What real estate scams should you watch out for?
If you’re preparing to buy your first home, watch out. Scammers are lurking everywhere, eager to con you at every stage of the process, from mortgage application to home inspection.
And it’s not just homebuyers who are at risk. Real estate scams can also target homeowners hoping to sell their homes or refinance their home loans. Owners or buyers of commercial property can also be targets. Even renters aren’t immune.
Basically, anyone who has a home or is looking for a home — or any other kind of property — can be a target of a real estate scam. And that’s why everyone needs to be aware of these scams and how to protect yourself from them.
Real Estate Scams and Fake Home Buying Frauds to Watch Out For
Real estate scams are incredibly varied. Con artists can pose as homebuyers, real estate agents, home inspectors, lenders, or landlords. They can target buyers, sellers, owners, and renters. And they can reach out to you through advertising, email, or phone calls.
All these scams have one thing in common: using a real estate transaction as a way to get at your money. Here’s how some of the most common real estate scams work.
1. “We Buy Houses” Scam
Have you ever seen a flier tacked to a telephone pole declaring, “We buy houses” or “We buy ugly houses”? Or, if you’re a homeowner, received a postcard from a company offering to buy your house for cash in just days?
These offers are technically legitimate. However, they’re generally not a good way to get what your home is worth. Here’s how these shady cash buyers typically work.
First, they find out how much you owe on your mortgage. Then they make an offer that’s a bit above that amount, but much less than your house is worth. Often, it’s as little as half of what you’d get selling through a legitimate real estate agent.
Some so-called buyers offer a higher price — but they don’t plan to pay it themselves. Instead, they get you to sign a contract promising to sell to them. Then they turn around and try to sell that contract to someone else — for a fee, of course.
In most cases, this deal falls apart and you end up with nothing. But it can take months for this to happen, and in the meantime, you can’t sell the house to anyone else. Even if the deal goes through, the final sale price may be much less than the original buyer promised.
How to Avoid This Scam
If you want to sell your home for cash, don’t respond to an ad on a telephone pole. Seek out a legitimate company with an office, a website, and a proven track record, such as the real We Buy Houses. Ask for references, and check to make sure they’re authentic.
Even when dealing with a legitimate company, be cautious. Check to see how its cash offer compares to your home’s real value. You can find out what your home is worth through sites like Zillow or Redfin. Accepting an offer lower than your home value can be worthwhile if you’re in a hurry to sell, but you should know how much money you’re sacrificing.
Finally, always get a substantial deposit up front — say, 5% to 10% of the purchase price. Make sure the contract says it’s nonrefundable. That way you don’t risk being left empty-handed if the deal falls through.
2. Foreign Cash Buyer Scam
Some so-called cash buyers don’t actually want to buy your home at all. Instead, they’re working a variant on the old overpayment scam often seen with credit cards and utility bills. It also shows up as a work-from home scam involving check cashing.
In this scam, a prospective buyer reaches out to you, usually by email. Often, they claim to be a foreigner planning to move to the U.S. They say they want to buy your home, but they can’t speak with you in person. Instead, they recommend a lawyer to handle the transaction.
Eventually, the lawyer forwards you a cashier’s check for the down payment. But then the buyer contacts you again, saying they accidentally sent too much money and asking you to wire back the difference. For instance, if they paid $40,000, they could ask you to return $8,000.
The endgame comes when your bank reveals that the check you deposited was a fake. You’ve received no money, and the $8,000 you sent to the mysterious “buyer” is now gone. And of course, all further attempts to contact them go unanswered.
How to Avoid This Scam
There are several red flags that can tip you off to this scam. The first is that someone wants to buy your house sight unseen — sometimes when you haven’t even listed it for sale. You should also be suspicious of a buyer who:
- Claims to be living outside the country
- Can’t speak with you personally
- Volunteers lots of personal information without being asked
- Wants a quick sale
- Overpays and asks for money back by wire transfer
Avoid dealing with buyers who seem suspicious. Don’t accept a cashier’s check as payment from someone you don’t know. And most of all, never agree to return overpaid money by wire transfer — especially before the buyer’s check has cleared.
3. Home Inspection Scam
Getting a home inspection is a crucial part of buying a home — especially if it’s a fixer-upper. A professional home inspector goes over every part of the property to detect problems that aren’t always visible to the naked eye. They can also test for hazards like lead paint, radon, or mold.
But you have to be sure the inspector you hire is the real deal. Some so-called home inspectors aren’t properly qualified and don’t do a thorough job. They just give the home a quick visual examination — nothing you couldn’t do yourself — and send you a bill.
