then add a pile of “extras” that jack up the fee, raising the final price to as much as twice the original quote.
What you can do to help: Build relationships with trustworthy inspectors in your area and recommend them to your clients and prospects – with verifiable testimonials – to help them avoid working with dishonest ones and paying the price later.
Scam #4 — Escrow wire fraud
When buyers take out a home mortgage, they often have to make an upfront “earnest money” payment of between 1% and 3% of the sale price. That money goes into an escrow account and is later applied to closing costs.
Posing as someone from the title or escrow company, scammers use fake but convincing phone numbers, emails, and websites to trick the buyer (via email, texts, or phone calls) into wiring their earnest money to a phony account.
By the time the buyer learns, at closing, that they’d sent their earnest money to the wrong place, it’s too late.
What you can do to help: Make sure your clients know what to expect from you and their lender. Encourage them to double-check any phone numbers received by email to ensure they’re correct before wiring any money.
Scam #5 — Moving scam
We’ve all heard stories about predatory movers who quote a lowball estimate for moving a homeowner’s possessions and then demand a much higher price once the truck is loaded and out of sight.
On the other hand, some just take the money and never show up, forcing homeowners to find a mover at the last minute.
What you can do to help:
- Recommend legitimate movers who have helped past clients at a reasonable cost.
- Suggest other options to save your clients money without risking a scam (like renting a moving van).
- Build relationships with legitimate businesses in the area that help make the moving process affordable and as low-stress as possible.
Scam #6 — “Avoid Foreclosure” scam
Scams like this target homeowners at risk of losing their homes to foreclosure. The scammer offers to help them avoid it by refinancing or modifying their current home loan.
All they need to move forward is an upfront fee, which desperate homeowners often pay because they don’t know the upfront fee itself is a huge red flag.
At best, the scammer connects homeowners with mortgage relief programs they could have found and used on their own (without the fee). Many charge hundreds or even thousands of dollars and give them nothing to justify the expense.
The homeowners who suffer the most from this scam are those persuaded to sign the deed to their homes to a leaseback company, which often charges them more to rent their home than they were originally paying for their mortgage. In the end, they lose their homes and any equity they had.
What you can do to help:
- Learn about resources for homeowners in danger of foreclosure so you can educate your community and help your neighbors find real low- or no-cost solutions and protect themselves from scammers.
- Make sure every client knows that charging an upfront fee for help with mortgage relief is illegal. Encourage them to report anyone who tries to do so.
Scam #7 – Loan-flipping
Any time an unknown lender offers unsolicited help with refinancing is a red flag. Homeowners who’ve just refinanced their home loan and are now getting offers to do it again should treat that as an even bigger red flag.
These scammers convince homeowners to refinance their home loans repeatedly, borrowing larger amounts each time, paying exorbitant fees and points, and ending up with high mortgage payments and little home equity.
Why would any homeowner fall for this? The scammer promises something the homeowner wants — like a lower interest rate and lower monthly payments. Most of the homeowners victimized by these scams are seniors with limited and fixed incomes who can barely afford their current mortgages.
What you can do to help: Help the most vulnerable homeowners in your community to arm themselves with the knowledge they need about scams and legitimate ways to lower their costs.
Scam #8 – Predatory lenders
Predatory lenders have more than one way to fleece their victims:
- Ignore their inability to pay — Legit lenders always evaluate your finances to stop you from buying a home you can’t afford. Predatory lenders skip this part and might even encourage you to lie about your income to qualify for a bigger loan.
- Inflate the value of a home — However they do this (sometimes with the help of a dishonest appraiser), the buyer ends up underwater on their mortgage because they overborrow and can’t afford the monthly payment.
- Bait and switch — In this case, the lender promises a sweet deal on a home loan, probably with a low interest rate or zero closing costs. But to get the deal, the buyer has to pay a large, nonrefundable deposit. Then the lender offers a loan with a much higher interest rate (Oopsies) or worse. Buyers who reject the deal lose their deposit.