Worse, some inspectors deliberately hide problems from buyers. They’re in league with shady real estate agents who recommend their services. The inspector gets a quick payment and covers up problems that could prevent the agent from making a quick sale.
Other home inspectors do a thorough job, but not for the price they promised. They offer a low rate, then tack on lots of “extras” that add to the fee. The final price can come to as much as twice the original offer. A legitimate, thorough home inspection typically costs $300 to $500 in total.
How to Avoid This Scam
Before hiring a home inspector, always do your due diligence. Research their experience and make sure they’re certified and licensed in your state. Find out what state agency licenses home inspectors, and check its website.
Also, make it clear to the inspector that you’re expecting a full and detailed written report of the inspection. Make sure the inspector gets access to all areas of the property so they can cover everything. And insist on seeing a copy of the report personally.
Finally, get a guarantee of the inspector’s findings and ask if they’re insured. Most professional inspectors carry errors and omissions insurance in case they make a mistake. If they overlook something that costs money to fix, the insurance covers the buyer’s costs.
4. Escrow Wire Fraud
When you take out a home mortgage, you often have to make an upfront payment known as earnest money to prove your intentions are serious. This outlay typically works out to between 1% and 3% of the sale price. It goes into an escrow account until your closing, when it’s applied to your closing costs.
For scammers, this is an opportunity to get at your money. They use emails, text, or phone calls to pose as someone from your title or escrow company. They use spoofed phone numbers, genuine-looking emails, and fake websites to make themselves look legit.
Once they have you on the hook, they instruct you to wire your escrow payment to a phony account. By the time you learn at your closing that you sent the funds to the wrong place, they’ve taken your money and run.
How to Avoid This Scam
To protect yourself, always double-check any wire instructions you receive. Check the original documents from your lender and make sure the escrow account number is the same.
Be especially suspicious of any email or text that changes the wiring instructions you’ve already received. Call the phone number of the escrow or title company to verify that the instructions are genuine. And make sure it’s the company’s real number, not a number provided in the email.
When you call, ask to speak to someone who can repeat the instructions and verify the details. Until you have confirmation from a live person, don’t send the money.
5. Rental Scam
In many cities, finding an apartment in your price range can be a real challenge. Crooks take advantage of this by tempting buyers with fake rental listings on Craigslist or social media. They show photos of a great apartment at a price that looks too good to be true — because it is.
Rental scams can take several forms. Some copy a genuine rental listing, replace the landlord’s contact information with their own, and list the ad on another site. Others include the real contact information but divert the landlord’s emails to their own address. And some use photos from other listings to create a new, fictitious rental property.
Typically, rental scammers try to persuade you to make a payment upfront on a property you haven’t seen. They may ask for an application fee, a deposit, the first month’s rent, or all three. You pay the money and end up with a worthless lease.
Sometimes, the con artists actually do let you view the apartment. Many landlords keep copies of the keys in a lockbox outside that’s opened with a code. The scammer tricks the landlord into giving them the code, lets you into the fabulous apartment, and persuades you to sign a lease on the spot.
This version of the scam can victimize landlords, too. The fake landlord may allow a tenant to move in, then instruct them to change the locks. When the real landlord shows up, they’re confronted with a locked door and a tenant who thinks the apartment is theirs by right.
How to Avoid This Scam
There are several warning signs of a rental scam. A listing should around your suspicions if:
- The price seems too low for the property
- The owner or manager can’t meet you in person
- They won’t let you view the property
- They ask for a deposit or first month’s rent before you’ve signed the lease
- They ask you to send the money by wire transfer or pay in cryptocurrency
Besides being alert to these red flags, you can avoid rental scams by verifying the property owner’s credentials. Search your local property information database — usually on your city or county’s website — to find the owner’s name and contact information.
If the person showing the apartment is a real estate agent, ask to see their license. Take a photo of it and check it against the state’s division of real estate licensing. Or work with an established, reputable firm that manages multiple properties.
Finally, never pay a deposit using an untraceable method such as a wire transfer, crypto, or cash. Pay with a personal check or bank check so you have proof of the transaction.
If you’re a landlord, you can also take steps to protect yourself when listing properties. Add a watermark on all photos of the property listing your company name or phone number. That way, crooks can’t steal them to create a fake listing.
Put your name and contact info on the property itself, as well. If it’s even taken down, you’ll know a scammer is targeting you. And if you use a lockbox, don’t give the code to anyone you haven’t met.
6. Moving Scam
When you’re moving to a new home, especially if you’re relocating to a new state, hiring a moving company saves you a lot of effort. But you have to watch out for shady moving companies that don’t live up to their promises.