Other predatory lending practices include exorbitant interest rates and fees, prepayment penalties, or balloon payments. These practices may not be illegal, but they are unethical.
What you can do to help: Know the red flags of predatory lending, and warn others against them. You can provide this information as part of a helpful guide to the housing market for clients and prospects.
Scam #9 — Title or deed fraud
Once they buy a home, homeowners receive both the keys and the deed. That document gives them the property’s title — i.e., legal right to ownership.
Title or deed fraud is a type of identity theft where the scammer forges a deed to your property in their name. With that, they can borrow against the equity in your home with a home equity loan, line of credit, or a new mortgage.
Sometimes, the scammer sells the property without the homeowner’s knowledge, pockets the profit, and leaves the new buyer and current homeowner to sort it out. Or they’ll rent out the property, setting up the renter for disappointment when the actual owner shows up.
This happens most often with unoccupied rentals or vacation homes, but it could happen with any titled property.
What can you do to help:
- While you can’t stop scammers from forging deeds, you can educate your clients and community and encourage them to invest in fraud protection that alerts them to any suspicious activity involving their identity or property.
- Encourage homeowners in your area to talk to their mortgage lenders about title fraud prevention and what they can do to protect themselves.
Scam #10 — Business email hacks
Scammers target real estate agents, too. With this scam, your business email or the title company’s email gets hacked. Armed with your transaction information and closing details, the scammer impersonates the seller and asks the title company to wire them the escrow payment.
Referred to as Business Email Compromise (BEC) scams by the FBI, this type of identity fraud increased 69% from 2019 to 2020.
What can you do to help: Aside from ramping up security for your email accounts, double-checking with the seller before wiring any money is a critical step toward preventing this type of fraud.
8 bright red flags to watch for
- Unsolicited offers — If someone turns up, out of the blue, with an offer to either buy your home or help you refinance, you can either do your homework and check them out before signing anything or just say, “No, thank you.”
- No documentation — In a legitimate home sale, the seller should have the deed and other documents necessary for the transaction. If the person you’re dealing with does not, or if they demand your financial info first, that’s a huge red flag. Back away.
- No professionalism — Professional real estate agents and service providers use professional advertising (not telephone pole ads). They also have a physical office or a website (or both), a professional email account, and a phone greeting that includes the name of their business. Scammers are likelier to use a free email account and answer the phone with a plain “Hello.”
- Refusing to meet in person (or always making excuses not to) — Be on your guard if the so-called buyer, agent, investor, or landlord can’t meet face-to-face. Insist on it.
- Rushing you to commit — Scammers often use high-pressure tactics. They will often play to your fear of missing out (FOMO) to pressure you into signing without consulting an expert or even taking a moment to think about the decision they want you to make.
- Unrealistic offers or guarantees — You’ve heard, “if it sounds too good to be true, it usually is.” That applies to bargain prices for apartments, jaw-dropping amounts offered for your home, curiously low interest rates for loans, and easy-peasy “just-in-time” solutions for avoiding foreclosure. Your B.S. alarm should be blaring.
- Last-minute alterations — If you’re in the middle of a real estate transaction, be suspicious of any last-minute change to the process. Double- and then triple-check to ensure those changes are legit. A real professional would expect nothing less.
- Insisting on untraceable payments — If someone demands payment through an untraceable method like a wire transfer or cryptocurrency, be on alert. It’s not normal, and it makes it hard to recover your money if you find out you’ve been scammed.
Top takeaways for real estate agents
The more you know about all the different types of fraud being perpetrated against homeowners and buyers, as well as real estate agents and title companies, the better equipped you are to educate your clients and community and make your neighborhood as fraud-proof as possible.
Granted, the most resourceful scammers will keep trying, and some will probably succeed in convincing their victims to sign a form or wire money to them. But if you can’t keep the scammers out, you can at least make it more difficult for them.