It’s not unusual for moving companies to charge more than their initial estimate. Often, this is because they honestly misjudged the amount of stuff you had. However, some companies deliberately lowball their estimates, then charge you twice that amount or more. If you don’t pay up, you don’t get your furniture back.
Other moving scams are even more blatant. The company gives you an estimate, takes your deposit, and never shows up at all. Not only do you lose your money, you must scramble to hire another moving company at the last minute.
How to Avoid This Scam
One way to avoid this problem is to work only with reputable movers. Ask friends and family for recommendations and get multiple quotes. Make sure companies are registered and insured, and check for complaints about them on the Better Business Bureau website.
To get the most accurate initial estimate possible, ask the company to visit your home and check out what it will be moving. Before signing a contract, read it carefully to understand what you’re agreeing to.
Another way to protect your possessions is to move them yourself. You can hire a company to pack your belongings, but load and drive the moving truck yourself. This option can save you money as well.
7. Foreclosure Relief Scam
This particularly nasty scam preys on desperate people at risk of losing their homes. The con artists offer to help them avoid foreclosure by refinancing or modifying their home loans. All they need in return is an upfront fee.
At best, these companies merely connect homeowners with mortgage relief programs they could have used on their own. But many of them collect hundreds or even thousands of dollars from victims and give them nothing in return. Their homes are still at risk. Their financial situation is worse than ever.
Worst of all, some scammers persuade homeowners to sign over the deed to their home to a leaseback company. They often end up renting the home for more than they used to pay on their mortgage. Then they lose both the home and all the equity they once had in it.
How to Avoid This Scam
It’s illegal for any company to charge an upfront fee for help with mortgage relief. Any company that does this is guaranteed to be fraudulent. Another major red flag is if the company tells you not to talk to your mortgage lender. This, too, is against the law.
If you’re at risk of foreclosure, your best plan is to work with your mortgage lender. Perhaps the company can refinance your loan or offer some other mortgage workout. You can also seek help from a HUD-approved housing counselor or a lawyer who specializes in real estate.
8. Loan-Flipping Scam
In many cases, refinancing your mortgage is a smart move. It can lower your interest rate or your monthly payments or shorten your loan term. This saves you money in the long run.
A loan flipping scam is a different matter. This scam convinces homeowners to refinance their home loans repeatedly, borrowing more each time and paying high fees and points on the loan. They end up with high payments and little home equity.
This con often targets senior citizens. They often have plenty of home equity to tap into. Some also have memory problems that make it harder to figure out they’re being scammed.
How to Avoid This Scam
Any time a lender offers you refinancing help that you haven’t asked for, treat that as a red flag. And if you’ve just refinanced your home loan and are now getting offers to do it again, that’s an even bigger warning sign.
If you are actively seeking to refinance, only work with lenders you know and trust. Lenders must disclose all fees and costs for any loan, so review these documents carefully. If you’re not good with numbers, bring someone who is to help you. And if you don’t receive the required truth-in-lending disclosure, walk away — you’re dealing with an untrustworthy lender.
9. Home Mortgage Scam
There are several different predatory lending practices aimed at homebuyers seeking a mortgage. These include excessive interest and fees, prepayment penalties, or balloon payments. Sometimes, these practices are technically legal, but they’re never ethical.
Common tactics include:
- Ignoring Your Ability to Pay. Lenders are supposed to evaluate your finances to stop you from buying more house than you can afford. But some lenders slack off in this area. They may even illegally encourage you to overstate your income so you qualify for a bigger loan.
- Inflating Home Values. Another way lenders unlawfully pump up your loan size is to deliberately appraise a home for more than it’s worth. They may work with a dishonest appraiser or physically alter an honest appraisal. Either way, you can end up underwater on your mortgage because you overborrowed based on the home’s real value.
- Bait and Switch. Sometimes a lender promises you a great deal on a home loan, such as a low interest rate or zero closing costs. But to get this deal, you must pay a large, nonrefundable upfront fee or deposit. Then the lender offers you a loan with a much higher interest rate or worse terms. If you don’t accept the deal, you lose your deposit.
How to Avoid This Scam
To avoid being scammed by unscrupulous lenders, do your due diligence. Only work with reputable mortgage lenders, and always read paperwork carefully. Make sure you understand the rates, fees, and terms before agreeing to any offer.
10. Title or Deed Fraud
When you buy a house or other property, you receive both the keys and the deed. This document grants you the title — legal right to ownership — of the property. Title or deed fraud is a form of identity theft in which someone else forges a deed to your property in their own name.
With a falsified title, the thief can borrow against the equity in your home with a new mortgage or home equity loan. Then, when they fail to make payments on the new home loan, you face the risk of foreclosure.
In some cases, the thief can even sell your property without your knowledge and pocket the profit. This most often happens with unoccupied rental properties or vacation homes. This crime leaves you and the unsuspecting buyer both thinking you own the same property.
In one particularly tricky variant of this scam, the crooks offer to help you refinance your home. But the paperwork they present you is actually for the sale of the house. If you sign it, the title legally belongs to the thieves.
How to Avoid This Scam
Fortunately, title or deed fraud is rare. It’s unlikely to happen in homes that still have a mortgage, because the lender’s name is on the deed along with your own and it would have to be a party to the sale. It’s most common with unoccupied properties, since it’s hard to sell an occupied home without the owner’s knowledge.
If you own a paid-off home or an unoccupied vacation home, keep your eyes open for signs of title or deed fraud. Warning signs include a sudden drop in your credit score, failing to receive some of your usual bills, or receiving payment instructions for a mortgage you never took out.
Even if you see no signs of fraud, it’s a good idea to check on your title to the property every so often. You can do this by searching the records at your county deeds office. If you see a name on your property that isn’t yours, investigate right away.
If a thief has borrowed money against your home, you are under no obligation to pay it back. The scammer was never the real homeowner and the lender has no legal claim on your property. To clean up the mess, call the lender and any other companies involved in the fraud, and put a fraud alert on your credit report. Then report the crime, as discussed below.
You can also protect yourself when buying a property by performing a title search. This verifies that the seller has a legal right to the property. You can also take out title insurance to cover your losses in case of any future dispute over whether your ownership is valid.
Finally, be very, very cautious with any home refinancing deal. Always read the paperwork carefully to make sure you’re not signing over the title of your home to a scammer.
How to Spot a Real Estate Scam
Although these real estate scams vary widely, they have many warning signs in common. Some of the most common red flags include:
- Unsolicited Offers. Any time someone offers out of the blue to buy your home or help you refinance, be very suspicious. It could be a legitimate buyer or lender trying to drum up business, but these tactics are very typical of scammers.
- Lack of Documentation. Whenever you buy a property, you should expect the seller to have the deed and other necessary paperwork. If they can’t provide it or demand your financial information first, that’s a big red flag.
- Lack of Professionalism. Signs that a supposed real estate investor or service provider isn’t legit include ads on telephone poles, not having an office or a website, using a free email account, and answering the phone with a plain, “Hello.”
- Refusing to Meet in Person. Any time a so-called buyer, investor, or landlord can’t meet with you in person, be on your guard. This person may not be who they say they are.
- High-Pressure Tactics. A common hallmark of any type of scam is pressuring you to act now. Scammers often warn that you’ll lose out on the deal if you don’t sign a contract or send money right away. They’re trying to stop you from consulting an expert or even thinking about what you’re doing.
- Unrealistic Offers. If a deal seems too good to be true, it usually is. That applies to the price of an apartment, the amount offered for your home, the interest rate on a loan, or the ease of avoiding foreclosure.
- Last-Minute Changes. If you’re in the middle of a real estate transaction, treat any last-minute change to the process as suspicious. Double- and triple-check to make sure it’s legit.
- Demanding an Untraceable Payment. One of the biggest red flags is insisting that you pay using an untraceable method, such as a wire transfer or cryptocurrency. This isn’t how the home buying process normally works, and it makes it hard to get your money back if you discover you’ve been scammed.
What to Do If You Fall Victim to a Real Estate Scam
If you’ve fallen victim to any real estate scam, report it as soon as possible. The sooner you do this, the better your chances are for recovering your money quickly.
The first step is to notify any companies involved in the scam, such as your mortgage service provider. If the scam involved an online ad, report it to the website where you saw the ad.
Then report the crime to law enforcement. File a police report and register a complaint with the Federal Trade Commission (FTC). Report cases of identity theft at IdentityTheft.gov. And if the crime involved the Internet, report it to the FBI Internet Crime Complaint Center.
A final place to report the scam is the BBB Scam Tracker run by the Better Business Bureau. While this probably won’t help you recover your money, it helps the BBB stop the scammers from hurting anyone else.
There are a few general precautions that can help protect you from real estate scams. First, only work with qualified and licensed professionals you trust. This applies whether you’re buying a new home, selling your current home, refinancing your mortgage, or even looking for a place to rent.
Second, protect your personal information. This is good advice for all business dealings, not just real estate transactions. Don’t give personal or financial information to anyone you don’t trust. And never send it through an insecure channel like email.
Lastly, listen to your instincts. If anything about a buyer, lender, or anyone else involved in a real estate deal makes you suspicious, take the time to check them out and make sure they are who they claim to be. Don’t let them pressure you into doing something you can’t undo.